Mathew Horsman on the rise and rise of BSkyB

From money-losing albatross around the neck of media mogul Rupert Murdoch to the country's most profitable television company in five scant years. That is the story - at least so far - of BSkyB, the dominant pay- TV broadcaster, which is now racking up profits of pounds 700,000 a day.

Whatever you think about its powerful position in the marketplace, about which more later, this company has emerged as a serious money-maker. If you had bought shares for just over pounds 2.50 each in December 1994, just after the company floated, you'd have doubled your money by this week, when the shares hovered at an all-time high of nearly pounds 5. That's a return of 100 per cent over 18 months, or an annualised rate of 66 per cent. Compare Sky's record with the broadcasting and publishing index, which has grown just 24 per cent since December 1994.

You might say there is no great surprise in this, and that anybody whose business it is to follow media stocks would have picked BSkyB from the start of its life as a publicly quoted company. After all, here is the television service with the best sport, the best films and the most aggressive marketing team in the country. Of course it will outstrip the competition.

But no. Consider this selection of comments from the national press, taken at random from editions published just before the BSkyB flotation. "This is not a share for small investors." Or how about "this valuation is derived from a combination of a computer programme and a crystal ball." And my personal favourite, taken from the pages of the Independent, "this is not so much an investment, more a leap of faith."

Consider, too, the valuations of City analysts, some of whom thought the company was worth no more than pounds 3bn, tops. In the event, its value exceeded pounds 4bn from the very start of its life as a private company, and now tops pounds 8.2bn.

Speaking of which, 8.2 is a rather nice number - and happens to be the amount, in millions, that BSkyB chief executive Sam Chisholm could make out of "notional" shares awarded to him prior to the float. Add to that another pounds 1.2m from a bonus scheme and the better part of pounds 400,000 in salary, and you get the picture of a successful media mogul (even if he still works for someone else).

Right-on capitalists will be quick to point out that Chisholm has also made plenty of money for his shareholders. True. And he has the millions to prove it.

And it must be remembered, even if the Office of Fair Trading doesn't like to admit it, that the stellar rise of BSkyB was prompted in large part by its near-dominant position in the pay-TV market in the UK. The company has the only workable encryption system (which scrambles and unscrambles signals to ensure that only those who pay can watch), and has a stranglehold on the satellite transponders used to broadcast to homes and to cable heads. Through long-term deals with Hollywood studios and exclusive arrangements with sport organisations, Sky has the only programming people are willing to pay to see.

Just compare what is available from Sky with the kind of shows on offer elsewhere in the pay-TV environment. Who else gives you top Hollywood movies before they show on ITV or Channel 4? Who else gives you Premier League football matches? So maybe you have to put up with a few duds in the package (Sky Soap, or the improving but still lacklustre Sky News), but at least you can be sure of a good evening's entertainment.

And this is the key. All of this is only available from Sky. Sure, your local cable operator also shows movies and sport. But guess where the cable companies get it? Straight from BSkyB, of course.

Unbelievably, the OFT last week cleared BSkyB, barring a few modest changes to the terms under which it provides its channels to cable companies and to the pricing of its encryption system. On its dominant position in the market for satellite space, the OFT passed the buck to Europe, where the Commission is expected to review the situation. On the long-term arrangements with the Premier League, a cartel of top football teams, the OFT will pursue the matter in court.

That's it. No reference to the monopolies authorities to determine exactly how dominant the company is in what is now a pounds 1bn market. Chisholm must have been delighted.

So what about the future? The growth of the company has given it the heft to finance a brave new entry into continental Europe, through a joint venture with Leo Kirch, the Bavarian mogul. Next year, or maybe in 1998, BSkyB will launch a digital satellite service, at huge cost, to entice current subscribers off analogue services and onto new set-top boxes offering up to 200 channels. The big question is: will BSkyB dominate digital as it has clearly dominated analogue? Chisholm and his senior executives will certainly hope so, as they count up the bonuses to come.

All that remains to decide is whether the digital age will really be as profitable as everyone in the industry apparently believes, and whether the European Commission is going to be as compliant about BSkyB as the OFT and the present government (fearful of Mr Murdoch in an election year?) have been. Those are the risks that remain for BSkyB shareholders. The rewards? Well, just ask Chisholm and the boys at Isleworth headquarters, where the share price flashes daily on a thumping great electronic billboard, a constant reminder to them and lucky shareholder-employees of how quickly it can all mount up.

News
Jennifer Lawrence was among the stars allegedly hacked
peopleActress among those on 'master list' of massive hack
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Voices
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv
voicesIt's cowardice to pretend this is anything other than an invasion
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
people'It can last and it's terrifying'
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Arts and Entertainment
The eyes have it: Kate Bush
music
News
Fifi Trixibelle Geldof with her mother, Paula Yates, in 1985
people
News
i100
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Media

Marketing Executive / Member Services Exec

£20 - 26k + Benefits: Guru Careers: A Marketing Executive / Member Services Ex...

Trend Writer / Copywriter

£25 - 30k (DOE): Guru Careers: A Trend Writer / Copywriter: Retail, Design and...

Business Development Manager / Media Sales Exec

£28 - 32k + Uncapped Commission: Guru Careers: A Business Development Manager ...

Digital Marketing Assistant

£17 - 27k: Guru Careers: We are seeking a Digital Marketing Assistant to join ...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor