Goldman turns on Sky and sends shares lower

Media analysts at Goldman Sachs stuck the knife into Rupert Murdoch's BSkyB yesterday, sending shares in the satellite broadcaster tumbling. Its move raised eyebrows in the City because the US investment bank is acting as an adviser to the cable giant NTL in its battle with Sky over control of ITV.

Goldman Sachs published a bearish research report about Sky's prospects, causing worry among investors that it might struggle to meet its earnings forecasts. Sky shares fell 6p to 525p.

A spokesman for Goldman Sachs stressed there was no conflict of interest in what the bank had done, because the department that publishes such research is separate to that which advises corporations such as NTL. The Goldman research note said: "We are increasingly concerned with Sky's need to invest to cope with a more competitive environment, and the payback of its broadband investment... These worries are accentuated by reports of comments by Rupert Murdoch, Newscorp chairman, that broadband losses could push 2007 operating profits to £650m versus our £785m forecast."

Goldman downgraded its price target on Sky shares from 640p to 540p. Newscorp is Sky's biggest shareholder.

The rapid growth of Freeview has been a major thorn in Sky's side in recent years. To hold on to its customers, it has had to invest heavily, most recently in broadband and by taking an 18 per cent stake in ITV, which blocks the ambitions of the rival NTL to buy the free-to-air broadcaster.

Managing possible conflicts of interest is key to making money from investment banking these days and Goldman Sachs is considered among the best in the business at it. The bank has received fees from Sky for various services over the past 12 months and said it hopes to do so again in the near future.

In the past, Goldman has had a very close relationship with Sky. It advised Sky on its flotation in the 1990s and the bank's former chief operating officer, John Thornton, used to sit on the satellite group's board.

Earlier this year, Goldman's private equity arm tabled its own takeover bid for ITV. It is expected to make tens of millions of pounds in fees from advising NTL on its present bid for ITV.