BSkyB: BSkyB looks recession proof. The pay-TV operator continues to defy sceptics and an exceptionally weak economy. It claimed that when budgets were strained, Britons would find the cost of Sky more attractive than paying the same amount to take the average family to the cinema. Quite so. Sky is pulling in, and retaining, customers at the fastest rate in almost five years.
While rivals are throwing targets out of the window, Sky is on the verge of hitting crucial milestones on some of its boldest bets.
To start, broadband profitability is on the horizon. Sky entered the competitive internet market three years ago with a big bang, offering its customers broadband for free – at a considerable cost to it. At the time, few believed Sky’s estimate that it could breakeven in 2010, or anywhere near. But the unit’s operating loss the quarter that ended in June was £22 million, the lowest since launch. The operator is now guiding for a profit within two years.
Then there is High Definition television. Its allure should push Sky’s overall subscriber count to 10 million during 2010. Again, that’s a target few took seriously when James Murdoch, now Sky’s non-executive chairman, announced it two years ago. But Sky now has 9.43 million customers.
A 70 per cent slash in the cost of a HD set-top box earlier this year has increased the selling momentum, particularly of the premium Sky+ and Sky+HD packages. Since the price cut, some 90 per cent of Sky’s 432,000 new customers took one of them.
Content may be king, but innovation is the secret to Sky’s success. While aggressive in pursuing premium programmes, the operator’s edge comes from finding new ways to knit together broadband, telephony and television products. Next year the HD offering is set to be linked to broadband – improving video-on-demand.
The relentless innovation helps explain why few investors are overly concerned about adverse regulation. The UK media watchdog is trying to reduce Sky’s dominant position by forcing it to wholesale its sports and movies channels to rivals at regulated prices. Sky argues it shouldn’t have to subsidise less efficient rivals and vows to fight the move in the courts. But even if it loses this fight, Sky’s willingness to bet big should keep it standing out from the crowd.
