Sky Germany: Rupert’s pride and joy

Brian Sullivan, CEO at Sky Deutschland, is doing rather well at his new Munich home. A long-term News Corp staffer, with a 13-year solid reputation built at BSkyB, he has been in post at Sky-D since January 2010. He inherited a subscriber base of 2.4 million, and a reputation that German viewers were somehow different from the rest of the world and that converting them from a huge portfolio of ‘free’ channels to pay-TV would be difficult.

Sullivan strongly disagreed with this theory, and has since proved that by solving problems – some of them challenging – one by one would convince German viewers that pay-TV had value and merit. Plus, of course, having the right mix of programming!

For Germany this means football. And then HDTV, and DVRs, and a solid customer service operation. Getting these ducks in a row has led to steady progress in subscriber growth, ARPU, lowering churn and revenue progress. From 2.4 million subs in 2009, the following years have seen net additions of 183,000, 359,000, 351,000 and the latest quarter-year results of 42,100 taking the grand total to 3.4 million. Put another way, Sky-D has moved from a struggling 10.3 per cent penetration in 2008 and a massive churn rate of 23 per cent, to a much healthier picture today.

Football, said Sullivan, generated a “positive effect” on sales, and this beneficial impact is expected to continue from this coming season’s exclusivity over games. In readiness for the fortconming season, Sky-D will add a ‘Sky Sports News HD’ app later this summer, delivering non-stop sports news to iPads and tablets.

Behind the scenes, Sullivan and his team have trimmed costs considerably and boosted operating margins in the process. This Q1 set of numbers has seen Sky Deutschland move into a slim operating (EBITDA) profit, and no doubt Sullivan is celebrating lavishly with a pizza. Sky-D is still some way off from real profits, but the building blocks to further success are firmly in place.

This is why News Corp is increasingly noticing what’s happening at Sky-D. Rupert Murdoch has recently increased News Corp’s stake in Sky-D to 53.8 per cent, and the market expects this to control to increase, perhaps to complete ownership. After all, what’s to stop Sullivan’s steady growth? And besides, Sky-D has no regulatory problems, is not a dominant player in the market, has 100 per cent of the TV rights to Germany’s football leagues and more than useful arrangements in place to wholesale its programming to many of Germany’s leading cable companies.

Sullivan’s service still lags behind BSkyB and Sky Italia, but there’s not a lot that can go wrong. He can now feel much more confident of – over time – getting closer to BSkyB’s 56.8 per cent of the UK subs market, or passing Sky Italia’s 35 per cent, or perhaps even France’s 59.2 per cent of homes which subscribe to pay-TV.

And shareholders seem to agree. At one point on Friday May 3rd its shares hit €5.01. After some profit taking they slipped back to close at €4.85. Within the past year they have been as low as €1.78. No wonder Rupert is happy!

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