All eyes on BT, for BSkyB numbers

BSkyB’s Q1 numbers are out on Thursday and all eyes will be looking for the impact of BT Sports and its competitive challenge to Sky. Investment bank Berenberg, in a report to clients, say that while the market has been well aware of the competition from BT, “the actual effect on BSkyB numbers will only now become visible”.

To add to this risk to a normally buoyant BSkyB, Sarah Simon, senior analyst at Berenberg, suggests that this quarter’s broadband numbers are likely to be bad. “We expect BSkyB to report broadband net additions of 76k, down from 102,000 in the same period last year. We previously had a higher forecast than this given that last year the company had a weak Q1 2013. Indeed, in Q1 2013 the company talked down broadband net additions in the pre-close round-up, noting that there were lead time delays from BT Openreach caused by a high level of bad-weather-related faults which were prioritised over new connections and thus affected new connection volumes.”

Simon continues: “Whatever the reason, BSkyB’s Q1 2013 broadband net additions were undeniably weak – down 32 per cent yoy – which should have created the basis for an easy comparison (unless the market is slowing very fast, which we do not see). Meanwhile, since last year, BSkyB has launched broadband in Ireland, creating scope to sell triple play and standalone broadband to a further 1.6 million homes in that market. All things being equal, one would therefore expect BSkyB broadband net additions to be up yoy.”

“Instead, we suspect that BSkyB’s share of UK DSL and LLU additions to have dropped to around 35 per cent in calendar Q3 (fiscal Q1), suggesting that BT has taken substantial market share during the period: exactly the result it has been aiming for. Despite the benefit of additions in Ireland, this suggests that BSkyB will add less than 80,000 broadband customers during the quarter. We note that the Premier League did not start until mid-August, while the Aviva Rugby started even later than this. In other words, we do not think that calendar Q3 necessarily shows the full impact of the BT strategy, and things could get worse in calendar Q4. We also note that BT has held back on using its first picks, meaning that the quality of matches that it shows should actually improve as the season progresses,” says the bank.

”We note that the Champions League rights auction is now in process, with bids due in by November 5th. Contrary to popular opinion, we have confirmation from TEAM, which handles the bidding process, that the auction is closed bids. We believe that BSkyB will fight to retain the rights, indeed that it may look to take total exclusivity (ITV has one match/week). In order to provide a broad audience for one match, it is possible that Sky would look to broadcast it on a channel within the basic package. Indeed, we note that there has been press discussion of a new men’s channel planned by Sky, which could be an ideal vehicle for Champions’ League, were the rights to be secured. With the last Champions’ League deal closed at c£400 million for three years, with BSkyB paying around £80 million per season and ITV just over £50 million pa, we expect substantial cost inflation this time around.

“The last deal, struck in 2011, was broadly flat on the previous one, implying that UEFA has not seen any cost inflation for six years. Compare that with the Premier League which saw 70 per cent cost inflation in the last deal: we expect UEFA to benefit this time around from competition between BSkyB and BT, which was not the case last time.”

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