Bank warns on BSkyB numbers

Not everything in the BSkyB garden is rosy, implies Sarah Simon, media analyst at Berenberg Bank. She says that there’s much to worry about in the broadcaster’s latest quarterly numbers, and in fact maintains a ‘SELL’ note anticipating a fall in BSkyB’s share price.

One of her observations concerns Sky’s ARPU which she says has stayed flat, and she says is not helped by the merging of core DTH numbers and “subscribers” to Sky’s NOW TV on-demand offer. “The ARPU on [NOW TV] is so much less than on [DTH] that these figures are virtually meaningless to us now.” The bank goes on to ask why ARPU is staying stuck (at £569 p/a) over the past year, despite a September price increase, 800,000 new ‘paid for’ subscription products and movie rentals that more than doubled in the period.

“So with all this good news, what is going on?” Simon asks. “If we take just the price increase, which management has previously indicated is worth c2 per cent to retail subscription revenues, then one month of this applied to the Q413 ARPU would suggest an ARPU of £573, before the effect of either a) or c). Rather, we have flat ARPU. This implies that discounts are rising, or customers are spinning down (dropping programming tiers, or perhaps switching from DTH to NOW TV).”

Moreover, she is concerned that cost inflation in programming acquisition is a reality, and will become worse as 2013-2014 evolves. First up are the UEFA television rights for the Champions League soccer. Bids are due by November 5th, and the bank expects the winning bid to have to pay extra for the rights which have not risen since 2008.  Currently the UK’s free-to-air broadcaster ITV pays about £160 million and BSkyB about £240 million to share the rights to the Champions League coverage. Talk of that sum exploding to nearer €1 billion for the three-year window are not excessive.

This sort of sum will hurt Sky’s bottom line.

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