Sky ups prices, market worried

Sky is unexpectedly increasing its subscriber prices in the UK. Normally any price rise happens in September but the hike comes just 6 weeks after the broadcaster agreed to pay the Premier League £4.2 billion for a share of the TV rights.

The all-important ‘sports’ bundle will cost an extra £1 (to £47) a month, while the ‘family’ package rises by £3 to £36 a month.  The new prices will be levied from June. The ‘Sky Original’ bundle (which is sensitive for Sky Sports customers buying through the minimum to get to sport) has not been affected.

Investment bankers Jefferies put out an immediate note for client, headlined “Rearguard Action” and saying that Sky was fighting to convince the market that it can recover next year’s £600 million extra in Premier League costs. The bank says it is worried that in terms of Sky’s financials it will struggle to grow its British earnings through the next two Premier League rights cycles, which translates as 8 years.

“But operating leverage is leaking away. Last month’s PL auction was a sobering illustration of Sky’s continuing reliance on exclusive football content. Cost inflation is not limited to football. Sky faces increasingly credible OTT challenges in entertainment and movies. Over time this could translate into more competition for third party rights, and greater urgency to develop content in-house on a much larger scale. As the treadmill gathers pace, we expect cost inflation to overtake capacity for raising prices,” says the bank’s note.

Even more damaging perhaps is Jefferies’ comment that Sky is now increasingly reliant on its German and Italian divisions to deliver growth, and this growth was by no means assured.

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