Sky Q1: Subs growth nears limit?

Sky has announced its Q1 results (to September 30th) saying there were 160,000 new customers (up 51 per cent) during the quarter-year, helping to drive like-for-like revenues up 5 per cent to £3.3 billion (€3.68bn), and an 11 per cent increase in EBITDA to £582 million.

CEO Jeremy Darroch reminded analysts that it had launched OTT services in Spain, and expanded into Switzerland. Its SkyQ would launch this financial year in Italy, Germany and Austria. Sky would also be boosting its investment in ‘Sky Originals’ programming.

“Our investment on-screen to broaden our offering is delivering with viewing to Sky channels up 10 per cent year on year. Within this the first series of our home-grown drama Riviera achieved 20 million downloads, becoming our highest ever rated Original commission and Game of Thrones has become the most watched series ever on Sky. In its eleventh season in Italy, X Factor has launched to record audiences and we’re pleased with the continued progress of Sky 1 in Germany & Austria where the first episode of Masterchef series two achieved an audience of more than double last year.”

“Looking ahead, despite the uncertainty in the broader consumer environment, we remain on track with our plans and enter the busy Q2 trading period focused on delivering our clear strategy for growth.”

That future includes prospects for the 21st Century Fox absorption of Sky Europe. Sky said that if the deal – currently under examination by the UK’s competition authority – does NOT close by Christmas then it would pay out a special dividend of 10p per share. “We can now confirm that the ex-dividend date will be 11 January 2018 and the dividend will be paid on 9 February 2018 to shareholders on the register at close of business on 12 January 2018 should the Offer not have completed by 31 December 2017,” said the company.

A flash note to investors from equity analysts at Exane/BNPP said that there were worries over Sky’s progress. “More worryingly for the industry, this average TV growth pales in comparison to that generated by UK online revenues.  Online audio-visual revenues increased by 23% in 2016, reaching GBP1.7bn in value (43% 5 yr CAGR).  While ad-funded video like YouTube remains the biggest component of value, OTT subscription revenues (from the likes of Netflix and Amazon Prime Video) are growing far more rapidly and are set to take over.  This is a clear threat to traditional UK direct (subscription) and indirect (advertising) revenues.”

CCS Insight’s Paolo Pescatore expressed concern over the nett UK subscriber growth. “This was a good set of results for the company. More importantly both revenue and subscribers were up. Lack of subscriber guidance between its TV services remains somewhat of a concern . The quarter underlines the importance of cross selling services such as mobile in the UK which performed well. Increasing loyalty among subscribers is a clear strategic priority with the rollout of Sky VIP; strong start with more than a million users having signed up. Subscriber growth is becoming harder to achieve in the UK so we expect Sky to place more focus on its European operations and enter new markets.”

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