The market expects BSkyB to make significant price cuts to its own Broadband pricing structure with some sources stating that the cuts will be a “market-changer” as far as the two media giants are concerned.
Sarah Simon, a senior analyst at Berenberg Bank in a ‘Flash Note’ to the bank’s clients early on June 10th, stated: “In our research, we have previously indicated that we thought the effect of BT Sport on BSkyB would be a) slower growth in broadband and telephony, b) pressure on the non-premium portion of BSkyB’s customer base, c) a need to spend more on above-the-line marketing and customer retention, d) rising sports rights costs (Champions League auction will start in Q4 this year), e) pressure on commercial (pubs and clubs) revenues, and f) pricing pressure. In respect of the latter, we had assumed that BSkyB would not be able to increase retail prices in September 2013.”
The bank’s note continues, saying that every £2.50 reduction in price would equate to a 5 per cent downgrade to BSkyB’s profit before tax. “ Were there to be price cuts on television services (e.g. HD), the magnitude of the impact could also be substantial. If HD pricing were to be cut in half, that would imply an 18 per cent cut to our 2014 forecasts,” says Simon.
Berenberg says it is not changing its forecasts just yet preferring to wait for official announcements from Sky. But it also “makes sense,” it says, “for BSkyB to hit BT hardest in telecommunications where it would hurt most.”