BSkyB: Subdued sub growth expected
July 22, 2013
By Chris Forrester
On July 26th BSkyB will unveil its latest numbers, but the market is not expecting much. Investment banker Morgan Stanley anticipates that subscriber growth will again be “subdued”, and echoes what is now a consensus in saying that sports rights inflation will impact BSkyB’s cost of programming, and thus its bottom line. Nevertheless, most observers see BSkyB adding around £100 million to its pre-tax profits, and taking them above the £1.3 billion mark.
But the bank’s report to clients has other worries: One such concern is Sky’s current – and intensive – marketing campaign for fibre connections. “The aggressive fibre campaign by BSkyB launched in the last two months sits uncomfortably with its previous assertion that its customer base was interested in price rather than speed. BT’s wholesale prices for fibre are unregulated and likely to remains so given Ofcom’s recent statements in its Fixed Access Markets Reviews.”
The bank continues: “The excitement over BT Sport has calmed down a bit with the product now being widely seen as a broadband retention tool for BT rather than a broader threat, alongside YouView, to Sky’s pay-TV subscriber base. However, there will be plenty of opportunities for the market to revisit this view in the next few months of what Sky CEO Jeremy Darroch describes as a ‘noisy summer’. BT Sport launches on August 1st, the first EPL matches are on August 17th and Sky’s closely scrutinised Q1 numbers will be in early November. In the background we have the possibility of more content deals at BT Sport, a possible link up with a movie provider like Lovefilm or Netflix and a resolution of the CAT appeal.”
Morgan Stanley is not optimistic on an early bid emerging from 21st Century Fox for the 60 per cent of BSkyB that it doesn’t already own. “Fox has just been demerged from News with $8 billion in cash and $4 billion of annual free cash flow. News had withdrawn its bid for Fox in July 2011 after the phone hacking scandal. Hopes that it might be able to overcome residual regulatory measures and political hostility to renew its bid have not been helped by further adverse newsflow,” says the bank.