Advanced Television

BSkyB worries City

August 13, 2013

A week ago investment bank Morgan Stanley was describing Sky Deutschland as its ‘best in class’ broadcaster’.  It is easy to see why, given that Sky-D has plenty of growth headroom, 100 per cent control of German football, no problems with the regulators and a good relationship with almost all of its rivals.

This is not the position with BSkyB. Worse, perhaps, BSkyB is in a matured market with zero DTH growth, the probability of ever-rising sports costs given the strength – and deep-pocketed determination – from new rival BT.  Indeed, even standing still in terms of DTH numbers means that Sky has to find more than one million ‘new’ subs each year just to counter-balance its 10.9-11 per cent churn.

The end result is a Morgan Stanley report which suggests that BSkyB is now headed for a “more muted” period during 2013-2014 “and beyond”. The bank is blunt: “the shares look unlikely to outperform”. The bank has reduced its forecasts for Sky between now and 2016.

The bank’s report praises Sky for the progress t is making in adding ‘Revenue generation Units’ (the non-DTH extra services that Sky offers) and agrees there is growth potential in all of these triple-play services, but also admits that growth in traditional pay-TV now “looks exhausted” as a growth driver and the broadcaster might even struggle as BT and other rivals muscle in on its RGU territory.

And the bank is extremely worried that the extra cash charged by the English Premier League will spur upwards the cost of sports rights. Indeed, despite only being at the start of this season’s EPL games the fact is Sky is barely 16 months away from having to start the negotiation all over again. And in that period, every Tom, Dick & Harry sports-owner will be seeking a battle between Sky, BT and anyone else for those valuable rights. Will Al Jazeera Sport, for example, enter the bidding round?

It is also a fact that even Sky’s dependable DTH subscription core is at risk from the likes of Netflix, YouView, LOVEFiLM and other OTT/VOD suppliers. Cord-cutting is always a threat for a number of reasons. Sky must hope that with the UK now emerging from recession that it has proved itself as value for money. Its decision to invest millions a year on new (non-sports) programming is a sound move.

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