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BSkyB comes through with summer sub rise

Satcaster subscriber total hits 7.4 mil, income rises 11%

LONDON — Blighty’s pay-TV giant, BSkyB, has defied the skeptics by announcing better than expected subscriber growth for the summer quarter.

Analysts had forecast that the satcaster, controlled by News Corp. under attack from terrestrial digital platform, Freeview, would add fewer than 50,000 new paying customers between July and September.

But a bullish James Murdoch, who took over as CEO a year ago, revealed that 62,000 new subscribers had forked out for Sky packages taking the total number of BSkyB subscribers to 7.4 million.

Almost as encouraging for BSkyB was the high take-up of Sky Plus, the outfit’s PVR system.

Murdoch said he was pleased with figures showing 77,000 new Sky Plus subscribers in the quarter, bringing the total to 474,000. “With Sky Plus, I think it’s just a great product and the word is getting out there,” he said.

The City reacted positively to the news as BSkyB shares surged by six per cent, or 32p, to 564p, in early trading.

Revenues in the first quarter rise by 11% to $1.598 billion (£940 million). Pre-tax profits climbed by 16 per cent to $250m (£147m).

In a conference call Murdoch Jr. promised to add at least another 100,000 subscribers during the key pre-Christmas quarter.

He insisted the satcaster remained on track to reach eight million customers by the end of 2005.

Murdoch said: “We talked about a Christmas quarter that would be seasonally strong with north of 100,000 additions. Certainly, we feel reasonably good about where we are.”

Analysts welcomed the figures and said they were reassured by the fact that the new marketing campaign launched this fall, following a disappointing spring, appeared to be working.

Murdoch said initial reaction the campaign, targeting families and highlighting programs on offer other than sport and movies, had been good, and that the response so far to Freesat, launched on October 21, had been generally positive.

Three months ago the 31-year-old CEO outlined a $765 investment program aimed to bolster subscriber numbers and attract new customers to a range of price points.

This was a break with BSkyB’s traditional strategy of going all out for selling premium packages.

Murdoch said BSkyB would start to target mid-market customers during the next year by promoting packages priced around the $35 a month mark.

“We think we’ve got a range of very attractive price points. but we think there’s more pricing and packaging work we can do to make that more competitive. We won’t be looking at a $17 (£10) package,” he said.

BSkyB aims to reach 10 million subscribers by the end of the decade. Today he repeated his claim that that pay-TV in the U.K. would echo the U.S. experience eventually reaching 80 per cent penetration; it now stands at 43 per cent.

He added: “This technology is very much in the beginning. We see penetration rising to 80% in the long term. It’s that opportunity that we’re focusing on.”

On the question of broadband-based video-on-demand services beginning to emerge in the U.K. Murdoch played down the threat.

He said: “It’s something we expected. The film business in the home is very competitive. VOD and DVD are part of what the studios are pushing, but we believe it is very early days for VOD.

“Our focus is putting together a tremendous movie package at great prices and we aren’t losing much sleep over this.”

With at least one of BSkyB’s movie contracts with the Hollywood studios being renegotiated Murdoch said as other home media started offering movies to paying customers, he would expect the studios to drop their prices.

“We’re always determined to get the right prices but when those products are exploited in other distribution outlets that has an impact on value.”

On the subject of a new encryption deal with ITV, Blighty’s most watched private web, due to expire this month and said to be worth $120m to BSkyB, Murdoch said it was important for ITV’s regional advertising sales and copyright protection.

The BBC’s channels have opted out of BSkyB’s encryption system. As ITV continues to cut costs, the web is expected to follow suit.

The BSkyB figures came on the same day as the company’s AGM, which last year made headlines when investors protested against the appointment of James Murdoch, accusing BSkyB chairman Rupert Murdoch of nepotism.

Today’s meeting was a more relaxed affair as a controversial share buyback scheme, tightening the Murdoch family’s grip on BSkyB, was passed.

Oddly, both Murdochs declined to speak to reporters at the event. This was a departure with precedent and interpreted as a sign of sensitivity over News Corp’s recent attempts to stop Liberty Media increasing its stock in the conglom.

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