BSkyB reports profits after tax up by 75% to £322 million on revenues of £3,656 million and sets out a strategy to reach 10 million subscribers by 2010. Interactive revenue is up 41% to £307 million. The company plans to launch its free satellite service and a new version of the Sky+ digital video recorder in October 2004. However, the market reacted negatively and the share price fell nearly 19%, wiping around £2 billion off the value of the company on the day. BSkyB reported profits after tax up by 75% to £322 million on revenues of £3,656 million and set out a strategy to reach 10 million subscribers by 2010.

British Sky Broadcasting Group plc, the UK satellite television operator, announced total revenues up 15% to 3,656 million, operating profit up 65% to £600 million and profit after tax up 75% to £322 million.

Total interactive revenue including betting increased by 41% from £218 million to £307 million, just short of the £312 million earned from advertising. The vast majority of BSkyB’s revenue comes from direct to home satellite subscriptions, representing an annual income of £2,660 million, with an additional £215 million coming via cable subscribers.

The company revealed that it aims to launch its previously announced free satellite offering in October 2004, which it sees as an important route to the acquisition of new subscribers.

At the same time, it will launch a new version of Sky+ with a 160Gb hard disk with 2 USB ports intended ‘for future expansion’. The new box has capacity for around 80 hours of video and will be available for £399, a significant premium over the base product.

Subscriber growth slows
BSkyB’s share price fell sharply immediately after the announcement and closed nearly 19% down on the day, as subscriber growth failed to reach the most optimistic city forecasts. The company added 81,000 subscribers in the last quarter reaching a total of 7.4 million. It needs an average of 100,000 net additions per quarter to reach its objective of 8 million subscribers by the end of 2005 but says it is still on track to meet this target, with an annual average revenue per subscriber of £400, although it says profitability rather than average revenue will be key.

Five year plan
Sky has set out new targets to reach 10 million subscribers by 2010, with the aim that 30% will have more than one Sky set-top box and 25% will have a Sky+ digital video recorder. Currently, only 4% of subscribers have multiple set-top boxes and 5% percent have Sky+.

Projections for long-term potential growth are based on the evidence of other television markets, particularly in the US; demographic factors including generational attitudes to pay television; and current and prospective technological advances such as the Sky+ digital video recorder and the company’s recently announced plans to introduce high definition television.

There will be a £450 million programme of additional capital investment in infrastructure over the next four years to support growth. This will include further investment in resilient technical facilities to provide business continuity protection and customer relationship management to support the projected 10 million subscriber population.

Sky says it will increase marketing expenditure by up to 50% and focus on raising the rate of subscriber growth by addressing key barriers to consumer take-up. This will involve a number of measures, including re-introducing the Sky brand with a softer less hard sell image.

Reporting on the second year of positive earnings since the launch of Sky digital, James Murdoch, chief executive said: “The framework that we are setting out today is one that is designed not only to ensure sustained and substantial profitability for the business, but also to position the Group to continue to be a dynamic leader in the rapidly evolving UK digital television sector.”

Currently 43% of households in the UK and Ireland have pay television, but the company believes this will rise to round 80% in the long term, implying that a further 10 million homes will take subscription services. BSkyB project that the prospect of analogue switch off will initially stimulate the free to air digital market but that there will be a long term migration to pay television, reaching equilibrium in around 15 years.

Interactive revenues
Sky Active revenues increased by 15% on the comparable period to £116 million. This was due to a combination of increases in retail revenues through SkyBuy, third party betting, revenues from interactive advertising, premium rate telephony revenues and platform access fees paid by third party broadcasters and interactive service providers.

SkyBet revenues increased by 63% on the comparable period to £191 million, driven mainly by the 85% increase in the total number of bets placed across all platforms. Consequently, betting costs, which include payouts, duty, levies and taxes, increased by £67 million to £175 million.