B'band helps BSkyB Q3, but comes at price

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LONDON -- The addition of new broadband services is helping satellite broadcaster British Sky Broadcasting retain customers and lower churn but added costs cut into pay TV giant's first-quarter net profit, CEO James Murdoch said Friday.

In the first quarter of its financial year, Sky reported net profits of £116 million ($220 million), down from £140 million for the same period a year ago, with revenue up to £1.2 billion ($2 billion) for the three months ending Sept. 30, compared with £966 million in first-quarter 2005.

Earnings before interest, tax, amortization and depreciation totaled £224 million ($428 million), down from £239 million a year ago.

Murdoch said Friday that the launch of the broadband service impacted headline profits and average revenue per subscriber (ARPU) in the short term, but told investors during a conference call that he expects "strong growth" in ARPU once the terms of a significant number of discount entry-level packages expired.

Murdoch said that more than 1 million customers have registered for the new broadband Internet services that launched this year and that 74,000 customers thus far have been connected to the service. BSkyB's broadband network now reaches about one-third of the country. The service gives new and existing Sky customers access to high-speed Internet services and telephony.

"It's very early days, but we are very encouraged by the start, we do feel good about it," Murdoch said about the impact of added broadband and telephony services to customer satisfaction.

During the quarter, Sky added 82,000 net customers, bringing its total subscribers to 8.3 million, compared with 7.8 million a year ago.

Customers taking Sky's premium high-definition service was up 58,000 during the quarter to 96,000.

Advertising revenue for the quarter was 4% lower than the comparable period at £78 million ($148 million), reflecting the "challenging conditions in the general television advertising sector," Sky said. Full-year advertising is forecast to fall 7% for calendar 2006.

Merrill Lynch analyst Julien Roch said the results were above expectations but said there were doubts about the costs related to the broadband enterprise.

"These good subscriber results (both broadband and television) reinforce our argument that broadband can create some value on a stand-alone basis but, more importantly, than it can reinvigorate the core business thanks to the attractive consumer proposition it represents," he said in a note. "As BSkyB did not detail the cost of broadband this quarter, we do not know where the (3% operating profit) miss comes from."
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