Sky Earnings, Subscribers Grow in Latest Quarter

Courtesy of BSkyB
Sky CEO Jeremy Darroch

The results of the pan-European pay TV giant, in which Rupert Murdoch's 21st Century Fox owns a 39-percent stake, exceed expectations as its CEO speaks of a "strong" start to the new fiscal year.

Pan-European pay TV giant Sky, in which Rupert Murdoch's 21st Century Fox owns a 39-percent stake, on Wednesday reported better-than-expected fiscal first-quarter results.

Operating earnings for the quarter that ended on Sept. 30 rose 10 percent to $579 million (£375 million). Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 7 percent, while revenue rose 6 percent to $4.30 billion (£2.79 billion).

The company, led by CEO Jeremy Darroch, signed up 134,000 new customers in the latest quarter, up 7 percent from the year-ago period. In the U.K. and Ireland, it added 77,000, the highest growth in four years. That included 43,000 new TV subscribers. In Germany and Austria, Sky added 94,000 customers, but in Italy, it lost 37,000.

Sky ended September with 25.34 million total customers, including 12.08 million U.K. and Ireland, 4.69 million Italian and 4.37 million Sky Deutschland retail customers.

Darroch lauded the company's "strong start" to the new fiscal year. "We have made a strong start to the year with customers responding well to the quality and breadth of our content, products and services," he said. "As we continue to place customers right at the heart of our business, we are focused on offering the very best content at the same time as anticipating customers' evolving needs, delivering the programs that they love across multiple platforms and devices."

He added: "Our investments in content are driving a great performance onscreen, with highlights this quarter, including record viewing of Sky Atlantic in the U.K., of the Bundesliga in Germany and the X Factor in Italy. We are building scale in our own world-class original content, as well as securing key rights including multi-year deals with Disney and SANZAR southern hemisphere rugby."

Asked about telecom giant BT's deal for Champions League soccer and how it has affected Sky, Darroch on an earnings conference call said: "I think you can see from our results we pretty much sailed on." Liberum Capital analyst Ian Whittaker said that Wednesday's results are "likely to be taken well as investors were looking for possible signs of BT's impact on the business model and that has not happened."

But he maintained his "sell" rating on the stock, saying: "Our 'sell' case is not predicated on the usual 'pay TV is threatened' argument — more a concern that Sky will never get the long-term profitability needed to justify its valuation because of the pressure from increased programming costs," including for English Premier League soccer.

Asked about the importance of Hollywood studio deals after a recent extension of an output deal with Disney, Darroch said Sky continues to look to "acquire the best content from around the world" and commission original content. In the U.K., Sky has agreements with all six Hollywood majors, while in its other markets things differ for now. Extending those relationships and getting more rights across new platforms "are all priorities for us," Darroch said, calling studio deals "a core part of our business."

Sky Deutschland revenue rose 9 percent in the latest quarter as the German and Austrian unit continued to grow, but it posted another loss due to higher soccer and other rights costs.

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