BSkyB's Q2 is all over the map


LONDON -- Satellite TV provider British Sky Broadcasting reported mixed quarterly results Wednesday as higher churn, slowed subscriber growth and the costs of growing its broadband business affected its financials.

CEO James Murdoch played down speculation that he was planning to leave the satcaster this year to take a job at father Rupert Murdoch's News Corp., which controls BSkyB.

"I have said publicly and I will do so again, I have no plans to go anywhere right now," he said. Asked to confirm whether he will remain in place until 2010, he said it was for the BSkyB board to decide his tenure.

The satcaster, which operates Britain's biggest pay TV platform Sky Digital, reported a fiscal second-quarter profit decline of 3%, from £134 million a year ago to £130 million ($253.5 million). Revenue rose slightly from £1 billion to £1.2 billion ($2.3 billion).

Total revenue for the first half of the satcaster's financial year were £2.2 billion ($4.3 billion), up from £2 billion at the half-year stage a year ago, with profits down from £274 million to £246 million ($479.6 million).

Overall net customer additions for the latest quarter came in at 183,000 compared with 215,000 a year ago. Total subscribers stood at more than 8.4 million at year's end.

In a sign of increasing competition from free-to-air digital platform Freeview and other digital players, BSkyB's churn rate -- the percentage of customers who cancel their subscriptions -- rose to 11.9% for the three-month period, considerably higher than the satcaster's stated target of 10%.

The churn rate also topped analyst forecasts of 11% and came during what is traditionally the satcaster's strongest quarter, leaving analysts concerned.

"Shareholders had better hope that this increase in churn proves temporary," said Simon Wallis, media analyst at brokers Collins Stewart. "The Christmas period should actually be a seasonally low period for churn, and with Sky's subscriber base reaching 8.4 million, it is an increasingly critical variable to Sky's valuation," he added.

Media analyst Bridie Barrett at ABN Amro also said that the churn could result in "near term concerns."

Murdoch defended the churn results, saying they reflected a new policy to focus on high-value customers instead of those who take lower value introductory offers. U.S. satellite TV firm DirecTV Group also has focused on this approach.

The strategy switch prompted 27,000 subscribers to cancel their BSkyB service, but this was a one-off, Murdoch said. Discounting them, underlying churn was 10.6%, he said.

"So we're within striking distance. It's a matter of a few quarters. We don't see any reason why we shouldn't be able to get down to churn of 10%, or past that," he said.

Although subscriber growth has slowed, Murdoch said that customers were trading up to the higher value Sky packages as well as such services as DVR Sky+ and high-definition boxes.

Sky said it had connected 193,000 broadband customers in the six months ending Dec. 31 and that it had 259,000 activated users by Jan. 28.

Sky's high-definition TV service is now in 184,000 homes, up from 96,000 at the end of September, while more than 2 million homes now have Sky+.