James Murdoch to Become Sky Chairman; European Pay TV Giant Reports Subscriber Gains

James Murdoch - H 2015
Courtesy of 21st Century Fox

James Murdoch - H 2015

The pan-European pay TV giant, in which 21st Century Fox owns a 39 percent stake, reports its first-half financials and customer growth for its fiscal second quarter.

Pan-European pay TV giant Sky on Friday said that James Murdoch has been tapped to become its chairman in the spring as it reported improved operating earnings for the first half of its fiscal year and subscriber growth for the fiscal second quarter that ended in December.

Murdoch, who is CEO of 21st Century Fox, Sky's largest shareholder, was previously CEO of Sky's U.K.-only predecessor BSkyB between 2003 and 2007 and then chairman until April 2012 before becoming a non-executive director on the board. In late 2014, after BSkyB acquired Fox's Sky Italia and Sky Deutschland, the bigger company changed its name to Sky, which now operates in the U.K., Ireland, Italy, Germany and Austria. Fox owns a 39 percent stake in Sky.

"Nick Ferguson, our chairman since 2012, will step down from the Sky board at the end of April after 12 years as a director," Sky CEO Jeremy Darroch said on Friday. "The entire board offers its warmest thanks to Nick for his leadership as chairman and the major contribution he has made to Sky over many years. We're delighted that James Murdoch has agreed to step into the role of chairman.James' deep knowledge of the international media industry and his passion for supporting Sky's ongoing success will make an even greater contribution to our business in the future."

On an earnings conference call, the CEO called Murdoch "a huge asset" and said he was named chairman with the unanimous support of the board. Asked if the Murdoch's appointment could lead to a new Fox offer to acquire control of Sky, he said the news shows that Murdoch and Fox remain "passionate" about Sky and its outlook.

"From time to time, there is speculation about what Fox's intentions are," Darroch said. "The management, we just don't get distracted by that. I can't speak for Fox, but what I would read into James' acceptance of the role is that he and they continue to be passionate supporters of Sky's ongoing success." What was then-News Corp. had offered to buy full control of Sky, but abandoned the bid amid the phone-hacking scandal. News Corp. later split into Fox and News Corp.

The Sky management team was focused on executing its growth strategy, Darroch added. "Without a doubt, he is the right man for the job," he said when asked if the hacking scandal at News Corp's U.K. newspaper unit, which Murdoch oversaw as chairman in the past, had caused Sky any concerns about naming Murdoch chair. "And the board has been unanimous [in] James' support, by the way, throughout his tenure at Sky." Darroch also said that Murdoch at the time of the hacking scandal put the interest of Sky  ahead of his own.

The CEO also cited Murdoch's "passion" for Sky and highlighted that he has been "consistently reelected" as a board member by shareholders. Will Murdoch's chairman role affect the way Sky runs the business? "I think you shouldn't read anything specifically into business strategy from James' appointment today," Darroch said.

"I am proud to have been asked by the board to serve as chairman of Sky, one of the world’s leading pay TV companies," James Murdoch said. "Jeremy and the team at Sky have done an outstanding job in building a dynamic and successful company. As chairman, I look forward to working with the board and management as they continue to deliver a great service for Sky’s customers and create value for all shareholders over the years to come."

Sky signed up 337,000 new customers in the latest quarter, exceeding analysts' expectations. Operating profit for the first half of the fiscal year rose 12 percent to $1.07 billion (747 million pounds), compared with 667 million pounds. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 8 percent, and earnings per share rose 10 percent. The earnings exceeded analysts’ forecasts.

In terms of retail subscribers, the company added 205,000 in the U.K. and Ireland, making it the strongest fiscal second-quarter performance in 10 years for the company. The U.K. and Ireland growth included 146,000 TV subscriber additions. In Germany and Austria, Sky added 120,000 customers, and even in Italy, it added 12,000. Analysts' consensus expectations had been for overall company customer additions of 276,000, led by 155,000 in the U.K. and Ireland, and 134,000 in Germany and Austria, with a net customer loss of 14,000 forecast for Italy.

Sky ended 2015 with 21.48 million total retail customers, including 12.28 million in U.K. and Ireland, 4.49 million in Italy and 4.70 million in Germany and Austria.

“We have had another very strong half as we continue to transform Sky, broadening our business and expanding into new markets and customer segments. This strategy is delivering today and opening up significant growth opportunities for the future,” Darroch said. “We are pursuing those opportunities with energy and purpose. Today's results show that our approach is working and customers are responding in record numbers.”

He added: “We're excited about 2016 and we start the year with good momentum. With an outstanding set of new initiatives and products for our customers, we are well positioned to deliver further strong growth and returns for shareholders."

Sky's stock rose on Friday. It was up 2 percent as of 1:30 p.m. London time.