Sky to Boost Spending on Original Dramas by 25 Percent

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Sky CEO Jeremy Darroch

The European pay TV giant, led by CEO Jeremy Darroch, has been the focus of a bidding war between Comcast and 21st Century Fox.

European pay TV giant Sky on Thursday reported higher earnings and subscriber figures for its latest fiscal year and said it would boost its spending on original dramas by around 25 percent for the current year, continuing a recent upward trend.

The spending increase follows another 25 percent increase during the just-ended fiscal year and takes the company's annual original content spending to about 500 million pounds, or $650 million, management said.

Among Sky's original series, some of them co-productions with U.S. companies, are the likes of Riviera, Britannia, Gomorrah, Babylon Berlin, Patrick Melrose, as well as its upcoming first HBO co-production Chernobyl.

Thursday's financials could be the last earnings report from Sky before it is acquired by a U.S. conglomerate, and its suitors are expected to like what the see. The company has been the focus of a bidding war between cable powerhouse Comcast and Rupert Murdoch's 21st Century Fox, which owns a 39 percent stake in the company. Fox so far hasn't trumped a $34 billion sweetened bid for Sky by Comcast, which has said it hopes to complete the takeover by October.

Sky management on Thursday said it couldn't discuss the ongoing bidding process. Asked about his future role at the company and the future of COO and CFO Andrew Griffith, CEO Jeremy Darroch on Thursday said: "We haven’t had any of those conversations. We will do that at the right time when one of the companies emerges.”

Analysts have suggested that Comcast's decision to focus on Sky and give up in a bidding showdown with Walt Disney for large parts of Fox could mean that Comcast walks away with Sky, while Disney concentrates on the other assets Fox is selling.

Sky on Thursday also disclosed financial details about Sky Vision, its unit focused on international distribution of programming. It reported full-year revenue of 200 million pounds ($265 million).

Discussing other growth opportunities, Darroch said on the earnings conference call that the company would continue to invest in production companies. Sky also said it would continue to look for opportunities to take its services to new markets beyond its core countries, namely the U.K., Ireland, Italy, Germany and Austria. It has over the past year launched streaming services in Spain and Switzerland, for example.

For the fiscal year ended June 30, Sky said its operating profit and other financial metrics rose. Operating profit rose 7 percent to 1.03 billion pounds ($1.36 billion) for the fiscal year. Pre-tax profits rose 7.6 percent, while earnings before interest, tax, depreciation and amortization, excluding new businesses, jumped 11 percent. Full-year revenue climbed 5 percent to 13.6 billion pounds ($17.9 billion).

The company signed up 510,000 new customers, which the company calls "retail customers," over the last 12 months. In the previous fiscal year, it had added 686,000. Customer growth hit 39 percent for the April-June period, taking its total reach to 23.01 million customers across Europe. In the U.K. and Ireland, Sky said it added 270,000 new customers over the full fiscal year, including 20,000 in the latest quarter. 

"It's been an exceptional year," Darroch said. "Over half a million new customers joined Sky this year, and we now have 63 million products in customer's homes as they continue to choose Sky over other providers. As a consequence, we have extended our leadership position as Europe's largest direct-to-consumer media and entertainment business."

He added: "Our strong performance reflects the execution of our strategy over an extended period of time, driving sustained growth in revenue, profits and shareholder returns. We do this by providing our customers more of the best content, world-class innovation in products and services, combined with industry-leading front-line service."

Darroch on Thursday also said originals are a key help with customer retention. Asked how Sky has reduced subscriber churn, he mentioned three factors: content, technology and customer service. Said the CEO: "A broadening content offering is really important."

He also said that the company was well-positioned for the future, whoever ends up acquiring it. Said Darroch: "We are proud that Sky is recognized globally as an outstanding business and are confident we have the right assets and capabilities to continue creating long-term growth opportunities and to capitalize on the strong position we've built."

More to come.