Sky Deutschland disappoints in Q3 results

Shares drop as analysts speculate on competitive future

COLOGNE, Germany -- Dark clouds continue to shadow Rupert Murdoch's German pay TV experiment, Sky Deutschland -- which published disappointing Q3 results Thursday.

The pay TV group booked a net loss of €116. 7 million ($175 million) in the third quarter as revenues fell 13% to €208.5 million ($312 million). It's hard to see a silver lining in the figures, which show Sky's net loss for the year at €562.5 million ($843 million) and direct subscriber numbers at 2.43 million, only slightly above levels at the same time last year, when the company was called Premiere.

Shares in Sky Deutschland opened down more than 8% on the figures, which were worse than most analysts had predicted. The stock was up and down all morning as investors sought to divine the company's future. Murdoch's News Corp. holds a 40% stake in Sky Deutschland.

Company CEO Mark Williams is holding to his original prediction that Sky Deutschland will break even on a cash flow and EBITDA basis in Q4 2010, and will book net profits from 2011 onwards.

Williams has lowered the hurdle for profitability, saying Sky Deutschland can break-even with 2.8 million subscribers in Germany, not the 3 million to 3.4 million original forecast. Sky is earning more per subscriber than it used to -- around $38 a month -- hence the lower figure.

But analysts are skeptical that Williams, who helped turn Murdoch's Sky Italia into a money machine, can do the same in Germany.

Jan Christian Gohmann, with state bank NordLB, is one of many saying Sky will be hard-pressed to replicate its success with pay TV in Italy and the U.K, citing Germany's more competitive market.

Sky Deutschland is fighting for subscribers against dozens of free-to-air and cable networks as well as aggressive new players such as Deutsche Telekom. The telco giant has been targeting Sky's core audience -- German soccer fans -- with its IPTV offer Liga Total. Telekom expects to have close to 1 million IPTV subscribers by the end of the year -- customers not paying Sky for their soccer fix.

German free-to-air networks RTL and ProSiebenSat.1 are also crowding into the pay TV space, with VOD and similar subscriber-based offerings.