Sky Quarterly Revenue Rises, Subscriber Growth Slows

Courtesy of Sky


The 106,000 customer additions in the latest quarter are down from 134,000 in the year-ago period, says the European pay TV giant, in which 21st Century Fox owns a 39 percent stake.

Pan-European pay TV giant Sky, in which Rupert Murdoch's 21st Century Fox owns a 39 percent stake, on Thursday reported higher fiscal first-quarter revenue and slower subscriber growth than in the year-ago period.

"As expected, we had a quieter start to trading due to [soccer tournament] UEFA Euro 2016 and the Summer Olympics, offset by a stronger September, meaning we go into our second quarter with good momentum," the company said.

Revenue for the quarter that ended on Sept. 30 rose 13 percent to £3.10 billion ($3.77 billion) as the stronger euro boosted the company's euro revenue. Overall revenue increased 7 percent when assuming constant currencies, or 5 percent on a comparable basis excluding special items. The company didn't report profit figures, but said it had a "strong start to the year" on cost efficiencies with operating costs down 2 percent.

Industry watchers have said that increasing programming costs for sports rights would put pressure on Sky's financial growth, with this year in particular seeing a hit from a new English Premier League soccer rights deal. But UBS analyst Polo Tang said that Sky's comments on cost trends were encouraging, "implying that earnings before interest, taxes and amortization may only be down modestly for the quarter despite the step-up in Premier League costs."

Sky also said that with the U.K. advertising market having been weaker in the latest quarter, the company's U.K. ad revenue declined 3 percent. It added that its business was "on track against full-year expectations."

The pan-European pay TV giant, in which Rupert Murdoch's 21st Century Fox owns a 39 percent stake, is led by CEO Jeremy Darroch.

The company signed up 106,000 new subscribers in the latest period, compared with 134,000 in the year-ago quarter. In the U.K. and Ireland, it added 35,000, down from 77,000 in the year-ago period. In Germany and Austria, Sky added 49,000 customers, down from 94,000 in the fiscal first quarter of 2015. But Italy achieved its fourth consecutive quarter of growth, adding 22,000 customers — the highest rate of fiscal first-quarter growth in four years.

Liberum Capital analyst Ian Whittaker in a first reaction highlighted the "sharp fall" in subscriber growth compared to the year-ago period. While Sky is "blaming the slow start to the quarter on the Olympics," he said "we wonder whether is a new phenomenon or has been seen historically."

Darroch on a conference call said that during the London Summer Olympics in 2012, the company saw "very similar trends," with the effect back then being "probably even bigger" given the company's U.K. presence. He said big events like the Olympics tend to take focus away from pay TV to broadcast TV.

"I’m pleased with the start we have made to the year," said Darroch. "We finished the quarter strongly after a slower start against the backdrop of the Rio Olympics and UEFA Euro 2016. "We are on track financially in a year of investment on screen. We are bringing customers the very best TV with more of the biggest Premier League matches, Europe's best box set service and more new and exclusive original drama. We are already seeing the benefit with good growth in revenues, more new customers joining us and existing customers consuming more."

He added: "Alongside this we are making very strong progress on efficiency with operating costs for the quarter lower than a year ago in absolute terms. Looking ahead, the forthcoming launch of our mobile proposition will add another major product  offering to our U.K. lineup and will give our customers the opportunity to take even more from a brand known for great customer service and quality products."

Sky has been looking at possibly launching streaming-only services in markets that it is not in currently, and some analysts have predicted Spain to be among the first such countries. But Darroch said Thursday that there was "nothing imminent" in terms of such over-the-top launches. "I get asked that question often, and what I always remind people of is just the sheer size of the opportunity we got in the markets that we are in," including tens of millions of people not subscribing to pay TV services.

Some also have been discussing a possible play by Fox for full control of Sky. Analysts at Kepler Cheuvreux recently wrote that Sky's stock price has fallen to a 45 percent discount to its historical average. The stock decline and a sharp drop in the pound compared to the dollar since the June Brexit vote means that Sky has been nearly 40 percent cheaper in dollar terms, the firm said.

Fox top executives have consistently signaled they have no immediate plans to buy full control or sell the Sky stake, and CEO James Murdoch recently signaled no major deal-making was on the horizon.

"At the moment, there is no urgency for us to do anything other than harvest value out of Sky," Fox CFO John Nallen had said before the Brexit vote. "There is no catalyst for us to say we need to change that.”

Darroch on Thursday said, "I wouldn't really attribute really much of anything at all to Brexit," signaling no major changes to subscriber demand so far. "What we have seen so far has been sector-specific" effects, he said, but added the company will keep a close eye on advertising trends.