[Satellite News 04-29-10] Broadcast industry analysts were encouraged by BSkyB’s 2010 third quarter financial results, which showed the company experiencing strong HD services growth by adding about 430,000 HD subscribers during the quarter to brings it total subscribers to 2.5 million customers.
    UBS media equity analyst Polo Tang said the report characterizes a robust market for BSkyB. “HD take-up continues to significantly exceed expectations … with broadband net additions in-line at 101,000. The [key performance indicators] are encouraging considering strong results from Virgin Media yesterday, indicating that BSkyB is not feeling the effects of any increased competition in either pay-TV or broadband.”
    Tang also highlighted BSkyB’s pay-TV subscriber net addition of 62,000, combined with a churn rate at 9.9 percent and ARPU at 503 pounds ($764.66), as exceptional. BSkyB’s pay-TV additions bring the company to a total of 9.8 million subscribers. In terms of its triple-play strategy, BSkyB has close to 2 million subscribers taking TV, broadband and telephony services, with 2.5 million broadband-only subscribers.
    Nick Bertolotti, a media equity analyst at Credit Suisse, said the 62,000 pay-TV additions figure is actually the first year-over-year drop for the company since the second quarter of 2008, despite BSkyB’s considerable HD push. However, Bertolotti was impressed with the company’s financial performance. “BSkyB reported third quarter results this morning that were fractionally ahead on all metrics. [Key performance indicators] were more-or-less all in line or ahead, with particularly strong growth in HD and despite that, operating profit was slightly ahead.”
    For the nine-month period ending March 31, BSkyB reported operating profits of 645 million pounds ($980.5 million), a slight increase compared to the same period a year ago, when BSkyB’s operating profit stood at 622 million pounds ($945.6 million).
    To sustain its growth for the rest of 2010, BSkyB faces both opportunities and challenges. The company joins ESPN, DirecTV and Discovery Communications at the forefront of the 3-D TV market breakthrough, generating excitement among FSS operators.
    “Satellite as a platform is ideal for 3-D. Some platforms have problems delivering a wide range of HD channels. We are using the same bandwidth for 3-D that used for a typical Sky Sports HD broadcast,” said Gerry O’Sullivan, Sky’s director of strategic product development and leader of the company’s 3-D initiative. BSkyB launched a dedicated 3-D TV channel April 3 and has demonstrated live 3-D sporting events in the United Kingdom.
    However, BSkyB also faces regulatory challenges from Ofcom. In an April 12 decision, the regulatory board ordered BSkyB to cut the wholesale prices for Sky Sports 1 and Sky Sports 2 (its two main sports channels) by nearly 25 percent on a standalone basis and by 10 percent for the two channels bundled together.
     Ofcom policy may make it easier for the likes of Virgin Media and BT to offer sports content in attractive packages to customers, however, the wholesale ruling did not equate to all of BSkyB’s sports channels, and Ofcom also failed to set wholesale prices for Sky’s movie channels and HD channels, disappointing BSkyB’s rivals. But BSkyB now will have to offer its HD sports channels on a wholesale basis to rivals.
    In a research report following the ruling, Edward Hill-Wood, a satellite equity analyst at Morgan Stanley, said the conclusions of the Ofcom decision could have been worse for Sky. “While the stock market may look at the final Ofcom pay-TV review and conclude that its findings are not as negative as earlier consultation documents might have implied, this is a view that finds little sympathy with BSkyB,” he said.