[Satellite TODAY Insider 11-12-10] Despite adding 45,000 new subscribers in its 2010 third quarter, Sky Deutschland is a long way from proving its reliability as an investment, according to UBS Media Equity Analyst Tamsin Garrity.
    “We see significant medium-term potential in the German pay-TV market, with a potential catalyst should Sky sign a cable partnership deal with Kabel Deutschland. However, the market may look for more evidence of a turnaround in subscriber momentum before rerating the shares,” Garrity said in a statement.
    The News Corp. subsidiary, with a little more than 2.5 million subscribers, has been trying to retool its strategy after it acquired and rebranded Premiere in 2009 and made some initial missteps. Sky Deutschland replaced former CEO Mark Williams with Brian Sullivan in December 2009 and tasked the new executive leader to prove the broadcaster’s worth in the German consumer market and establish consistency in its returns.
    While the operator has managed to reverse losses, is has not been able to generate a steady rate of subscriber. Sky Deutschland’s 45,000 net subscriber additions in the 2010 third quarter fell short of the 67,000 subscribers it added in the third quarter of 2009. Even more difficult for the operator is the fact that analysts continue to expect these rises and shortfalls. “We believe [Sky Deutschland’s third-quarter net additions] are a good result given the rebased low expectations going into the results. The analyst consensus was 35,000,” Garrity said.
    The German operator’s third quarter revenues also fell slightly to 243 million euros ($334.5 million) from 237 million euros ($366.2 million) in the previous quarter. Garrity sees these results as mixed. “ARPU grew to 29.5 euros ($40.61) compared to 28.6 euros ($39.37) in the previous quarter. This is an encouraging sign, as continued growth here we consider very important. However, churn was higher than expected at 18.5 percent from 16.3 percent in the second quarter. This was impacted by pre-paid promotions rolling off, but gross additions were notably higher than expected at 161,000.”
    Williams said he expects the broadcaster’s churn rate to fall to a range between 12 percent and 13 percent in the future, suggesting that Sky Deutschland’s momentum in adding new subscribes should continue to improve. “These results provide encouraging signs that we are taking the right steps to build momentum in the business. Customers are increasingly satisfied with the range and quality that we provide, as reflected in record product uptake and ARPU levels.”

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