Murdoch wants BSkyB - will he get it?

[David Guyatt]

BskyB spent £7 million buying itself for Murdoch.

Now that's a headline.

I thought there were laws against this sort of thing? I must be getting old.

Done deal and all that.

BSkyB spends £7m on News Corp bid
Broadcaster sees half-year profit rise 26% as customer base tops the 10 million mark

Mark Sweney
guardian.co.uk, Thursday 27 January 2011 07.53 GMT


BSkyB has grown its customer base to 10.9 million. Photograph: Leon Neal/AFP/Getty

BSkyB has admitted that it has spent £7m in relation to News Corporation's bid to take full ownership, as the company hit its long-term target set by James Murdoch of passing the 10 million customer mark.

The satellite TV group beat analyst consensus figures on adjusted pre-tax profits of £477m in the six months to December, leading the BSkyB chief executive, Jeremy Darroch, to increase the interim dividend by a further 11% to 8.74p.

However, the company fell short of forecasts of net new customers at 140,000 in the three months to the end of December, with analyst predictions averaging 153,000. BSkyB had a total customer base of 10.09 million at the end of last year.

BSkyB claimed the fastest growth in broadband customers in two-and-a-half years with 204,000 net additions in the three months to the end of December, taking the total customer base to just over 3 million.

The company added 343,000 new HD customers in the period, taking the total number to 3.5m up 68% year on year. BSkyB said that a total of 24% of customers now taking all three of TV, broadband and telephony. The "churn rate", the proportion of customers leaving the company, was 9.5%. Average revenue per user a key metric for analysts hit £541, up from £492 in the same period in 2009.

Total revenue rose 15% to £3.19bn for the six months to the end of December, with adjusted operating profit rising 26% to £520m. Adjusted earnings before interest, tax, depreciation and amortisation rose 19% to £677m.

Reported profit before tax for the six-month period was £467m, up from £371m for the same period in 2009. Operating profit was up 19% at £491m on a reported basis while earnings before interest, tax, depreciation and amortisation rose 14% to £648m.

"The business has delivered a half year of outstanding performance, with record product sales and strong double-digit growth in revenue, profit and cash flow," Darroch said. "In particular, high definition continued to grow strongly and we achieved our highest broadband growth for more than two years. Looking ahead, we are cautious on the economic outlook for 2011, while remaining very confident in the long-term opportunity for the business."

The City was impressed with BSkyB's results, with the company's share price hitting a 52-week high of 773p in early trading today before settling slightly to 764p.

City analysts including Numis and Jefferies were also impressed with a dramatic cut in net debt, down 44% year on year to £945m. The strong performance led Jefferies to raise its expectation of News Corporation's necessary bid price for Sky from 760p to 800p a share.

"BSkyB's strong results strengthen the board's position that it will not accept less than 800p from News Corp," said Jefferies analyst Nick Bell.

BSkyB also said that it had notched up costs of £7m relating to the News Corporation proposal to take over the 61% of the company it does not already own.

"During the period, the group incurred advisory fees in relation to the News Corporation proposal and will continue to incur these fees as the process progresses," the company said.

News Corporation has offered the culture secretary Jeremy Hunt specific undertakings thought to involve increasing the independence of Sky News in order to push the deal through on media plurality grounds.

BSkyB reminded that if merger clearance is either not granted or "subject to a material remedy" then News Corporation will "reimburse the company for costs incurred up to a maximum of £20m".

In its previous results update, BSkyB said that it had spent £2m in the period of less than four months from receiving the 700p proposal during June to the end of September.

BSkyB also announced the acquisition of wireless internet service provider The Cloud, which has 22,000 hotspots in Britain, Germany and Sweden, that will see it go head to head with BT and O2. Mobile operator O2 is to roll out a national Wi-Fi network through partnerships with restaurants, shops and high street retailers.

The BSkyB chief financial officer, Andrew Griffith, said that the deal was "firmly" under £50m in value and that the company would now be launching a new service, Sky Anywhere, to more easily allow customers to access content on multiple devices.

He said that particularly since the arrival of Apple's iPad, the company had found "very strong usage of our entertainment content, news and sports outside the home" with Sky Anywhere aiming to "bring it all together" for those accessing on the move. Sky Anywhere will also combine access to the existing Sky Player and Sky Mobile TV services.

Griffith said that although The Cloud has hotspots in other European markets, the acquistion was "primarily for market leadership in the UK".

Darroch said that Sky 3D Europe's first 3D television channel, which launched in October has so far been taken up by about 70,000 existing Sky households, with "thousands" of homes continuing to sign up. The service is currently offered for free to Sky HD subscribers.

He said that the company was "very early into 3D" and that the focus at this stage is to continue to focus on building content for the fledgling service. He added that Sky Anytime+, BSkyB's long-awaited move into offering full video-on-demand, would soon see the addition of key content from its £150m, five-year deal with HBO. On 1 February the company is launching a new channel, Sky Atlantic, to house HBO programming including Boardwalk Empire, Mad Men and The Sopranos.

The company said that following acquisition of Living TV last July, home to shows including Grey's Anatomy and Sons of Anarchy, the network contributed £60m in revenue for the period, with £45m of this from advertising. However, the business ran up £49m in costs; of that, £33m was related to programming and £3m to marketing. BSkyB also took an exceptional charge of £22m "principally relating to redundancy payments and the early termination of a pre-acquisition contract".

Overall BSkyB's advertising revenues were £236m for the period, 40% higher year on year thanks to the consolidation of Living TV. Excluding Living TV, ad revenue was up 14% year on year at £191m. BSkyB now accounts for 17.4% of the total TV advertising market.

The company said that programming costs increased by 15% year on year to £1.05bn with "around half" of the year-on-year increase due to the acquisition of new sports rights. Marketing costs increased by £75m year on year to £613m for the period. The cost of a single new subscriber is £354, up £34 year on year.