BoAML: BSkyB feeling pressure from BT
The latest financial performance report for BSkyB shows that the company is under-performing in a number of sectors, including satellite and Pay TV – though its connected platform is continuing to grow at a rapid rate.
BSkyB reported £9 million revenue growth of 6% and adjusted operating profit of £994 million was approximately 1.5% ahead of consensus.
However, this excluded £52 million of costs relating to set top box upgrades and wireless connectors which were taken as an exceptional item. This pulled forward costs that BSkyB had been expected to incur in coming quarters – the main factor behind 2-3% upgrades to the 2013/14 EBIT.
Bank of America Merrill Lynch (BoAML) says that though churn is increasing, satellite is in structural decline. Satellite additions have been on a downward trend since 2010 as a result of maturity, ‘weak’ consumption and increasing competition.
It is expected that BSkyB will find it difficult to replace 1.3 million churners each year, BoAML says, given OTT competition and as BT and Talk Talk use TV and fibre to advance their broadband base.
In addition to the decline of satellite, pay TV profits have also decreased, down -1%, despite the 16% growth of EBIT. Pay TV margins have fallen from 28% to 23% and are expected to continue to decline into 2014 (predicted to drop to 20%).
BSkyB faces intensifying pressure from rival BT, which on 9 May will reveal its new sports offering. Key issues for BSkyB will be who will buy the remaining on demand Premier League package – what BoAML say is a lose/lose for BSkyB with higher costs if they acquire it, or a stronger BT offer if they don’t.
Another issue is whether BT will market directly to pubs and clubs, which will put an incremental amount of pressure on BSkyB’s £200 million of commercial profits.
However, BSkyB’s connected services are continuing to grow, with 2.3 million internet-connected Sky+HD boxes installed across the globe (up almost 600,000 on the last quarter), and 3.26 million Sky Go subscribers – up 66% year on year.