BoAML: BSkyB growth continues to slow

Bank of America Merrill Lynch forecasts BSkyB’s overall product growth this financial year to be the slowest since Sky launched HD/broadband in 2006.

The latest financial report for BSkyB predicts financial year revenues of £7,235 million and earnings before interest and tax of £1,334 million, with forecasts continuing to assume an ongoing buy back of approximately £500 million per annum.

Churn will depend on retention offers, ‘win back’ investment and the proportion of TV cancellations that maintain a broadband relationship. BoAML assumes customer churn of 10.6% (9.9% last year) and direct-to-home (DTH) churn of a slightly higher 13.5%.

Pay TV competition is expected to increase steadily in the UK as connected TV penetration rises, with a step increase over the next three months with the launch of free sports content from BT. BT claims it has already signed up 500,000 sports customers.

BSkyB is also rivalled with the launch of additional free-to-air (FTA) and pay services on YouView, including BT’s package of 20 of the most popular channels for an incremental £2 per month, and potentially Netflix and LOVEFiLM.

As consumers are offered new choices at lower prices, BoAML says that BSkyB should expect sub growth to slow, unless 1) the consumer environment improves significantly; 2) BSkyB lowers prices; 3) the company can innovate to add value; 4) it invests to rebuild the content gap versus other FTA and Pay TV services, or to offer other services such as mobile at marginal cost.

The bank says that this will result from higher churn, particularly amongst the 40% of BSkyB’s TV homes that take broadband from BT/TT broadband homes and are more likely to take a cheaper TV service from their broadband provider.

The bank predicts approximately 300,000 (-3%) DTH subscriber losses per year, while there will be approximately 100,000 much less valuable now TV additions.