BSkyB To See ‘Seasonal Slowdown’ In Third Quarter

The report shows that subscriber rates have fallen from the same period last year, when Sky gained 150,000 new customers. These figures take into account churn – the proportion of customers that left during the period. Churn is expected to be 9.5% in Sky’s Q3.

Lehman Brother researchers said: “This is a seasonally weak quarter after Christmas and has been compounded by the absence of above the line advertising from Q3, compared to a January sale campaign in Q3 last year.”

Pre-tax profit is expected to hit £157 million, taking the total profit to date for the nine month period to £361 million. Lehman Brothers predicts that by the year end in June, BSkyB pre-tax profit should hit £459 million; this includes an exceptional income of £49 million which was achieved by the sale of QVC.

Direct to home revenues rose by 13.3% for this quarter, taking the year-to-date increase to 14.7%. Advertising revenues were also up – a rise of 12.5% is expected in Q3 and an increase of 16.4% is forecast for the overall year.

Lehman Brothers also predict a small rise in cable TV subs, up 3.3 million from 3.2 million. This prediction is based on performance turnarounds by both NTL and Telewest after a two year period of decline.

The number of gross additions – that is, the number of new subscribers before the offset of those leaving during the period – has been hard for Lehman Brothers to predict. It says that the unsteady trends of digital take-up set during 2002 and early 2003, when digital growth was at its peak and ITV Digital closed, have made it difficult to predict future trends.

The third quarter could be the first quarter in a while which permits a ‘clean’ year on year comparison. However, a decline in Q3 does not necessarily mean that gross additions will continue on a downward trend, because the quarter has been specifically affected by a lack of marketing.

Looking forward, the report suggests that if BSkyB’s gross additions trend down at 10% year on year and churn stays at 9.5% then the company would miss its 8 million subscriber target by two quarters and not achieve this until June 2006.

BSkyB’s strategy until 2005 is to continue with its top package marketing strategy and achieve 8 million subscribers by December 2005. The company believes that there is far more demand for pay TV services (including BSkyB) in the UK well beyond 8 million. It has talked about segmenting the market to attract niche viewers who have not yet been attracted by the full top package, but there has been no official confirmation of this strategy by Sky.

Sky+ sales BSkyB’s digital video recorder product, Sky+, is anticipated to have gained 25,000 new subscribers in the quarter, compared to 129,000 new subscribers in the previous quarter. Lehman says that this was due to BSkyB easing off promotions in order to analyse the Christmas campaign before starting the new marketing push in March.