BoAML: BSkyB – line rental price rise but still no upgrade

Sky is increasing the price of line rental for existing customers by 18% on 1st December from £12.25 to £14.50. Bank of America Merrill Lynch (BoAML) say they had anticipated such an increase but not until Q4 2013 (April-June).

According to the analyst report, Sky suggests the price rise was already factored into its expectations at the start of the year. The bank highlights four factors for investor consideration:

1) increased above-the-line advertising in response to competition
2) higher programming costs
3) lower Average revenue per user (ARPU)
4) further discounting and retention offers.

The BoAML report stated that Sky is squeezing the consumer to meet forecasts and that last year Sky made a virtue of its ability to freeze prices and improve its value proposition. The bank feel that Sky is weakening its competitive position and therefore has retained it’s underperform earnings rating.

The report remarks on BT’s bids for more sports rights driving Sky rights inflation. BT bid aggressively for the Premier League rights, forcing Sky to pay more for less. BT has demonstrated its commitment to build a sports offering with the acquisition of Rugby rights and Serie A. Additionally, the bank believe Sky paid substantially more to retain the Warner movie rights given competition from Netflix and Amazon, reversing a 10 year decline in movie costs.

BoAML expect Sky to report weak Q1 results on 1 November and report the slowest TV additions in more than a decade.