BoAML: BSkyB – weakest Q1 for more than a decade

According to Bank of America Merrill Lynch (BoAML) BSkyB is expected to have a weak first quarter for their fiscal year starting July.

BoAML is forecasting net satellite TV additions of just 14k, the slowest growth for over a decade. They state that the Olympics may have had some impact (and argue that Sky’s “Summer of Sport” should have boosted HD demand), the report says this is a continuation of the weaker trend seen over the past two years.

The bank also believes that broadband also slowed, given weaker industry growth (due to the Olympics and the UK weather) and reduced switching.

BoAML analysis estimates total product additions fell 18% year on year – the lowest growth for 6 yrs. Total customer churn is forecast at 11.2% and the bank thinks average revenue per user should ‘increase’ by £27 given the September price rise and increased product penetration, however the forecast is just £17 to £552. Subscriber Acquisition Costs (SAC) are also forecast to remain at record levels

BSkyB’s reported profits have grown over the past two years, largely due to slowing product growth and reduced SAC costs. However, the bank states that the underlying profits have been broadly flat with programming costs growing faster than revenues. BoAML expect Q1 operating profit of £304m, up 3% year on year and down 3% quarter on quarter.

The analyst report states that Q1 is not an ‘Olympic blip’ but a continuation of a developing trend. A year ago, consumers could only take a pay TV service from BT, Sky or Virgin. Today they have new choices at lower price points from Netflix, LoveFilm and Talk Talk.

BoAML think that BT’s service will improve with the introduction of multi-channel services and BT Sports, while YouView enhances functionality and choice.

With BT/TT leveraging YouView to create stickier triple plays, the bank suggests that Sky’s TV/broadband growth will slow unless increased competition is offset by an improved consumer environment or increased investment by Sky.