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Sky shows Fortitude to push on

Profit, revenue and customer growth send shares in the pay TV titan up 5 per cent
April 22, 2015

Shares in Sky (SKY) reached a 14-year high after the pay TV group announced a bumper nine months of trading, underpinned by profit, revenue and customer growth. In spite of impending price rises and intensifying competition, the broadcaster posted a 20 per cent rise in operating profit and 5 per cent jump in sales over the nine months to the end of March, as it rode the wave of a gradually improving European economy.

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Brighter economic conditions and new services attracted a net 242,000 customers in the first three months of this year, taking the group's customer base to 20.8m. The popularity of internet TV services and big-budget dramas helped to keep current viewers on board. An audience of 2.7m watched the first episode of British psychological thriller Fortitude, making it the channel's most successful original UK drama to date.

Retention was particularly strong at home and in Ireland, where a 90 basis point drop in the churn rate to 10.1 per cent represented the best performance in 11 years. But despite the quarter showing customer growth up 41 per cent year on year, there was no detail of the breakdown between uptake of traditional TV subscriptions, 'pay-light' NowTV bundles and broadband.

This led Liberum analyst Ian Whittaker, who notes that average revenue per user has risen only £1 a month in the past seven quarters, to question the quality of new customers. In his view, Sky faces "significant challenges" as it prepares to raise UK TV prices by an average of between £2.50 and £3 a month.

But the broadcaster's chief executive, Jeremy Darroch, figures customers will accept bigger bills because of the broader range of programming on offer. Indeed, other analysts argue that the falling rate of cancelled subscriptions could be a launch pad for better growth through increased prices.

Falling churn rates and new customers were also evident outside of Sky's core UK market. Following last year's takeover of Sky Deutschland and Sky Italia, the broadcaster reported 103,000 new retail subscribers in Germany and Austria over the quarter. That's 61 per cent more than the same period last year, as strong appetite for products such as Sky Premium HD drove sales in Germany up 9 per cent to £1bn.

After a difficult couple of years, the group's Italian operations also reported a slight rise in customer numbers, although a challenging economic environment there still saw sales fall by about 1 per cent to £1.6bn.