Sky Announces First Earnings Since Pan-Euro Merger; Profits, Customer Base Up

Pay TV giant Sky, in which Rupert Murdoch’s 21st Century Fox owns a 39% stake, announced its first earnings Wednesday since the UK’s BSkyB completed its acquisition of Sky Italia and majority interest in Sky Deutschland to create a European TV titan in a deal worth nearly $11 billion last November. The UK’s largest pay TV company revealed operating profit in the year to 30 June was $2.18 billion, while profit before tax was up by 6% on an adjusted basis to just under $1.87 billion. Like-for-like sales increased 5% to $17.67 billion.

Sky customers’ numbers grew 4% compared to last year in the UK, 12% in Germany but stayed flat in Italy, with a decline in the last three months.  Shares in Sky have risen by a quarter this year. Churn in the UK and Ireland fell to its lowest for 11 years.

“The past 12 months have been an outstanding period of growth for Sky,” said Sky chief exec Jeremy Darroch.  “We’ve successfully completed a deal that has transformed the size and scale of opportunity for the business whilst delivering an excellent financial and operational performance as more customers chose Sky and took more of our products. It’s clear that the steps we have taken to broaden out our business are paying off. By distributing our content over multiple platforms and launching new products and services, we are now able to offer something for every household.”

Sky is facing a particularly competitive landscape with new entrants such as Netflix, as well as aggressively ambitious moves by ITV and Liberty Global making Europe a fiercely fought over market. What’s more, Sky is facing a strong challenge in the UK from deep-pocketed telco turned content provider BT. England’s Premier League sold its latest round of soccer TV rights in February for a record-breaking $7.8 billion (£5.136 billion) to Sky and BT, representing a 71% increase from its last rights auction, also won by Sky and BT. Sky paid $64 billion (£4.2 billion) for five of the seven TV packages while BT paid $1.46 billion (£960 million) for the other two. The deal will run for three years from 2016. Sky paid 83% more than it did in the last round three years ago, BT paid 18% more. It will, however, get to show four more live matches than its previous deal, increasing from 38 to 42 a year.

There has also been much speculation in recent months over what Rupert Murdoch plans to do with Fox’s stake. In June, shares in Sky surged, at one point rising 5% and topping the FTSE 100 leaderboard, after reports emerged that the Murdoch family had knocked back interest from both Vivendi and Vodafone for its 39% stake in the pan-Euro pay TV giant. Another theory mooted has been that the elder Murdoch would sell the stake- valued somewhere between $4-5 billion- to fund a new approach to acquire Time Warner after his initial offer was rebuffed.

One other option also remains the possibility of the Murdoch family themselves, through Fox, looking to complete a full takeover of Sky. Those plans were originally scuppered in 2011 following the hacking scandal, which engulfed News Corp at the time and made their move politically unpalatable. Now, however, with a potentially more sympathetic Conservative government majority in place, and the elevation of James Murdoch – former Sky chief exec and chairman- to Fox chief exec, a Fox takeover may be back on the table.

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