Lively scenes
We just love our telly. Recession or no recession, Sky’s annual results show that when it comes to spending on ourselves we are happy to spend whatever it takes. Three years ago we spent about £400 a year on Sky products, television mainly, but also a bit on phones and internet; now that figure has shot up to £508. Which makes you wonder if there are really any votes in cutting the far cheaper £145.50 BBC licence fee.
Customer numbers remain steadily upwards, indeed the growth is fairly healthy (up 90,000 in the last three months alone). At 9.86 million homes signed up, Sky has about 40 per cent of the population. Growth will no doubt continue for a few years, but on any definition it will be a long haul to get to 50 per cent. Add in Virgin Media’s 3.7 million pay television customers, and you’d have to guesstimate that ultimately about two-thirds of all British homes will fork out for pay television; not bad for a service once thought of as an expensive joke.
Sky’s own success means it is easily the dominant television company in Britain now, with revenues up 11 per cent to £5.9 billion and profits more than doubling at £1.1 billion. (Only the BBC comes close — read here for chat about the consequences of that). With these kind of numbers it is hard to see why the company is bothering to complaining so much about Ofcom’s decision to introduce a price cap on Sky Sports 1 and 2 (chief executive Jeremy Darroch even accused BT of cross-subsidising to keep the price of its Sky Sports offer down, which sounded a bit rich from a company that has given away broadband in its time).
What’s interesting, though, is where will Sky go next. The company invests heavily in technology – broadband, HD and now 3D (stick your glasses on and get ready for the porn) — but outside sport not so much in content. Sky could simply replace £15 million a year public subsidy to British film, say, in about 10 seconds if it wanted to. But at least today it announced a new tie-up with HBO, one of the few consistent producers of great new material, to show HBO programming on the Sky service.
So, seemingly immune from the recession; able to charge big prices to grateful customers, and with no obvious yen to burn profits on thousands of new BBC and ITV like shows, the Sky mission is to start throwing off lots of cash — £1.37 billion last year after tax. There is nothing much left to buy in the UK, now that ITV is off the table, although perhaps a bid for a mobile phone company could happen one day when total boredom strikes. Which helps explain News Corp’s £8 billion bid for the little over 60 per cent of the company it does not own.
No point in sharing the dividend income with public shareholders in London when you could grab that stream of cash and use it for investing in businesses outside the country. However today’s results are so strong that the mooted 700p a share ‘proposal’ starts to look a bit cheap given how resilient the profit stream looks in the middle of the worst downturn since the Great Depression.
I think acquiring 3 would actually be a pretty interesting acquisition for Sky in the UK and possibly even Italy as well. The other thing I haven’t seen much commentary about is what happens next time with the epl rights? Don’t the regulatory constraints on Sky, lessen the value of these rights to Sky? Wouldn’t the constraints actually make the rights more valuable to ESPN who could then provide them to Sky on an exclusive basis circumventing the Ofcom rules??