Private Investor: Murdoch circus act treads precariously on the high wire

I n a sea of mostly blue arrows pointing satisfyingly upwards, there are a few blotches of red in my portfolio. Of course, the recent strong performance by the FTSE 250 - breaching all-time highs by the day - has helped all my mid caps, while the FTSE 100, with all those laggardly big companies, seems to be doing its best to try to catch up. But even this rising tide hasn't raised all my little boats.

The most disappointing performer has been British Sky Broadcasting. My modest holding in this company is worth precisely 10 per cent less than I paid for it; I have bought the shares gradually over the past couple of years. Even what seemed to be perfectly respectable performance figures on Wednesday couldn't shift the shares; and indeed, they were dropping back towards the end of the week.

All this, it seems, even after BSkyB managed to massage expectations for new subscriber numbers downwards. Still, at least I know what Arpu is - average revenue per unit (or subscriber), currently running at pounds 386 per year. In other words, the average Sky customer spends almost pounds 400 a year on some pretty dreadful television, and it costs Sky about pounds 230 in marketing and advertising to hook each new recruit. Of these, about one in 10 will quit (the so-called "churn" rate).

Given that Sky wants "10 by 10", ie 10 million subscribers by 2010, compared with 7.6 million now, you can see the scale of the challenge. Quite apart from the the competition from Freeview, part-owned by Sky, broadband technology and goodness knows what next. So, as the chief executive, James Murdoch, remarked: "We never said it was going to be a cakewalk."

I managed to catch Mr Murdoch's only broadcast interview on his results - on BBC News 24's business show - where he was confronted by the BBC's business editor, Jeff Randall. Pity Sky News missed that one. Mr Randall was somewhat less combative than usual, but even taking account of the underarm bowling, Son of Dirty Digger gave a good account of himself. He has obviously learned from daddy that the only way to do well in a media business is by getting into the marketplace and grabbing the audience by the balls, after which their hearts, minds and wallets will follow. That means spraying money around, and that is just what Sky is now doing. Once you get that, and once you digest its riskiness, you understand what it's up to.

Which just leaves Sky's programming to sort out. I've seen Sky One and it isn't a pretty sight. Just think what folk might pay if BSkyB started putting some quality, home-grown, original programming on the air. Well, maybe not.

The only stuff that is worth the money is the Sky News channel (which can be picked up free elsewhere anyway) and, naturally, the Premiership football. Having watched last week's gripping Manchester United v Arsenal match on Sky in a packed pub, I can well understand the appeal.

Sky has got a grip on it for a couple more years yet, but it is a precarious thing. What if - a big if - the other broadcasters managed somehow to match Sky's bidding? What if the European Union's competition authorities do what they've been threatening to do and invade Sky's pitch?

What if the Premiership itself starts to buckle under the almost impossible economics of the football business, which seem to depend increasingly on the whims of Russian and Floridian oligarchs?

BSkyB has never been for the faint-hearted, and when you buy shares in it you are acutely ware of the Murdochs' 37 per cent stake in it. Never forget that Sky is the Murdochs' circus.

s.o'grady@independent.co.uk