Sky must broaden net as 8m subscriber target draws near

BSkyB, the pay-television group, has admitted for the first time that it will soon exhaust the number of high-spending consumers, forcing it to adopt a new business model to continue growing.

Tony Ball, the company's chief executive, said at the weekend that, after Sky reached its 8 million homes target, it would need to introduce a new pricing strategy to attract more households. Sky has, up to now, focused on customers that are willing to spend significant sums per month on premium channels devoted to sport and movies. Reaching out to other types of consumer would be a major strategic shift.

Some analysts have long argued that Sky's phenomenal growth will have limits, as there are million of households that cannot afford its services. A premium Sky subscription costs some £40 a month and, in any case, critics have said that most of those consumers willing to pay for top movies and sports have already signed up.

Sky has dismissed such suggestions, pointing out that it has consistently confounded predictions that its growth will slow or stall. The company now has nearly 7 million subscribers, with an average revenue per user (ARPU) of £366 a year. The satellite broadcaster has said it is not interested in signing up low-spending customers who want more basic services. Though cheaper packages have been available, these have never been promoted by the company.

The high-ARPU model has set Sky apart, and won plaudits in the City. Mr Ball has said that one of the reasons that rival ITV Digital failed is that it chased subscriber growth at the expense of the quality of subscriber. The equipment required to receive Sky, which is provided free to the customer, is costly and its premium content is also expensive, leaving it dependent on high-spending subscribers to recoup these costs and make a profit.

However, Mr Ball, speaking at the annual Edinburgh Television Festival, said Sky will have to "slice and dice" in the future to continue adding customers, by promoting packages aimed at lower-spending consumers.

He said there was still plenty of growth left in the market, as pay-TV penetration in the UK is around half the level reached in the US. Earlier this month, Sky set a target of 8 million subscribers by the end of 2005. It has a long-standing target of ARPU of £400 by that date. Longer term, Sky said it was looking for 12 or 13 million households.

In a question and answer session, which followed the keynote address Mr Ball gave at the festival, he said: "After 8 million [homes], picking up the next 4 million or so, will there still be the same high-ARPU people there? Probably not." Referring to the basic multi-channel service, Freeview, which does not charge, Mr Ball said Sky may adopt a sort of "Freeview plus" service. It is thought this will offer some content not available on terrestrial television, but not the top sports and movies channels, at a much lower price point.

The remarks are likely to be seen as significant as Sky has, in the past, fiercely resisted the notion that it will run out of the kind of customer it targets.