Sky cashes in on viewers' appetite for HD television

BSkyB is continuing to defy the downturn with the pace of its expansion, adding 172,000 customers in the last three months of 2009 thanks to the stellar performance of its high-definition (HD) television channels.

The sharp rise in HD subscriptions helped to push up the company 's first-half revenues by 10 per cent to £2.9bn. Its operating profit showed a more modest increase, up just 3 per cent because it took a £70m upfront hit from subsidising HD set-top boxes. With these costs stripped out, operating profit was up 21 per cent at £471m.

"It has been another good quarter in what remains a tough environment, with more customers joining Sky and strong demand across our entire product range," said Jeremy Darroch, the BSkyB chief executive.

The broadcaster now has 9.7 million customers, and is well on track to meet its target of reaching 10 million British homes by the end of this year. Not only is the absolute number of customers on the rise, but the number of services each is buying is also increasing. The company sold one million "products" in the last quarter of 2009, 36 per cent more than in the same period the year before. The number of customers taking all three of BSkyB 's products – television channels, broadband and voice telephony – rose from 13 per cent to 18 per cent. And the average revenue per user hit another record, up by £48, or 11 per cent, to £492, compared with the year before.

But it was HD TV that proved the the real money-spinner. The number of HD subscribers shot up by 500,000 in the final quarter, way above analysts ' predictions of about 300,000, to take total HD subscriptions to 2.1 million. BSkyB only began offering HD in 2006 but it now contributes an annual revenue stream of £200m. The company said yesterday it would now issue its HD-enabled Sky box as standard.

Throughout the recent economic turmoil, BSkyB churned out consistently strong financial results as wary consumers chose to stay in and save their pennies. "Home entertainment always does well in a downturn but BSkyB is an amazing machine," said Lorna Tilbian, an executive director at Numis.

BSkyB 's expansion into broadband and telephony is also helping to cut down the number of customers either cancelling or not renewing their subscriptions. Churn for the last quarter of 2009 was 9.6 per cent, slightly below the 9.9 per cent in the same period of 2008, and below the company 's unofficial threshold of 10 per cent.

"What is driving the low churn rate is the triple-play strategy," Ms Tilbian added. "When Sky was just an entertainment package there was less inertia, but once people have telephony and broadband as well they just don 't want to keep switching."

BSkyB says there is still plenty of room for further growth. Despite its strong recent performance, only about half of British households receive pay-TV and, of the company's existing subscribers, eight million use only its television service. With the number of families with HD-ready television sets expected to reach 14 million this year, the market for HD content has considerable potential.

The company is already getting ready for what it hopes will be the next big thing: 3D television. This Sunday, nine Sky-enabled pubs in London, Manchester, Cardiff, Edinburgh and Dublin will show the Premier League game between Arsenal and Manchester United in 3D – the first ever public broadcasting of a sporting event using the technology.

In April, the company will launch a dedicated 3D channel. It will be rolled out to Sky pubs first for broadcasting Premiership matches. The service will be offered to households from the autumn, once 3D-enabled televisions sets are widely available.