Market Insight

Sky reports Q4 customer growth in first combined set of results

February 04, 2015

Tim Westcott Tim Westcott Director, Research and Analysis, Programming

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Across its three key businesses, Sky ended 2014 with an increased retail customer base of 20,607,000 – up 4.3% on Q4 2013. The entire pay TV group also experienced 4.9% year-on-year growth in subscription revenue to £4,842 million (€6 million) for the six months ending 31 December 2014. The group’s results were boosted both by strong performance in the UK and Ireland and the addition of its German and Italian businesses.

Quarterly growth in the UK and Ireland was particularly singled out by the pan-regional operator, due to annualised churn for the quarter reaching its lowest point since 2003 at 9.2%. Sky increased its total UK and Ireland subscriber base by 3.7% to 11,750,000 in Q4 2014, while steadily increasing ARPU across all its services to £47 (€58) from its Q4 2013 value of £46 (€57). Furthermore, the number of paid-for products increased for the UK by 1,020,000 to 33,307,000, which included an increase of 202,000 TV RGUs and 106,000 broadband additions. A large amount of this is likely to be due to Sky’s OTT (over-the-top) service Now TV, which the operator states trebled its transactions over the reported period.

In line with the UK, Sky’s business in Germany and Austria saw growth, with its total retail customer base in Q4 2014 increasing 12.4% on the previous year to 4,123,000. Sky has stated this is a result of customer acquisition measures such as the introduction of two-year contracts. ARPU for the quarter slightly declined however from €36 in Q4 2013 to €35 at the end of last year.

In Italy, a more challenging market for Sky due to economic conditions, subscribers declined 0.5% on 2013 levels to 4,734,000. However, quarterly customer growth was the highest since Q2 2012, up 5.5% on Q3 2014. Sky attributed its fall in churn in Italy from 11.4% in Q4 2013 to 8.3% in Q4 2014 to growth in its connected base, further suggesting that on-demand and online services are key to driving its increase in customer base across its markets. ARPU in Italy has remained flat at €43 since Q1 2013.

Our analysis

The pan-regional satellite operator’s latest results mark the first time Sky (formerly British Sky Broadcasting) has reported consolidated figures for its operations in the UK and Ireland, Germany, Austria, and Italy, following its acquisition of Sky Italia and Sky Deutschland on 12 November 2014. This combination, the operator estimates, will result in it realising £200 million (€248 million) of synergies by the end of 2017. Financially, the positive impact of combining the businesses on revenue and profit appears to be already evident, with total revenue up 5% to £5,604 million (€6,944 million) and operating profit increasing 16% to £675 million (€836 million) in the latter half of 2014.

As we did when the deal was announced, IHS continues to see the main benefit of the merger as being less about operating synergies (especially in the area of programme acquisition, a key factor in costs) as about competitive position and the development of new products like over-the top and TV everywhere services. Sky reported that in the UK, Now TV transactions trebled year-on-year, while take up of Sky Go increased 14% to 5.8 million homes. Across its three territories, transactional revenue was up 16% at £75 million.

Premium film and sports programming remain key for all three businesses, but rights continue to be mainly sold on a territory-by-territory basis and the combined group is unlikely to gain any advantage in bidding for contracts like the Premier League, the next cycle of which is expected to be awarded later this week.  

One area the combination will reinforce is the creation of original content - which has been behind strong brands like HBO and latterly, Netflix. This week saw the premiere of Fortitude, a drama series backed by Sky Europe and with a budget reported to be £25 million, in all five of its markets (and in the US, where the series was acquired by Pivot Network). Sky backed the UK launch with an unprecedented marketing campaign and achieved an average audience of 700,000 on Sky Atlantic - the highest ever audience for an original drama. Since than, according to the channel's director Zai Bennett, more than two million more viewed the epsiode on catch-up in the three days since launch.

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