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Sky suffers marked slowdown in core UK pay-TV business

Premier League costs have risen by nearly £500m - REUTERS
Premier League costs have risen by nearly £500m - REUTERS

Sky has suffered a marked slowdown in its core UK pay-TV business, sparking renewed claims that increasingly cautious consumers are rejecting expensive packages in favour of cheaper entertainment options such as Netflix.

The company updated shareholders ahead of confirmation that its takeover by 21st Century Fox was to be delayed by the General Election.

Britain’s dominant pay-TV provider reported a rise in revenues for its domestic operation of only 2.6pc in the third quarter to £2.14bn, despite a significant price rise and the launch of its mobile network. Advertising revenues were down 3pc, but analysts expected a bigger dip and Sky said it outperformed the market.

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Sky also added only 40,000 subscribers in the UK in the three months to the end of March, compared with 70,000 in the same period last year. Analysts said the figures suggested Sky customers were downgrading to lower cost offers.

Jeremy Darroch, Sky’s chief executive, said the performance was evidence of weak consumer confidence amid a slowing housing market.

The company's UK headquarters in west London - Credit: TOBY MELVILLE
The company's UK headquarters in west London Credit: TOBY MELVILLE

“That just puts a little bit more pressure on the business,” he said. “I don’t think it prevents us getting to any of our goals.”

“Despite the broader consumer environment remaining uncertain, we continue to deliver on our strategy.”

The company has previously highlighted the resilience of its strong growth in the face of a fluctuating economy, however. It has also consistently rejected suggestions that the emergence of BT as a strong competitor in pay-TV sport and the rise of Netflix and its own streaming brand Now TV would put pressure on its premium customer base.

Sky unveiled its latest response to the threat alongside its results. The company’s ties to the US broadcaster HBO, the maker of Game of Thrones, have been strengthened with a new $250m partnership to produce more "high-end drama", with the first programme due for broadcast next year.

HBO is behind the Game of Thrones series - Credit: HBO
HBO is behind the Game of Thrones series Credit: HBO

The mixed picture for Sky did not significantly move its shares, as they remain pegged at around £9.80 by 21st Century Fox’s £10.75 per share takeover bid. The discount reflects uncertainty over the regulatory hurdles facing the £11.7bn deal. It now faces a new question mark because of the General Election.

Ofcom, the media regulator, had previously been due to advise ministers on the impact of full Murdoch ownership of Sky by 16 May. With the Government in purdah and no Culture Secretary in place from Friday, the timetable had seemed less clear.

An Ofcom spokesman last night said the regulator was seeking guidance from the Government on how the process will proceed, and a Department of Culture spokesman declined to comment.

Whitehall sources, though, had said the Government was likely to push back Ofcom's deadline until after the election on June 8 to avoid the purdah period, when policy work is suspended, and this delay was then confirmed in a statement on Friday.

The Secretary of State for Culture, Media and Sport, Karen Bradley, said, in light of the "proximity" of the decision to the election, the new deadline for the reports to be submitted would be 20 June. 

Fox’s hopes have nevertheless been boosted by news that traditional opponents such as the BBC and BT have not responded to an Ofcom consultation on its plans.

Sky’s operating profit was for the first nine months was down 11pc to £1.14bn, in line with expectations. It continued to feel the impact of 83pc inflation in the cost of its Premier League rights contract this season.

 

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