Market Watch

Sky Italia Resumes Growth in Q2



News Corp's Sky Italia satellite platform made a net gain of 45,000 subscribers in the quarter to 30 June - its first quarterly increase for more than a year. Sky Italia ended its parent company's financial year with just over 4.7m subscribers, a net decline of 56,000 over the last 12 months.

Sky Italia offered all 64 matches from the World Cup finals starting in June and has augmented its HD offering, with the target of increasing it to 30 HD channels by the end of the year. The World Cup appears likely to have been the main driver of subscriber growth. News Corp said advertising around the finals contributed to a four per cent increase in local currency revenues for the quarter, although the higher cost of programming affected operating income, which came in at $97m compared to $155m in the same quarter of 2009.

Total fiscal 2010 revenues for Sky Italia were $3.802m, up from $3.76m in fiscal 2009. Annual operating profit was $230m, compared to $393m the year before.

Sky Italia is facing a tough battle for the pay TV market from digital terrestrial delivered services Mediaset Premium and Dahlia TV. Sky Italia is barred from competing on DTT by competition regulations imposed by the EC which expire at the end of next year. Last month, however, the EC partly lifted the restriction, allowing Sky Italia to take part in the offer of new DTT frequencies, expected next year.

Five new DTT muliplexes are expected to be allocated, with two earmarked for incumbents (Rai, Mediaset and Telecom Italia) and three for new entrants. Sky Italia would only be allowed to offer free-to-air services like the already-launched Cielo on DTT.

Analysis
Despite the return to modest growth, Sky Italia will face renewed pressure from Mediaset, in particular when the new football season kicks off in August. Under a new two-season rights deal with the Lega Calcio, Sky has satellite rights to all live matches but Mediaset has DTT rights to the most popular clubs.

Mediaset has cut the cost of its Serie A package to €14 per month until the end of the year from €29 a month. The move followed Sky Italia's adoption of a new packaging policy in July which lowered the entry level price for its Serie A package to €29 a month. Mediaset reported 4.4m active clients for its pay services at the end of June, up from 3.6m a year before.

These numbers do not equate to subscribers, since they include customers buying pre-paid cards, which may be used intermittently for short-term access to Mediaset Premium content. However, there is little doubt that the DTT services have capitalised on the rapid growth of the installed base - accelerated by analogue switch-off in many parts of the country - to carve out a market among subscribers interested in pay TV but not willing to commit to a one-year contract with Sky.

News Corp has set Sky Italia a target of 5m subscribers at the end of its 2011 fiscal year. We are currently forecasting the platform to be slightly short of that total at the end of calendar year and to reach 5m in 2012.

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