BSkyB is to launch a new Sky Anywhere service later this year allowing customers to access TV and on-demand content outside the home on a variety of mobile devices. Launch will be backed by recent acquisition of 5,000 access point public Wi-Fi network operator The Cloud. The Anywhere service, which mirrors US cable initiatives such as Comcast's TV Everywhere, will be bundled at no extra cost to customers. Sky said the service was a natural extension of its content business, reiterating it had no current plans to enter the mobile telephony market.
Reporting its calendar year end 2010 (fiscal first half 2011) results, BSkyB said it expected 2011 to prove challenging as the UK VAT increase (from 17.5 to 20 per cent) coupled with the potential for a second economic downturn took effect. The results also showed a clear slowdown in net additions of core homes, a trend that has now been apparent for three consecutive quarters. BSkyB added 140,000 new customers in the quarter compared to 172,000 in same quarter of 2009. HDTV net additions also fell compared to a year earlier, down to 340,000 compared to 482,000.
Drop came despite upsell opportunities provided by the HD box being given as standard to all new customers. Outside its core household base, BSkyB saw exceptional growth in its triple-play offering, with 24 per cent of customers now taking three services. BSkyB added 204,000 new broadband customers, passing 3m connected broadband homes and 187,000 new telephony customers in the quarter. Increase in additional product sales led to strong growth in ARPU to £541 annualised, up from £514 the previous quarter. An increase in premium uptake after recent declines also contributed to ARPU growth. Churn was steady at 9.5 per cent.
BSkyB has ridden a wave in recent years on the back of its HDTV offer - now 54 channels. The group returned exceptional operational performance during the recent economic downturn with management focused heavily on meeting a long-held target of 10m customers by end calendar 2010. With that target achieved and the recent operational performance showing a decline in the rate of net additions, BSkyB must now focus on growing ARPU, keeping churn within its own historically low levels and ongoing cost-cutting measures.
A number of initiatives suggest the company has already redirected its attention to customer retention and to maximising revenue per user rather than absolute growth. As well as the bundled Sky Anywhere initiative, BSkyB said it was expanding its channel portfolio, with soon-to-launch HBO-driven Sky Atlantic leading the charge. Touted as an exclusive premium channel that will be offered free within the basic pack, the channel will also be used to showcase content from an increased investment in UK local productions with BSkyB saying it would focus on British comedy, drama and entertainment. The group also said it would build recently acquired Living TV to target its female-focus demographic, having shaved £30m off the division's non-programming costs following a move to Sky's West London campus.
A slowdown in core growth was certain to come given recent stellar performance. But strong growth in add-on-services and ARPU as well as low churn suggest there is little cause for immediate concern and good headroom for on-going growth. An increased focus on triple-play is certain to feature strongly in BSkyB's future strategic push with contract additions rather than core household growth the focus. This will also tie nicely with the Anywhere servuce. BSkyB, like other major pay TV providers, is well positioned to fulfil the role of a consumer content-anywhere provider and its focus on improving its channel portfolio, increasing local content investment and content portability are well timed given developments in the UK over-the-top space. But as a result, we see a steadying of growth through 2011 for both total subscribers and HDTV.
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