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Broadband boosts BSkyB

BSkyB, the UK’s dominant pay TV operator, has delivered its shareholders a tonic amid continuing investigation over its fitness to broadcast.

The medicine comes in the form of a 19-percent pretax profit rise to £1.9 billion ($1.9 billion) on revenues up 3 perent at £6.8 billion ($11 billion) for the year ending June 30, 2012.

The profit rise resulted from strong broadband growth, coupled with increased revenues from premium content, particularly English Premier League (EPL) football in addition to blockbuster movies. Broadband subscriptions were up 21 percent from 3.3 million to 4 million over the year, while pay TV also saw 3-percent subs growth from 10.3 million to 10.6 million, better than number two pay TV operator, MSO Virgin Media, which is stuck at 3.84 million subs. BSkyB highlighted a substantial rise in viewing figures for EPL matches, boosting take up of the premium sports subscription packages, taking annual average revenue per customer to £548 ($850), as a key factor in the profit rise. This completed a good week for BSkyB, which sponsored the UK cycling team at the Tour de France, including race winner Bradley Wiggins.

The increased profits enabled BSkyB to invest an extra £30 million in its new Internet TV service Now TV launched July 17. Now TV is aimed at new customers, offering content on a pay-as-you-go without a contract.

The results also emboldened BSkyB to return almost half of its annual profits to shareholders via a £500 million share buyback. The operator had given shareholders a rough ride over the financial year, despite continuing commercial success, largely through the fallout from the phone hacking scandal that has engulfed News Corp, which owns 39 percent of its shares. Share value will only recover when the current Leveson inquiry into the culture of the UK press is over, and more particularly the associated investigation by regulator Ofcom in to whether BSkyB is deemed fit to be a UK broadcaster under its current ownership and management.

BSkyB has worked hard to prove its fitness to hold UK broadcast licenses, having commissioned a report from UK forecasting consultancy Oxford Economics to establish how much it contributes to the UK. But, Ofcom may still require the sale of all or part of the News Corp stake as part of the decontamination process, and this uncertainty is suppressing the share price.

There are also some clouds gathering on the pay TV front, partly from OTT providers, especially regarding Netflix, which launched in the UK at the start of 2012. But, the greater threat is from hybrid DTT/IPTV operator BT Vision, part of the BT group, which until now has languished as a poor third in the UK pay TV market and still has only around 700,000 customers. But, BT recently gained about 20 percent of the rights to EPL matches, and has also aligned its strategy with the YouView hybrid connected TV platform also backed by the BBC and ITV, which launched this month. BT will soon be able to stop relying on digital terrestrial for linear channels and deliver its whole service package over its broadband network. Its improved content holding will enable it to compete much more strongly against BSkyB.

Unlike BT Vision and BSkyB, Virgin Media does not have content rights, and is a pure distributor of content. In fact, Sky, for which BSkyB is the UK brand, is stepping up its UK-based content business by acquiring Parthenon Media Group, a leading independent international distribution and media rights management company. The new business will play a central role in marketing and distributing Sky’s commissioned content, as opposed to purchased sports or movies rights, in the international market.