BSkyB becoming a victim of its own success

THE past 12 months have seen a remarkable turnaround in the financial performance of BSkyB. Having generated a pre-tax loss of £22m last year, final results released this week saw it move back into the black for the first time since 1999, delivering a pre-tax profit of £259.6m.

While the recovery in profits was largely expected, this was 8% ahead of expectations, a good start to what is essentially the first of a four-year recovery in profits. Over the next three years, profits are expected to grow from £259.6m this week to over £1.2bn, driven by continued subscriber growth and falling programming costs.

Few now doubt BSkyB will hit its operational targets. With subscriber numbers up to 6.85m, it is only weeks away from surpassing the long-held 7m subscriber target. In addition, average revenue per subscriber is £366, implying annual growth of only 4.5% is needed to reach its target of £400 by 2005. This looks very achievable, essentially only in line with historic annual price increases. Management comments at the result’s presentation were also very upbeat.