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Broadband and ITV eat into BSkyB earnings

The satellite broadcaster clocks up its first loss in six years as the cost of building up its fledgling ADSL service and a £343 million write-down on the value of its stake in rival ITV wipe out depressed operating profit.

By Chris Green, 7 Feb 2008 at 11:04

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BSkyB (Sky), the satellite TV and broadband provider has clocked up a disappointing paper loss, the first negative results the company has reported in six years, amid mounting costs and the falling value of investments.

The West London-based company reported a pre-tax loss of £36 million for the six months to 31 December 2007, against a profit of £356 million the previous year.

Operating profit fell from £395 million to £295 million, but this was wiped out firstly by the growing cost of expanding its Easynet-based ADSL broadband service - investment jumped to £103 million as it spent heavily on putting its own broadband and telephony equipment into BT exchanges - and also by the declining value of its 17.9 per cent stake in terrestrial broadcaster ITV.

Sky paid £940 million for the stake in November 2006. At the time, rival cable broadcaster NTL Telewest (Now Virgin Media) was preparing a takeover bid for ITV. The Sky investment blocked that move. However, as a result of ITV's falling share price since Sky took its stake, it has taken a £343 million write-down ahead of a government-ordered sell-off of most of its stake after competition authorities ruled it gave Sky an unfair influence over its terrestrial rival.

New Sky customers taking broadband and telephone services added £16 to average revenues per customer, but Sky still lost £91 million on broadband and telephone products. It increased broadband subscribers by 260,000 to 1.2 million. The company offers its broadband products to consumers either for free or at a heavily discounted rate as an incentive to retain customer loyalty and subscriptions to its TV service.

"Sky Broadband is now the UK's fastest growing broadband provider. We added a further 260,000 subscribers during the quarter, with around two-thirds of on-net customers overall choosing a paid-for product," said Sky chief executive Jeremy Darroch.

"At the end of the quarter the group also had an additional 29,000 business and professional broadband customers."