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Sky UK Sales Continues To Climb Despite High Customer Churn (Cancellation Proportion)

Fears of a big bill for German football rights and an increase the rate of customers abandoning their satellite TV subscriptions have sent Sky shares sliding, despite the company's continued sales and profits growth.

 

The media giant sank to the bottom of the FTSE 100 leader board after reporting third-quarter results that showed its focus on marketing its most expensive Sky Q packages meant more bargain hunters went to rivals such as BT in the three months to the end of March. At lunchtime the shares were down more than 5pc.

Churn, the closely watched measure of subscriber attrition, rose to 10.7pc in the UK, from 10.2pc in the prior quarter and 10.1pc in the same period last year.

 

Sky said the rise was driven by a switch in marketing focus towards the new Sky Q service and away from discounted television and broadband packages. The company also turned away some subscribers who asked for discounts in order to renew their contracts, as part of a focus on improving average revenue per customer. It has been stuck at £47 for a year and a half.

 

Jeremy Darroch, Sky’s chief executive, said he was not concerned by the rise in churn, arguing it has become a less important measure of performance as the company has expanded internationally and into services such as broadband and its Netflix rival Now TV.

“I did feel at the end of last year that the UK market was pretty promotional and we’ve rowed back off that,” said Mr Darroch. “We’ll see a bit more of that in the fourth quarter and then we’ll be through that.

“I’m very happy with where we are with churn but it’s only one part of the mix. I think it’s less important as a metric than where it was six or seven years ago.”

Despite the increased rate of attrition, on home turf Sky added 70,000 new customers, broadly in line with City expectations. The launch of Sky Q in February added £15m to the company's marketing costs.

 

But in spite of an increased level of customer churn, Sky met analysts’ financial expectations and reported that group revenues rose 5 per cent to £8.72bn over the nine months to March.

 

The company, which operates in the UK, Ireland, Italy, Germany and Austria, said it experienced “good trading” across all its markets. In total, the company added 177,000 new customers in the third quarter, taking total sky customers base to 21.7m.

 

Operating profit increased 12 per cent to £1.14bn over the nine-month period.

Shares in Sky fell more than 4 per cent to close at 985p after the trading update on Thursday.

Jeremy Darroch, chief executive, said:

“It’s been another strong quarter for Sky. Our promise of world-class content, commitment to innovation and brilliant service is persuading more customers to join and stay with Sky, in every market.”

 

However, customer churn — the proportion of customers who cancelled their subscriptions — was higher than analysts had expected. In the UK and Ireland, Sky’s biggest market, churn was 10.7 per cent in the three months to March, compared with 10.1 per cent in the same quarter in the prior year.

Mr Darroch said the increase in churn in the UK reflected the company’s decision to limit discounts and came as the company focused its marketing on building brand awareness for its new premium offering Sky Q.

 

In Italy, churn for the quarter was 11 per cent — up from 9.7 per cent in the same quarter in the previous year — as a result of Sky’s loss of Uefa Champions League rights to its rival Mediaset.

 

Ciarán Donnelly, analyst at Liberum, said the increase in churn was worrying, particularly as Sky could soon face heavier competition in Italy after Vivendi, the French media group, took control of Mediaset’s pay-TV business earlier this month.

 

Plucky man

Jonathan Guthrie

Sky’s Jeremy Darroch deserves credit for playing his breaks boldly in eight years at the top of the UK’s biggest pay-TV group, writes Jonathan Guthrie.

“The competition dynamics suggest that churn could be at a higher level going forward,” he said. “That could start to put pressure on margins.”

Analysts at Barclays said that the “big uncertainty” for Sky in the coming months came from the auction of pay-TV domestic live rights to games of the Bundesliga, Germany’s national football league. Under the new terms of the auction, which is expected to be fiercely contested, Sky will not be able to take all of the rights exclusively.

 

Sky has seen big increases in the cost of premium TV content in recent years, as it has faced intensifying competition from telecoms groups such as BT and online services including Netflix. But even so, the FTSE 100 group has managed to deliver revenue growth of about 5 per cent in each of the last five years, resulting in a cumulative increase in profit in excess of 50 per cent.

Refd.Sources -

  • http://www.telegraph.co.uk/business/2016/04/21/sky-customer-growth-slips-as-it-battles-for-football-rights/
  • http://www.bbc.com/news/business-36099310
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