Sky profits sag as football costs rise

Julia Stiles stars in the Sky Atlantic drama Riviera

Higher costs for Premier League rights have hit annual profits at Sky despite a jump in revenues and new customers.

The satellite broadcaster said total costs rose by 5%, with the £629m jump in football rights accounting for most of the increase in programming costs.

That helped send pre-tax profit down £27m to £1.05bn, while operating profit slid £87m to £1.46bn.

Revenues at Sky rose 10% to £12.9bn, while almost 700,000 new customers brought the total to 22.5 million.

While the UK and Ireland remained its biggest market, the company now has five million customers in Germany and Austria, while a new loyalty programme in Italy had been an "outstanding success".

A similar loyalty scheme will be launched in the UK and Ireland this autumn in a bid to cut the churn rate - the number of customers who leave - which rose from 11.2% to 11.5%. Chief executive Jeremy Darroch said the rate remained "at a level higher than we would like".

"We will continue to identify opportunities to reach new customers through the recently launched new portfolio of channels and pricing to drive growth in Sky Sports UK," he said.

George Salmon, a Hargreaves Lansdown analyst, said price increases that followed the higher Premier League football rights costs meant "more customers are choosing to leave Sky than have done for quite some time. Clearly, this presents a problem".

Only half the rise in revenues was due to organic growth, with the remainder due to the positive impact of currency moves, he said.

"21st Century Fox's takeover of Sky looms large over the group. Given the price is 40% above what the shares changed hands for just prior to the offer, this remains the dominant issue for shareholders," Mr Salmon added.

Shares in Sky fell 2p to 964.5p in morning trading in London.

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Liberum analysts still expect the Fox takeover to be approved, but warned: "If there is any concern the bid will not go through, the shares could come under pressure as investors focus more on the fundamentals."

They said Sky won just 35,000 new customers in the UK and Ireland in the fourth quarter, a sharp drop from last year's 93,000, while average revenue per user was flat at £47 despite the price rises.

Like-for-like revenues in the UK rose 4% to £8.6bn during what Sky called a "challenging environment" for consumer-focused businesses and "prevailing headwinds" in the advertising market. It has 11.4 million TV customers in the UK, while one in four broadband customers now take ultrafast fibre.

Sky said it increased investment in original content by a quarter, with the glossy drama Riviera setting new records with two million viewers and almost 12 million downloads. All episodes of the drama, which stars Julia Stiles, Anthony LaPaglia and Adrian Lester, were made available to viewers in the same way as Netflix's successful "box set" approach.

The firm also plans to introduce a service similar to its NOW TV offering in Spain, which requires only a broadband connection rather than a satellite dish.