BSkyB adds another 429,000 HD customers in 2Q10

British Sky Broadcasting Group Plc (LSE:BSY) has announced results for the twelve months ended 30 June 2010.

Operational Review

The business performed well in what continues to be a tough consumer environment, with strong demand for our products across the board.

Net customer additions for the quarter to 30 June 2010 (“the quarter”) were 90,000, bringing the total base to 9.860 million. Within this, gross additions were 348,000 and churn for the quarter was 10.5%, bringing the figure across the year to 10.3%, flat on the prior year.

We continue to see good success in our multi-product strategy, with net additional subscription product sales of 958,000 in the quarter, taking the cumulative 12 month figure to 3.6 million, up 21%. HD was a key driver of this performance, with net additions more than doubling year on year. In addition we continue to grow our share in broadband and telephony and, today, one in five of our customers takes each of TV, broadband and telephony – from a standing start four years ago. As customers reward us with more of their business, ARPU reached a new high of £508, up 9% on the prior year.

Leadership in HD

We continue to see strong demand for Sky+HD from both new and existing customers, meaning that today 30% of customers choose to pay for our best viewing experience, the top end of our original range of expectations. Supported by a successful advertising campaign around the FIFA World Cup finals, we added 429,000 net HD customers in the quarter, bringing twelve month cumulative growth to 1.6 million.

Ownership of HD TV sets continues to rise and this calendar year will see the number of HD-Ready households exceed standard definition homes. We identified the opportunity in HD early and have seen a strong response to our decision to lower the upfront cost of the box, first in January 2009 and again in January 2010. The second of these reductions was fully funded through supply chain efficiencies, with no impact on per-customer economics. In 18 months, the percentage of customers choosing HD has more than tripled and as a result HD is generating a significant, high-margin revenue stream.

Other broadcasters are now following our lead in HD and, as a result, awareness is building, with HD increasingly becoming the new standard for TV. While we have made significant progress to date, we continue to see good headroom for growth. We are well placed to take advantage of this, with our leading box technology and the broadest HD content offering in the market, available for just 30p extra a day. As at 29 July, and following the launch of Five HD on Sky this month, we now offer 43 HD channels on our platform, with plans in place to reach 50 by the end of calendar 2010.

Innovation

Building on our success in high definition, all new and upgrading customers now receive an HD box as standard and those subscribing to the HD channel pack for the first time receive their box for free.

Getting our best boxes into customers’ homes allows us to innovate and launch new features at an accelerated rate. This autumn, we will launch our Sky 3D channel to residential customers, offering a wide range of 3D programming in sports, movies, entertainment, arts and documentaries. Our first original commission in 3D is ‘Flying Monsters’, a two-part natural history feature presented by Sir David Attenborough. The residential launch follows the successful introduction of Sky 3D to commercial customers in April 2010. Since launch, over 1,400 pubs and clubs have enjoyed access to live 3D sports coverage, including football, rugby union, rugby league, cricket and darts.

We also have a pipeline of products maximising the benefits of the broadband connectivity of the HD box. Later this year we will launch our full video-on-demand service, ‘Anytime+’, giving customers access to a broad range of content from Sky channels, third-party broadcasters and over 500 movies on demand.

We are also offering customers new ways to enjoy our content, by extending the distribution of Sky Player and our Mobile TV products. This quarter we announced the launch of Sky Mobile TV on the iPad which, together with the iPhone, Xbox and PC, allows us to reach out to new customers via new platforms.

Customer Metrics (unaudited):

                                           Quarterly Net Additions
                                          ------------------------  Closing Base
'000s                                       30-Jun-10    30-Jun-09     30-Jun-10
                                          -----------  -----------  ------------
Net Customer Additions                             90          124         9,860
Additional products
  Sky+HD                                          429          291         2,939
  Multiroom                                        59           66         2,121
  Broadband                                       119          118         2,624
  Telephony                                       137          155         2,367
  Line rental                                     214          244         1,686
Other metrics
  Gross additions for the quarter (000)           348          356
  Churn for the quarter (annualised %)          10.5%         9.9%
  ARPU (£)                                       £508         £464

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