BSkyB Results for the half year ended 31 December 2007

Operational Review

New DTH customer additions were 385,000 for the quarter. In contrast to the second quarter of 2007, these sales were achieved with a significant reduction in the use of short-term viewing package discounts and included a standard installation fee across all products. We continued to focus on full priced viewing package sales using the genuine quality and value leadership of our products to drive growth. This approach is creating a strong and sustainable business for the long-term.

Total product sales continue to grow strongly, increasing by 28% on the previous quarter to around 1.6 million. During the quarter, 19% of HD additions, 40% of Sky+ additions, and 44% of broadband additions were new Sky customers, reflecting the highest ever uptake of Sky+ and broadband amongst new customers.

DTH churn for the quarter (annualised) reached 10.0%, its lowest level for three years, representing a 1.3 percentage point reduction from the previous quarter. This was driven by the reduction in viewing package discounts and our focus on high quality customer acquisitions, as well as growth in additional product penetration and continual improvements to the customer experience.

ARPU increased by 7% year on year and 2% quarter on quarter to a record £421. This reflects a full quarter’s benefit of the 2007 price increase, contribution from increased penetration of additional products and the benefit from the phasing out of viewing package discounts in customer acquisition and retention.

Sky+ households exceeded three million with a record 434,000 net additions in the quarter to reach 35% penetration of the base, up four percentage points on the previous quarter. Multiroom households grew by 120,000 in the quarter, now 17% of the base; and Sky HD also showed good growth, increasing by 18% to 422,000, 5% of the base. Recognition for Sky HD was received during the quarter at the Royal Television Society Innovation Awards 2007. Sky obtained the ‘Raising The Bar Award’ for introducing a technology which set a new ‘gold standard’ of expectations.

Sky Broadband, the UK’s fastest growing broadband provider, added a further 260,000 subscribers during the quarter to reach 1.2 million customers, with around two-thirds of on-net customers choosing a paid-for product. At the end of the quarter the Group also had an additional 29,000 business and professional broadband customers registered to its UK Online branded service. During the quarter, Sky Broadband received recognition for its service at the uSwitch “Broadband Satisfaction Awards”, being voted winner in the following categories: “Supplier most likely to be recommended”, “Best value for Money” and “Ensuring Customers are on the best deal”. In addition, the JD Power “2007 UK Broadband Internet Service Provider Satisfaction Study” quoted Sky as one of the industry leaders in terms of overall satisfaction, performing significantly above industry average in terms of value and choice. Notably, Sky ranked as the number one choice for customers interested in obtaining their telecoms services from one provider.

Sky Talk had a record quarter of growth with net additions of 236,000, an increase of 54% on the previous quarter’s additions, with 97% of the closing telephony base taking either the Freetime or Unlimited packages. As at 31 December 2007, 54% of broadband customers also took Sky Talk. Despite such rapid growth, less than 10% of our total customer base now takes all three of TV, broadband and telephony, providing a significant opportunity for future growth.

During the quarter we continued to build on our extensive content offering, with the renewal of two key sports rights contracts. Live rights were secured to the Rugby League for a three year period from 2009, providing Sky Sports viewers with over 100 matches a year, including exclusive live coverage of Super League. We also secured rights to the Football League competitions for three years from August 2009, including at least 95 matches a season and continued live coverage of The Coca Cola Championship and Carling Cup matches. Strong audience figures were achieved during the quarter and exclusive Sky Box Office coverage of the Hatton vs. Mayweather WBC Welterweight fight, attracted a record number of pay-per-view buys for a sporting event.

Sky One also had a strong quarter, both through content acquisitions and our commissioned programming. During the quarter, four out of the top ten rated programmes on Sky One were internally commissioned, with “Noel’s Christmas Presents” achieving record audiences on our entertainment channels this financial year.

Sky Anytime on PC and Sky.com were both re-launched during the quarter. The enhanced Sky Anytime on PC service is the first online download service to offer Sky Movies customers the latest films from all six major Hollywood studios. In addition to a wide selection of films, sport, entertainment and pay-per-view movies, the service also re-launched with content from additional third-party channels such as National Geographic and The History Channel, as well as the recently launched Sky Real Lives. Sky.com now showcases a variety of rich content, allowing users to browse entertainment, news and sports in one place, as well as offering a gateway into newly launched Sky websites such as Sky Motoring and Sky Property.

Sky’s first zero emission van began its trial in the quarter, complementing a shift to bio-diesel in part of the van fleet, and a shift to hybrid cars for team managers. Sky’s autostandby technology that powers down Sky set top boxes automatically is now in 3.8 million boxes, saving customers money and reducing carbon emissions. Carbon savings from this change now nearly match the company’s operational footprint, prior to emissions offsetting.

External recognition of our environmental contribution increased this quarter, with Sky receiving the “Community and Environmental Responsibility” award from Management Today. In addition, the company secured a Green Fleet Hero Award, plus a Green Award for Sustainable Business (presented by the United Nations Environment Programme).

Sky continues to respond to its customers’ recognition of the educational value of broadband and television through the extension of our Sky Learning proposition to bring learning to life for customers of all ages. Its services include a new online search engine ‘Sky Learning Explorer’, as well as relationships with leading educational providers such as the Open University. Sky Learning’s programme Sky Living for Sport also extended beyond schools this quarter to launch a new partnership with the charity “V” to promote volunteering amongst 16-24 year olds. Sky Learning has been endorsed as an important supplement to traditional classroom tools by the Innovation Unit which is funded by government.

Customer Metrics

'000s                                   31-Dec-07     30-Sep-07    Net additions
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Total customers(1)(2)(3)                    8,832         8,665              167
 Additional products:
 Sky+(4)                                    3,131         2,697              434
 Multiroom(5)                               1,531         1,411              120
 HD                                           422           358               64
 Broadband                                  1,199           939              260
 Telephony                                    915           679              236
Other KPIs:
 Churn for the quarter (annualised)          10.0%         11.3%             n/a
 ARPU                                        £421          £411              n/a
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(1) Includes DTH customers in Republic of Ireland. (535,000 as at 31 December 2007; 513,000 as at 30 September 2007.)
(2) DTH customers include only primary subscriptions to Sky (no additional Sky+ or Multiroom subscriptions are counted). This does not include Freesat customers who do not subscribe to an additional Sky service or churned customers viewing free-to-air channels
(3) DTH customers include customers taking Sky packages via DSL through Tiscali TV
(4) Sky+ includes HD households
(5) Multiroom includes households subscribing to more than one digibox. (No additional units are counted for the second or any subsequent Multiroom subscriptions within one household.