British Sky Broadcasting - 1st Quarter Results

British Sky Broadcasting (BSkyB) plc – Interim Management Statement and Results for the three months ended 30 September 2007 – Strong demand continues

Overview

We are pleased with the start that we have made to the year. In a highly competitive environment, we saw the highest first quarter new DTH customer additions for four years, a further reduction in churn and record first quarter total product sales. Sky Broadband passed the one million customer milestone in October. We continue to focus on the successful execution of our plans.

Better choice, quality and value have continued to attract new customers and to increase the numbers of products chosen by our existing customers. This quarter has seen:

• A near doubling of total product sales from last year to over 1.2 million;
• Record quarterly Sky+ growth of 323,000;
• Strong Multiroom and Sky HD customer growth; and
• Sky as the fastest growing UK broadband and telephony provider

Net DTH customer growth of 83,000 reflected good new DTH customer additions and, despite retail price changes, a further improvement in churn to 11.3%, the lowest for five quarters.

Our financial performance for the quarter reflected strong top-line growth and our investment for future growth. Total revenue increased by 11% to £1,185 million. Operating profit of £143 million included a full first quarter’s investment of £51 million in Sky Broadband and Sky Talk, and £6 million in Easynet Enterprise, as well as exceptional legal costs of £7 million. Excluding these items, underlying operating profit of £207 million was strong. As expected, subscription revenue growth was offset by the impact of the new Barclays Premier League contract and the non-renewal of the agreement to supply our basic channels by Virgin Media. Customer demand for Sky+ and Multiroom upgrade volumes was very strong, and while this incurred short term cost, it will bring important future benefits through higher ARPU and reduced churn. We expect that the performance for the full year will be in line with our plans.

Customer Metrics
'000s                                 30-Sep-07     30-Jun-07    Net additions
________________________________________________________________________________

Total customers(1)(2)(3)                  8,665         8,582               83
Additional products:
Sky+(4)                                   2,697         2,374              323
Multiroom(5)                              1,411         1,343               68
HD                                          358           292               66
Broadband                                   939           716              223
Telephony                                   679           526              153

Other KPI's:
Churn for the quarter (annualised)         11.3%         12.1%             n/a
ARPU                                       £411          £412              n/a
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(1) Includes DTH customers in Republic of Ireland. (513,000 as at 30 September
    2007, 497,000 as at 30 June 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.)

Operational Review

New DTH customers of 327,000 were the highest first quarter gross additions for four years. Total product sales exceeded one million for the fourth consecutive quarter: 30% of Sky+ additions and 17% of HD additions were new Sky customers; 39% of broadband additions were new Sky customers, up from 27% in the previous quarter.

Despite retail price changes, DTH churn for the quarter (annualised) recorded its second consecutive decline to 11.3%, a reduction of 0.8 percentage points from the previous quarter, and is at its lowest level for five quarters.

ARPU experienced a decline in line with our expectations, of £1 to £411, which primarily reflected the one-off loss of PremPlus revenues (£5). We expect ARPU to grow for the rest of the financial year, reflecting greater product penetration, increased contributions from broadband and telephony and the full benefit of the retail price changes which were effective from 1 September 2007.

Product penetration and customer mix continue to improve. The number of additional products chosen by our customers has almost doubled in the last 12 months; and 488,000 customers now choose TV, Sky Broadband and Sky Talk, a 54% increase from last quarter. Sky+ households increased by a record 323,000, more than double the comparable period’s growth, to reach 2.697 million, 31% penetration of the base. Multiroom households’ growth accelerated to 68,000 in the quarter, now 16% of the base; and Sky HD also showed good growth, increasing by 23% to 358,000, 4% of the base. We provide the UK’s most comprehensive high definition TV service and recently announced an agreement with Channel 4 to simulcast its main channel in high definition from December.

During the quarter we again improved the quality and flexibility of our programming. In August we launched our coverage of the new Barclays Premier League season, and recorded our highest average audiences for a football season since 2003/04. Sky Sports will show 92 live games, more than ever before, and also broadcast them simultaneously via HD, broadband and mobile. We renewed our agreement with the European Tour for exclusive live rights to the European PGA Tour and the Ryder Cup for a further four years. The new agreement means Sky Sports will show The Ryder Cup in 2008, 2010 and 2012 as well as 32 events from The European Tour, each season, until the end of 2012. Under a new contract with the Rugby League World Cup organisers, Sky Sports will show the final five Qualifiers this November then all 18 matches from next year’s World Cup Finals exclusively live. We have also secured the exclusive rights to show Ricky Hatton’s WBC Welterweight title fight against Floyd Mayweather in December.

In September we announced Sky One’s Autumn season of programmes, headlined by ‘Are You Smarter Than A 10-Year-Old’ and ‘Prison Break’. The new season includes compelling drama from the US, ground-breaking new UK formats and the return of the BAFTA award-winning series ‘Ross Kemp on Gangs’. 90% of Sky One’s new shows will be broadcast in high definition.

Sky Broadband remained the UK’s fastest growing broadband provider. Customer numbers increased by a further 31% to 939,000, 89% of whom were within our network. Of these on-net customers, around 70% opted for a paid-for package. The increase in the proportion of on-net customers reflected bulk migrations of customers within our network coverage area. During October we surpassed the milestone of one million broadband customers, reflecting our brand strength and speed of execution in the sector. At the end of the quarter the Group also had a further 30,000 customers registered to UK Online, Easynet’s Broadband service, bringing the total number of broadband customers to 969,000 at the end of the quarter.

Sky Talk also performed well. Customer numbers increased by a further 29% to 679,000. We have more than tripled the Sky Talk customer base in 12 months. 52% of Sky Broadband customers at the end of September also chose a Sky Talk package.