BSkyB Profit Beats Estimates on Broadband Connections

British Sky Broadcasting Group Plc (BSY) reported an increase in fiscal first-quarter operating profit that beat analyst estimates as the U.K.’s biggest pay-television provider won customers for high-speed Web access.

Earnings before interest, taxes and other items rose 5.1 percent to 310 million pounds ($500 million) in the three months ended Sept. 30, the company said in a statement today. Analysts in a Bloomberg survey had estimated 300 million pounds. The stock rose as much as 5.8 percent in London trading, the most in more than a year.

BSkyB, which relies on exclusive sports broadcasts to retain and win subscribers, in June raised spending on English Premier League soccer rights by 40 percent, agreeing to pay 760 million pounds per season. The Isleworth, England-based company, 39 percent owned by Rupert Murdoch’s News Corp. (NWSA), added 48,000 net clients, bringing the total to 10.7 million.

“BSkyB again managed to keep costs under control and win clients in an difficult economic environment, so earnings came in better than expected,” Claudio Aspesi, an analyst at Sanford C. Bernstein Ltd. in London with an underperform rating on the stock, said via phone. “But the long-term question is whether BSkyB will be able to continue its fast growth as it already has a big chunk of the market and more competitors move into the pay-TV business.”

Web Competition

U.S. streaming-service Netflix Inc. (NFLX) started offering movies and TV shows in the U.K. in January and Amazon.com Inc.’s Lovefilm expanded its service in the same month. In response, BSkyB is bringing out its own Web-television service, dubbed Now TV.

BSkyB rose as much as 41 pence to 750 pence and was up 5.6 percent at 749 pence as of 1:23 p.m. The stock declined 3.2 this year through yesterday, valuing BSkyB at 11.7 billion pounds, while the U.K. FTSE 100 benchmark index gained 3.8 percent.

To boost average monthly bills, the company has focused on selling bundled packages that include Internet, TV and telephone subscriptions.

First-quarter sales rose 3.5 percent to 1.72 billion pounds, matching analyst estimates. Growth in retail sales more than offset a “weak quarter” for advertising, the company said.

Programming costs rose by 10.1 percent to 589 million pounds and more than half of this increase stemmed from the first-time inclusion of Formula One broadcasts and the Ryder Cup golf competition.

Formula One

BSkyB last year won a seven-year agreement to broadcast the Formula One racing series from March 2012 that ended exclusive availability on the publicly funded British Broadcasting Corp. The company spent about 2.2 billion pounds on programming last year, up 32 percent from 2007, according to Enders Analysis.

BSkyB said in July that it would buy back 750 million pounds in shares after News Corp. abandoned its 7.8 billion-pound bid for the rest of the company. U.K. lawmakers and regulators questioned Murdoch’s fitness to own the broadcaster after journalists at News Corp.’s U.K. publishing unit were caught hacking into phones of celebrities and bribing public officials for stories.

News Corp. Deputy Chief Operating Officer James Murdoch was today re-elected to the board of BSkyB with more votes than a year earlier when some investors said he hadn’t done enough to clear up the phone-hacking scandal.

‘Lightning Rod’

Murdoch got 95 percent of votes cast at BSkyB’s annual shareholder meeting in London. Last year, he was re-elected as chairman with 81.2 percent before he stepped down from that role in April, saying the hacking scandal had made him a “lightning rod” for criticism, while remaining on the board.

In 2007, James Murdoch was put in charge of News Corp.’s operations throughout Europe and Asia, including the company’s British newspapers. Testifying before a U.K. parliamentary committee, he last year blamed executives at the News of the World tabloid for not telling him in 2008 that intercepting the phones of celebrities and politicians went beyond a single reporter.

James Murdoch joined News Corp.’s U.K. publishing unit News International after the hacking took place. Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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