Sky Declines After Customer Defection Picks Up Across Europe

  • Competition from BT Group, Vivendi puts pressure on Sky
  • Sky operates in five European countries including U.K., Italy

Sky Plc reported rising customer attrition rates across Europe as the broadcaster curtailed discounts in the U.K. and Ireland and lost viewers in Italy after failing to secure the rights to Champions League soccer matches. The stock fell the most in 10 weeks.

The 12-month rolling rate at which customers left, known as churn, rose to 10.7 percent in the U.K. and Ireland at the end of March, compared with 10.1 percent a year earlier, Sky said in a statement on Thursday. In Germany and Austria churn rose 1.3 percentage points to 9.8 percent and in Italy the rate advanced to 11 percent from 9.7 percent.

“Churn has seen a significant pickup in the quarter,” Ian Whittaker, a Liberum analyst in London, said in a note. He also cited increased competition for Sky in Europe as France’s Vivendi SA expands its pay-TV operations.

Sky, which operates in five European countries, is facing tougher competition from the likes of BT Group Plc, with which it competes for sports rights, and Netflix Inc. Average revenue per user in the third quarter in the U.K. and Ireland was 47 pounds, while in Germany and Austria it was 35 euros ($40) and in Italy it was 42 euros. As more carriers provide combined TV, Internet and phone services, Sky is trying to differentiate itself with services such as Now TV, which can be viewed on mobile devices and laptop computers.

Shares of Sky fell as much as 5 percent in London, the steepest intraday decline since Feb. 12, and were trading down 4.3 percent at 10:15 a.m., giving the company a market value of 16.9 billion pounds ($24.2 billion).

Sales increased 5 percent in currency-adjusted terms to 8.72 billion pounds in the nine months ended March 31, the Isleworth, England-based broadcaster said. Operating profit increased 12 percent to 1.14 billion pounds.

“Our main concern is with Sky’s long term profitability, we believe it will never reach the heights to justify there valuation as we believe there will be continuing pressures from programming cost inflation,” Whittaker said. He recommends selling the stock.

Rupert Murdoch’s 21st Century Fox Inc. owns about 40 percent of Sky. In January, Sky announced the return of James Murdoch as chairman four years after a high-profile phone-hacking scandal drove him out of the company. 

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