| Brussels is investigating the £1bn that Sky has
paid to renew its exclusive rights to screen English Premier League
football. The Commission has suggested that the high cost of the deal
may be harmful to consumers, who must subscribe to Sky to watch the
games.
Sky has told customers that most will see a price rise of more
than five per cent from next January. The cost of Sky World, the
package taken by more than half the subscribers, will rise from
£38 to £40 a month. The basic "family pack"
will increase from £18.50 to £19.50 a month.
Previous years have seen most packages go up by no more than a
£1 a month. This time, some packages will rise by £4.50
a month. Kingsley Wilson, an analyst at Investec Securities, said,
"In the analogue era BSkyB was adept at increasing package
prices by well above inflation up until 1998. During the switch
over from analogue to digital, when BSkyB was vulnerable to customer
churn (people leaving the service), the package increase policy
was put on hold. With the majority of the base digital by January
2001 BSkyB resumed its pricing strategy."
The company has seven million subscribers, giving it a dominant
position in the pay television market. Far from losing customers,
the previous price increases have seen the churn rate fall. It now
stands at a world-beating 9.4 per cent.
Wilson said the company could raise prices because it also improved
its content each year. "What they do is actually give the customer
hell of a lot more... for instance 102 Champions League games. On
the rise, that just 2p a game," he said. Investec yesterday
increases its forecast pre-tax profits by three per cent for this
financial year (2003-4) to £511m and by four per cent for
the next fiscal year.
The broker added that, unlike previous price rises from which some
subscribers were exempt, the increase this time would be across
the board. Wilson said, "Price rises set for January 2004 further
demonstrate BSkyB's ability to monetise its position not only on
the revenue side, but increasingly on the cost front. We envisage
no impact on churn."
A spokesman for Sky said, "We continue to make very significant
investments, providing new programmes, new services and new channels."
He said that, for the financial year ended June 2003, Sky had raised
its spending on content by 11 per cent to £1.6bn. The new
football deal was an added programming cost.
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