Press Office

Aired: Thursday, 29 July, 2010 19:30
Jeff Randall Live

Any quotes used must be attributed to Sky News, Jeff Randall Live

JEFF RANDALL:

Many companies in the media industry were in deep trouble even before the onset of recession. While some broadcasters and publishers that rely purely on advertising for revenues are fighting to keep afloat, those with subscription based businesses seem to be performing more resiliently. No surprise then that today’s annual profits from media group, BSkyB, the owner of Sky News, are being crawled over by City analysts and media watchers. Joel Hills has all the details at Sky News Centre.

JOEL HILLS:BSkyB beats market expectations and its rivals with a surge in profits. Pre-tax profits for the year to the end of June hit £1.17 billion driven by a doubling in HD subscribers. One in five of the firm’s 9.86 million customers now sign up for TV, broadband and phone packages. The company will be spending £1.7 billion on content in the next year and it has confirmed that it has signed a deal with the US giant HBO, the company behind The Wire and True Blood to broadcast all its future programmes in the UK. Another first for the company will be the roll out of a dedicated 3D TV channel to residential customers from October but Sky also faces some crucial challenges. The current squeeze on household budgets could potentially hit Sky’s target of ten million customers by the end of this year and Rupert Murdoch’s News Corporation, which already owns almost 40% of BSkyB is intent on buying the rest of the company, but at what price? And then there’s the Pay TV dispute, Sky’s wholesaling its channels to rivals like BT Vision remains a key legal battleground. The satellite broadcaster lost the first round in a regulatory ruling and BT announced plans to undercut Sky. Sky responded by raising the wholesale value it puts on Sky Sports One and Two, citing the new Premier League football deal.

JEFF RANDALL:Joel Hills reporting there. Well joining me here in the Gherkin now is BSkyB’s Chief Executive, Jeremy Darroch. Jeremy, nice to see you, thanks for coming in. Now look, I’m paid to pick holes in these results but even your enemies admit that they’re pretty good. I suppose a suspicious man might say have you stuffed in all the good news to make sure that News Corporation which wants to bid for the rest of the company has to pay a full price?

JEREMY DARROCH:No, quite the opposite. We’ve been investing in our business for a three year period now doing really two things, first of all investing on screen so we give a better service for customers but also developing new services, things like home phone, broadband and high definition. What we’re seeing now as we move out of that investment phase are really two things, more customers signing up for Sky and importantly more of our existing customers taking more products from us and these increases are reflected in our financial performance. So we posted double digit growth in revenues, profits, cash flow earnings today and it is really a consequence of three years of hard work now starting to manifest itself and I think what we’re seeing actually now is a business that is not only able to grow but also able to accelerate returns at the same time.

JEFF RANDALL:Before we gallop off on any more of those results, tell us about that bid because shareholders will want to know where we are. It was an indicative bid, nothing firm, what’s going on behind the scenes?

JEREMY DARROCH:Well that’s right, we haven’t yet had a formal bid, NewsCorp came with a proposal, the independent directors said that the proposal, the rate at which they came in wasn’t high enough. NewsCorp are now working through a regulatory process and as they get through that and they come back with a formal bid then that will be the time to consider it then. In the meantime our job as a management team is to keep running the business as well as we can.

JEFF RANDALL:An interesting reflection on the share price, shares closed tonight at £7.11, that’s a big gap between that and the indicative offer. It says the market perhaps fears that News Corporation perhaps won’t come back, do you share those fears?

JEREMY DARROCH:Well I think it’s really for News. They’ve got to go through the regulatory process, they have got some financing that they need to have in place and if and when they come back we’ll consider it then. I think the good news is you can see from our results today that on a stand alone basis we have got a good future, a clear plan and as I say, our job is just to stay focused on that and execute as well as we can.

JEFF RANDALL:Tell us about HD. Look it’s a neat development but in a recession it’s not a must-have product, nobody needs HD to watch Sky. Are you surprised that so many people have paid the extra?

JEREMY DARROCH:I’m not, I have to say. I think when you see HD and the outstanding picture quality and also sound quality you get, you see a very consistent trend for customers, they say ‘I just can’t go back’. We’ve got 43 HD channels today, we charge 30p a day extra for that and how many times do you spend 30p a day? So it is not only great quality but I think it is really good value as well.

JEFF RANDALL:What’s the driver, sports or movies?

JEREMY DARROCH:A bit of both. Sports certainly when we started off but movies of course are great in HD and what we are increasingly doing now is broadening out our general entertainments programming as well so we will do documentaries, wildlife, that type of content looks fantastic in HD.

JEFF RANDALL:Before you came on, the previous show was talking about 3D. Can consumers grasp all this groovy stuff, do they really want that?

JEREMY DARROCH:Again I think they do. We’ve had 3D in pubs and clubs now since April and the response we’re getting from customers when they see 3D is very, very strong indeed. I think 3D will be a little bit different, it will really be a big event TV that you share with family and friends or you go out and see. Certainly sport looks great in 3D, movies again will be very strong.

JEFF RANDALL:As a consumer, do you need a different type of box?

JEREMY DARROCH:No, if you are a Sky HD customer you are ready to go. You will need a new TV but we can deliver that through our existing consumer premises equipment so your existing set top box will deliver that.

JEFF RANDALL:So the box works, the screen doesn’t and you need the goggles.

JEREMY DARROCH:You need the goggles, yes, you do and our technology works, there are two types of goggles, what are called active which are battery driven or just the standard sunglasses really and ours works with both.

JEFF RANDALL:I love it, sitting there in sunglasses watching TV! What about the blot on your landscape which is what we in the industry call churn, that is basically Sky customers dropping out. The number was up to 10%, are you worried?

JEREMY DARROCH:No, no, 10% is globally best in class, so we’re very happy with that. Our target, our medium term target is to stay about 10. It tends to bounce around a bit, sometimes it will be a little bit less, sometimes a little bit higher but we’re happy with that.

JEFF RANDALL:Do you know why they’re dropping out, is it to do with recession, is it to do with going to competitors?

JEREMY DARROCH:There is some churn that is unavoidable, it’s sort of death, divorce, moving home, those sorts of things. A little bit on the recession of course but we offset that as we find more products for customers, then they tend to stay around for longer so it always going to be a mix of things.

JEFF RANDALL:What about the other irritant, BT, if I can so describe them? You have been forced by Ofcom to provide Sky Sports to BT at what you would say is a knock down price, where are we on that because you are appealing aren’t you?

JEREMY DARROCH:We’re appealing, yes. We’re taking Ofcom to the Competition Appeals Tribunal, we’re waiting to hear their defence and that will roll through over the next few months. Ofcom started this three years ago, what we’re seeing now is BT loss leading on a really narrow part of our sports but tying customers in to high priced 24 month broadband and telephony contracts. The good news is that customers are very expert in seeing through the value in contracts and where it lies and they also like a broad choice of content so from Sky they’ll get five sports channels in standard definition, high definition and increasingly 3D, but they will also get a great range of contract. As you said earlier on, we have just signed a multi year deal with HBO.

JEFF RANDALL:Yes, what does that mean for viewers here? It is more content, does it mean more cost?

JEREMY DARROCH:No, that will be bundled in to their existing subscriptions and we’ll be able to give them even more value to their service.

JEFF RANDALL:And just remind us of the goodies you get from HBO.

JEREMY DARROCH:Well we’ll start in the autumn with a launch with a series called Boardwalk and that is a Martin Scorsese prohibition drama. We’ll have another series called Luxor starring Dustin Hoffman. HBO have long been associated with really outstanding content and we’ll have a whole stream now that will come through over time.

JEFF RANDALL:Let me bring you back to the NewsCorp bid, one of the fears out there is this, that look, in the States NewsCorp operates TV slightly differently, it has Fox and Fox has attitude, it has a right of centre attitude. Lots of people in this country fear that something bad will happen to Sky News, its impartiality, if NewsCorp takes over. Can you give guarantees on that?

JEREMY DARROCH:Well I can certainly give a guarantee if I’m CEO that Sky …

JEFF RANDALL:No Foxification?

JEREMY DARROCH:Absolutely not. You know, Sky News has been successful for 21 years because it has been independent. In addition to that there are strict rules around impartiality of broadcast news in the UK but it’s uniqueness, and Sky uses its uniqueness, is that it has absolute editorial independence from everybody – myself included. The people who decide the editorial stance for Sky News are the Sky News team and the editors, you know yourself and others included.

JEFF RANDALL:Give us a sense of how you see the economy panning out over the next couple of years as the austerity measures kick in, do you think the government is doing a good job?

JEREMY DARROCH:Well I think it will be tough. We know VAT is going to go up to 20% in January, I think we have yet to see the fall out from what are pretty aggressive measures and cuts in spending.

JEFF RANDALL:In that sense are you a recession proof business because people stay at home?

JEREMY DARROCH:Yes, that certainly helps us and that's a trend that we’ve seen over the last couple of years and Sky is great value for money, there is a great choice for customers to say, do you know what, I’ll spend a bit more time at home, I’ll upgrade my home entertainment and I can probably get everything from Sky for a month for the cost of one night out. So we’ll have to see, it’s important that as a business we are flexible in our costs and we invest in the right areas but I think we go into in pretty good shape.

JEFF RANDALL:But you make internal forecasts, you’re not predicting a quick bounce back?

JEREMY DARROCH:No, I think it will take some time and clearly some of the measures we are going to have to take to address the deficit are going to take some time to flow through.

JEFF RANDALL:Let’s finish on that deficit, I’ve put this question to every other businessman I’ve had on the show this week, do you get the sense that the government is taking the right action, do you believe in the speed of deficit reduction?

JEREMY DARROCH:Yes, I do. I think it needs to be sensibly done but at the end of the day we have to make progress and I think simply putting off hard decisions to tomorrow rarely leads to better outcomes. We need to start addressing the issues and it is going to be painful but the sooner we get into it I think the quicker we’ll get out of it.

JEFF RANDALL:So what economists call a J curve, i.e. things get worse before they get better but it has to happen.

JEREMY DARROCH:What we know is that the level of public finances are unsustainable as they are, the deficit is unsustainable, we have to take action to address that and then I think we have to rely on support of private enterprise and businesses that are successful to pick up more of the will. We have added something like a thousand jobs in Sky this year and if we can keep being successful then we can do our bit to help the economy recover.

JEFF RANDALL:And a final peer into the Darroch crystal ball, I mean Sky has made its way in the world by being inventive. Beyond 3D what’s the next big thing?

JEREMY DARROCH:Oh it’ll be ultra-high high definition, 4D, who knows? It’s hard to predict but the one thing you can say is it’ll be round the corner.

JEFF RANDALL:All right Jeremy, many thanks for coming in, much appreciated, nice to see you.