All eyes on BSkyB results for any signs of pay-TV slowdown

Posted by Chris Wynn Tuesday, October 28th, 2008

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BSkyB reports its latest quarterly results on Friday and the market will be taking a keener interest in the pay-TV company’s financials than usual. Its operational and financial performance will be seen as a barometer for other TV and communications providers, and will give some important indicators on how such companies could fare in worsening economic times.

The historic view has been that pay-TV companies are relatively well insulated against recession: they are not overly exposed to advertising and customers are more likely to sacrifice a £50 family night at the cinema rather than a similarly priced monthly pay-TV subscription.

But a recent report from Continental Research suggests that this might not be the case. The company’s own research says that 13% consumers would be getting Freeview as a consequence of the downturn. The report does not outline how many of the 1,022 people polled had pay-TV and therefore it is hard to make any real projections.

But Continental believes that Virgin Media and Sky Digital customers will dump their subscriptions, as they look to fall back on free multichannel TV or opt to pay for what they watch on an á la carte basis.  Coupled with some gloomy reports from investment banks, the prospects for the pay-TV sector have been questioned.

I think the BSkyB of three years ago would be in a more precarious position than it is today. Now, as a “triple play” operator, it should have the stickiness to keep hold of some of the candidates that would look to churn. A customer that takes two or three products has greater loyalty than a customer that takes just one.

Even if there is “spin down” – where customers downgrade their packages to cheaper options – the chances of these homes abandoning Sky altogether, and losing their free broadband and cheap telephony in the process, appear more remote.

It must also be noted that Continental Research’s poll points to a 13% of respondents taking Freeview within the next 12 months – this figure is just over three percentage points higher than BSkyB’s actual annual churn rate. In such tough economic times, pay-TV operators might not be too upset with such a figure. However, the true impact of the last few weeks’ turbulence won’t be truly felt until the fourth quarter results.