Bottom Line: Costs bite but Premier commitment pays off

Elizabeth Fournier

NO MATTER who wins, wars are always expensive. When BT kicked off its bid to take on rival BSkyB with its own dedicated sports channels earlier this year, it sparked a bidding battle for Premier League football rights that sent prices soaring.

Sky acknowledged the hit in its first quarter results yesterday as programming costs rose six per cent after it splashed out £760m per season – significantly more than the £540m it paid last year.

But the gamble seems to be paying off. Customers are flocking to Sky’s broadband service – the firm added 111,000 during the quarter compared to analysts’ expectations of 75,000, and more and more people are taking up the so-called triple play package combining TV, broadband and phone, driving average revenues per user higher.

The figures – and investors’ delighted reaction to them – are sure to worry BT, whose foray into sports has been widely seen as an attempt to raise its profile in the broadband market by offering a connection for free alongside the channels. It’s here, rather than on the pitch, that the real battle is taking place. Sky’s traditional pay TV market is all-but saturated, while BT has long been trialling ways to diversify from its fixed-line business.

Meanwhile relations between the rivals show no signs of thawing, with this week’s deal to show premium Sky Movies channels on BT’s TV packages taking a full three years to negotiate.

Yesterday’s results show Sky has so far been undiminished by BT’s charge, but this war is far from over. For the meantime though, investors are right to support this strong player.