European broadcaster Sky Plc (LON:SKY) saw its bottom line hit again by the big hike in Premier League football costs, although revenues and subscribers continue to rise.
Back in 2015, Sky and BT Group PLC (LON:BT.A) agreed a record £5.14bn deal to secure Premier League TV rights for three seasons – a 70% increase on the previous three-year deal.
Because of this new agreement – which came into effect at the beginning of the current season – Sky has had to fork out an extra £494mln so far this financial year compared to this point in 2016.
Revenues and subscribers fail to keep pace with costs
The FTSE 100-listed group was able to grow revenues 5% to £9.64bn in the nine months to 31 March 2017, mainly because it added 311,000 new subscribers in that period.
That revenue growth couldn’t keep up with the higher expenditure though, with total costs rising by 8% to £8.63bn.
With costs outpacing revenues, the bottom line was inevitably going to take a hit with operating profit falling 11% to £1.01bn (2016: £1.14bn).
Boss Jeremy Darroch says Sky is “on track”
“It's been another strong quarter for Sky, despite this being our seasonally quietest period,” said group chief executive Jeremy Darroch.
“We continue to perform well, attracting another 106,000 customers across the Group in the quarter, taking growth to 769,000 over the last 12 months.
“We have delivered strong revenue growth and are on track financially with operating profit for the nine months exceeding £1 billion.
“Looking forward, we enter the final quarter of our fiscal year in good shape. Despite the broader consumer environment remaining uncertain, we continue to deliver on our strategy and are on track for the full year.”
Weak advertising markets in UK and Italy
Adding to higher programming costs was the “tougher advertising markets” in the UK and Italy since the turn of the year.
Advertising revenues in the UK and Ireland are down 3% year-to-date compared to 2016’s numbers, although Sky was quick to point out that it outperformed the general ad market, which it reckons is down 8%.
Similarly, “weak consumer markets” hit ad revenues in Italy. In spite of this, Sky managed to bump up its overall advertising revenues by 4% to £613mln thanks to its free-to-air channel in Italy, customer growth in Germany and Sky Adsmart in the UK.
No further news on the Fox takeover
Back in December, Sky reached an agreement to be taken over by 21st Century Fox (NASDAQ:FOXA) with the US mass media giant offering £11.7bn to acquire the 61% of Sky it doesn’t already control.
The deal raised concerns that it might give media mogul Rupert Murdoch – who owns 21st Century Fox – too much control over news output in the UK, given that he has a stake in several newspapers and TV stations.
The European Commission backed the deal earlier this month but Fox and Sky are still waiting on a response from Ofcom and the Competition and Markets Authority in the UK after culture secretary Karen Bradley requested reports from the two regulators.
Ofcom and the CMA have until 16 May to respond, so investors won’t have to wait too long to hear more about the bid.
Shares in Sky opened flat at 982.5p.
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