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SBD Global/October 18, 2013/Media

Sky's Earnings Suffer 8% Decline Due To Ongoing Sports Battle With BT

Sky "suffered a decline in operating profits over the quarter as it ramped up spending on content and marketing to defend against BT’s move into televised sports," according to Robert Cookson of the FINANCIAL TIMES. The 8% decline in operating profits to £285M ($460M) over the three months to the end of September "was not as bad as investors had feared, however, sending Sky shares up sharply on Thursday." Sky is "locked in a big-budget battle for sports fans with BT," which has to date invested about £1B in its recently launched sports channels to "bolster the appeal of its broadband services." Sky CEO Jeremy Darroch said the decline in operating profits “was in line with our expectations as we invest in new services and absorb higher Premier League costs.” Sky this year negotiated a Premier League deal that involved paying £760M ($1.2M) a year for the next three years. This compares to about £540M a year under its previous contract. The company’s total programming costs for the quarter rose 6% to £622M compared with the same period last year. Marketing costs were up 21% to £320M. Berenberg Media Analyst Sarah Simon said that Sky "would face more pressure to increase spending on sports rights." Bids for rights to the Champions League football competition are due next month and BT has indicated that it "may enter the running and challenge current UK rights holders ITV and Sky." JPMorgan Media Analyst Mark O’Donnell said that while Sky’s results were better than expected, it was "still too early to draw definitive conclusions about the consequences of increased competition from BT." O'Donnell: "Given that BT and other key U.K. broadband players are yet to report [their results], the market will need to wait to put Sky’s broadband additions for the quarter into context" (FINANCIAL TIMES, 10/17).
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