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Sky Annual Profits Decrease Due To Rising Premier League Costs

Higher costs for Premier League rights have hit annual profits at Sky "despite a jump in revenues and new customers," according to Chris Johnston of the BBC. The satellite broadcaster said that total costs rose by 5%, with the £629M ($822M) jump in football rights accounting for "most of the increase in programming costs." That helped send pre-tax profit down £27M ($35.3M) to £1.05B ($1.37B), while operating profit slid £87M ($113.7M) to £1.46B ($1.91B). Revenues at Sky rose 10% to £12.9B ($16.9B), "while almost 700,000 new customers brought the total to 22.5 million." While the U.K. and Ireland "remained its biggest market," the company now has 5 million customers in Germany and Austria, while a new loyalty program in Italy has been an "outstanding success." Financial services company Hargreaves Lansdown analyst George Salmon said price increases that followed the higher Premier League football rights costs meant "more customers are choosing to leave Sky than have done for quite some time" (BBC, 7/27).

DRAMA SPENDING: In London, Christopher Williams reported Sky will "boost its budget for dramas by a quarter this year in an effort to keep pace with heavy spending by Netflix and Amazon" and capitalize on a strong int'l "appetite for box sets." Sky announced higher drama spending alongside its annual results, which showed the impact of an 83% increase in its Premier League rights bill. The results also revealed £56M ($73.2M) in costs related to the Fox takeover, with £16M ($20.9M) of that going to advisors and the rest going on "share-based payments" that rose because of the "increase in the share price spurred by the bid." The operator "struggled" to bring churn "under control." CEO Jeremy Darroch said that churn was still "higher than he wanted" and that he "hoped a new loyalty scheme, due to launch in the next few weeks, would improve matters" (TELEGRAPH, 7/27). CAMPAIGN LIVE's Omar Oakes reported despite the "hefty costs" of securing Premier League football rights, Sky still sees sport as a "significant growth opportunity" and cited an estimated 4 million sports fans within its U.K. customer base. In recent months, Sky has expanded its sports coverage offering with new Sky Sports channels such as Sky Sports Mix and dedicated channels for the Premier League, as well as other football, cricket, golf and Formula 1. Darroch also announced that Sky is creating 300 new technology roles "to expand its capability to offer streaming platforms for consumers at home and on mobile devices" (CAMPAIGN LIVE, 7/27).

CASHING IN: In London, David Bond reported Darroch is to receive around £11.5M ($15M) "after cashing in a long-term share incentive scheme," taking his total earnings with the European pay-TV group to more than £72M ($94.1M) since '10. The disclosure that Darroch is to sell 1.2 million shares came as Sky announced a 6% fall in profits last year. In '16, he received a pay package of £4.7M, including a basic salary of £1M, a bonus of £2M and proceeds from a co-investment share scheme of £1.5M. The full details of Darroch's pay, including bonuses, will not be revealed until the company publishes its annual report later this year (FINANCIAL TIMES, 7/27).

'RESULTS ARE ACADEMIC': BLOOMBERG's Joe Mayes reported the results come as investors "weigh the likely success of the Fox deal," which if completed would offer a 10% yield to Sky's current share price. The U.K. government is expected to make a decision on the next step in the process "in the coming weeks." If the deal fails to be completed by year-end, Sky must pay its shareholders a special dividend of about £170M ($222.2M). In a note to clients, investment bank Liberum's Ian Whittaker wrote, "In some ways, the results are academic as the main driver for the share price is the Fox bid. Our view is that the bid is likely to go through" (BLOOMBERG, 7/27).

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