BSkyB claims advantage in its battle with BT after HBO deal

The contract is part of efforts by Sky, the UK’s dominant pay-TV provider, to offer increased content and services to retain customers after BT encroached on its traditional stronghold of sports coverage last year.

Sky reported “explosive growth” in its on-demand TV service and a 40 per cent rise in the take-up of products over its Christmas quarter.

The group said its advertising campaign fronted by Absolutely Fabulous star Joanna Lumley helped it notch up five million customers for high definition TV in the quarter to December 31.

Higher sports rights and content investment costs weighed on half-year underlying operating profits, which fell eight per cent to £595m, although this was better than expected.

Sky added another 110,000 broadband internet customers in the last three months of 2013, despite the challenge from BT, which launched its own sport channels last August offering free Premier League football if customers sign up to a broadband package.

Sky was left reeling after losing out in November on the UK rights to show Champions League and Europa League matches to BT, which paid almost £900m to show both Uefa competitions for three seasons from 2015/16.

Jeremy Darroch, chief executive of BSkyB, said the group was not prepared to pay over the odds for the rights, saying it believes there are “better ways to invest for our customers”.

Subscribers took up 873,000 new products in the Christmas quarter, up 42 per cent year on year and beating analyst expectations of 731,000.

One million internet-connected HD boxes were installed in the quarter, making Sky’s connected TV platform the biggest in Britain and Ireland with 4.4 million customers.

“Customers love the benefits that a connected box brings them; on-demand usage more than trebled year on year,” said Mr Darroch, a Hull University graduate.

“The number of movie rentals we are seeing through Sky Store is growing very, very quickly. It doubled thanks to the popularity of titles like Despicable Me 2.”

Citi analysts said that Sky’s exclusive HBO deal had calmed concerns that BT’s ambitions would widen to include movie and entertainment content.

“With one of the main rights packages tied up until 2020, this is now less likely, or at least more challenging,” they said in a note.

The strength of demand for connected boxes was another surprise.

“This may actually depress earnings in the near term, but the implications operationally are significant,” the analysts said, noting that internet-connected boxes drove transactions on the Sky platform and lowered the number of subscribers leaving the service.

Mr Darroch declined to reveal the cost of the deal with HBO, which is owned by Time Warner, but reports put it at £275m.

He also declined to comment on reports that Sky has held talks with Vodafone about adding a mobile offering to boost its defences against BT, but Mr Darroch said Sky was “open-minded” about tie-ups.

Sky reported an eight per cent rise in revenue to £3.75bn in the six months to December 31, broadly in line with expectations.

It increased its interim dividend by 9.1 per cent to 12p a share.

The company said its Yorkshire-based betting business Sky Bet had a strong performance with a 27 per cent increase in revenues to £84m following a 15 per cent rise in unique users.

Sky Bet’s managing director Richard Flint said: “We’re taking share in a growing market. We’ve done really well in mobiles and benefited from The Sky Bet Football League, which gives us a greater profile.

“We’re growing spend per user, which is now north of £100 a year per person.”

Sky Bet re-launched its mobile phone app last year.

Sky Bet increased staff numbers in Leeds by 10 per cent over the year to 450 people. A small restructuring of the communications department resulted in the loss of one job, but Mr Flint said there were no other job losses.

Last year, Sky Bet became the new title sponsor of The Football League under a five-year agreement.

The Football League’s flagship competition has been retitled The Sky Bet Football League, with its three divisions being titled The Sky Bet Championship, Sky Bet League 1 and Sky Bet League 2.

The agreement is Sky Bet’s first ever off-screen football sponsorship and is aimed at building greater awareness of its growing range of online and mobile betting services.

“This is really big news for Sky Bet and also for the region,” said Mr Flint. “There are 10 Yorkshire clubs in those three divisions. We have a strong presence in Yorkshire so we are keen to make the most of our presence here.”