SHARES FALL AS BSKYB PLANS FOR LONG

SHARES FALL AS BSKYB PLANS FOR LONG-TERM

British Sky Broadcasting saw more than £2bn ($3.6bn) wiped off its market value on Wednesday after Europe’s largest pay-television group outlined growth plans.

Investors took fright at proposals to increase marketing and infrastructure investment to attract customers to the pay-TV market and the pressure this puts on the company’s short-term profitability.

The shares fell 19 per cent, or 114p, to a two-year low of 488p, despite efforts to sweeten the pill with a share buy-back announced less than a year after BSkyB reinstated dividend payments following a five-year freeze.

ames Murdoch, BSkyB’s chief executive, said a “short term compression in operating margin” was expected in 2006, with significant growth from 2007 onwards. “There will be a compression in terms of margin in the short term because of the increased volume of subscribers coming in in those years,” he added. “The future is about arresting a very short-term depression in terms of the run rate of new additions.”

Some analysts’ fears that growth was running out of steam under the existing business model were compounded by yesterday’s disappointing revelation that just 81,000 new subscribers were added in the final quarter of last year to 7.4m.

But Mr Murdoch said BSKyB was on track to meet its target of 8m subscribers by the end of 2005. He also set out a new target of 10m subscribers by 2010.

About £25m will be spent on above-the-line marketing and a further £450m would be invested in its infrastructure over four years.

Pre-tax profit almost quadrupled to £480m in the year to June 30, compared with £122m the previous year. Group turnover was £3.66bn, up from £3.19bn in 2003. The full year dividend was 6p, payable from earnings per share of 16.6, up from 9.6p.

BSkyB expected the penetration of pay television to reach 80 per cent of UK households in the long-term, compared with 43 per cent at the end of this period.

It believed it would benefit from generational differences in the take-up of pay television and by technological advances.

Mr Murdoch said: “As a management team you have to be focused on the long-term, on creating real, durable value . . . we’ve only scratched the surface here this is essentially a business that has its best years ahead.”