Media: A Moment with Marquis

There are business people who work in public companies for decades and never fathom how the City thinks. To call the Square Mile illogical is to accord its thought processes a degree of cool-headed rationality they don't even get close to. Incomprehensible, impenetrable and perverse are more accurate descriptions. A company performs well - the share price plummets. It screws up and the sharks start to circle - the share price soars. And that's just the sensible bit.

At BSkyB, one of the more successful companies of the past 15 years, they must wonder whether turning water into wine would be enough to convince the City that things were on track. Some commentators predict Sky's drive for eight million subscribers by the end of this year will come at a price - a huge marketing bill and rapidly diminishing returns.

Sky is a club: a club whose commercial success depends on maximising its membership. (Advertising sales are important but the subscriptions matter more in revenue terms.) Growth of that membership is restrained by a variety of factors: competition, most recently in the form of Freeview; churn, because not everyone who signs up to the network wants to or can afford to keep it going at £300-plus a year; and the fact that it inevitably becomes more difficult to win new converts. Sky knows that it will have to be very persuasive indeed to win a net 25 per cent new subscribers in the next five years (James Murdoch's stated goal).

It also knows that a hefty investment in marketing is the most potent tool at its disposal. It is probable that the later additions to the club will cost more to recruit. In the long run it will be worth it, but it is a mark of the City's perennial tendency to underestimate the value of marketing that it should regard this investment as a "price to be paid" rather than the key to unlock that extra subscriber potential.

Will Sky make it to eight million by Christmas? The 192,000 new subscribers in the final quarter of 2004 are encouraging. If Sky can keep up the momentum, it will get there.

When Sky TV launched, there were many who said it wouldn't succeed. But it has never been wise to bet against someone called Murdoch and James is no pale imitation of Rupert. The City likes quick results and does not regard patience as a virtue. In Sky's case it should. When that club reaches those huge numbers of members - as in the end it surely will - the company will turn into an unstoppable cash machine.