Sky moves into black with profits of £260m

Following five years of investment in its digital pay-TV operation, Sky has produced its first annual pre-tax profit.

Total revenues were up 15 per cent to £3.1 billion returning a pre-tax profit of £260 million.

The long wait to move into the black followed Sky's decision in 1998 to convert its service from analogue to digital and it embarked on an expensive process of giving away free digital boxes and satellite dishes.

Sky's subscriber numbers increased by 744,000 on last year to 6.8 million and Tony Ball, the chief executive of BSkyB, said he was confident that it would hit its target of seven million by the end of this year.

The digital broadcaster managed to increase its average revenue per user by 5 per cent to £366. It was able to slash its marketing costs by £16 million and reduce the cost of subscriber acquisition.

Churn, the number of subscribers who opt not to renew their subscriptions, stood at 9.4 per cent for the year - a reduction of 1 per cent on the previous year. By comparison, churn rates for the now- defunct ITV Digital service had stood at 25 per cent.

An improvement in advertising revenues contributed to the growth. Ad revenue was up 13 per cent to £284 million reflecting the growth in subscriber numbers. Sky claims this above-market growth will continue until at least the end of the year.

Interactive advertising grew by 54 per cent on the previous 12 months and Sky's interactive applications, including Sky Active, enjoyed growth of 17 per cent to £218 million.

The number of subscribers to Sky's personal video recorder service, Sky+, broke through the 100,000 barrier, an increase of 77,000 on the previous period following heavy on-air promotion.

As a result of the growth in pay-TV subscribers and the launch of the Freeview service, Sky has been able to increase the reach of its channels. The total number of UK and Irish homes that can receive one or more of Sky's channels now stands at 12.2 million. This is reflected in a growth in Sky's viewing share in all UK homes. It reached 6.4 per cent for the year compared with 6.1 per cent the previous year.

Ball said: "Over the past five years, Sky has grown significantly, doubling its revenue and almost doubling its direct-to-home subscriber base.

"We are highly confident of reaching our seven million subscriber target by the end of 2003 and, with only half of households signed up to digital television, there is still plenty of growth potential in the UK. We will continue to focus on sustainable improvements in our operating margin."

Ball, who is delivering the McTaggart Lecture at this year's Edinburgh TV Festival, has set the company the new target of eight million subscribers by the end of 2005. He claims that Sky could have up to 13 million customers.