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Pay TV player BSkyB is winning the war to dominate digital

This article is more than 12 years old
BSkyB has built an unassailable position as its activities are already affecting the broadcasting ecology beyond pay TV

A good set of financial results from BSkyB hardly counts as news these days – it has after all been the way of things for some time. But look a little closer and these results aren't just good at the headline level. Yes, there were customer additions in every sector of the business and the broadcaster is on course to exceed £1bn annual profits on a strongly rising trend. But it also shows a diversified business with real range and depth and a strongly increasing capacity to compete right across the rapidly converging TV and telecoms marketplace.

While the rates of customer and product-sales growth in pay TV may show signs of slowing (probably inevitable as the company sails beyond its 10 million subscriber target), during difficult times for consumer spending, they are more than offset by rising numbers of new broadband subscribers – up 53% on the same quarter last year. Which is why competitors are looking at BSkyB not just with green eyes but mounting concern that the position it has built for itself might already be unassailable.

A succession of massive investments in premium content, services and platform development have helped Sky become utterly dominant in pay TV.

In the beginning this didn't particularly bother either BT or the traditional terrestrial broadcasters. BT, because it simply failed to see the real potential significance of premium pay TV content for the future of its legacy fixed-line telephone business; and the traditional broadcasters were so convinced of the outstanding quality of their "free" offerings they just didn't consider Sky to be a serious strategic threat. Even if some of them did, they weren't prepared to invest on the same scale or take the same kind of risks to compete effectively.

What a difference a couple of decades makes. Pay TV is now seen as a key driver of Britain's digital future because of the revenues it can generate to pay for developing it. In narrower commercial terms, the so-called "triple play" – customers who take pay TV, telephone and broadband in the same package – is becoming a key measure of business success. With 26% of its customers doing just that, no prizes for guessing who's winning that war. Well, it's not Virgin Media or BT.

Not even Ofcom's pay TV review and the requirement it places on Sky to make its premium sports channels available at regulated wholesale prices would appear to have made very much difference, so far at least. Meanwhile, Sky's acquisition last year of Virgin channels such as Living has further strengthened its hand in negotiating down carriage fees it pays to other channel providers on the Sky platform.

Sky is beginning to have an impact on the hitherto separate and protected world of terrestrial TV. The launch of Sky Atlantic, whose explicit aim is to offer the very best of US acquired programming, backed by the almost limitless buying power that comes with a billion pounds a year of profit, is already causing trouble for Channels 4 and 5. You can see Sky's activities affecting broadcasting ecology beyond the world of pay TV. Throw in Sky's growing investment in original UK content – HD news and arts channels, and a possible £100m a year on new high-end drama – and even the BBC is getting worried about losing key talent and prestige projects. Oh, and don't forget also that Elisabeth Murdoch's Shine production company is now part of the News Corp family, even if it will be run separately from Sky.

Sky will be much in the news in the coming weeks. Appeal hearings by all parties to the pay TV review scheduled to begin on 9 May will come hot on the heels of Jeremy Hunt's expected approval of the NewsCorp/Sky merger. But, beyond the important but specific question of news plurality, Sky is emerging as a very big and influential force across a much wider field. It may have got there by being the best-run commercial TV business in the UK, but Sky's scale and sheer financial power is already beginning to spook regulators and politicians across the party spectrum. Just look at the alacrity with which the government took up Ofcom's recent suggestion that the current regulatory regime might not be capable of securing the public interest.

Expect to see Sky's traditional corporate self-image as the Millwall of British broadcasting (nobody likes us but we don't care …) superseded by something much more friendly, touchy-feely even, as it tries to develop what is already a commercial success into a force for creativity and more. Now, in corporate affairs terms, that might be what's called a challenge.

Steve Hewlett presents The Media Show on BBC Radio 4

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