Sky reports 'exceptional' demand in UK

European media giant shrugs off impending price rises to beat growth expectations

Stanley Tucci, Sofie Gråbøl and Christopher Eccleston star in Fortitude
Sky said the drama Fortitude was one of its big on-screen successes during the quarter Credit: Photo: Sky Atlantic/Amanda Searle

Sky attracted more new British customers in the first three months of the year than in any of in the last 11 years, boosting its shares above the £11 mark for the first time since the dotcom boom.

The company reported 127,000 net new UK customers as it aggressively discounted its broadband service to challenge BT and heavily promoted its internet-based Netflix rival, Now TV.

The strong performance on home turf was backed up by accelerating growth in Germany’s relatively under-developed pay-TV market and by small gains in Italy, where Sky has suffered in the country’s tough economic climate.

Overall the company gained 242,000 customers across Europe, almost 70pc more than during the same period last year and ahead of City expectations of around 180,000 newcomers.

Sky shares gained more than 5pc and by mid-afternoon were trading at £11.09, a level they last saw in early 2001. The stock is up more than 17pc this year.

Sky said the third quarter performance reflected “exceptional demand”. It helped deliver sales of £8.45bn for the first nine months, a rise of 5pc. Operating profit increased 20pc, helped by tight cost control and increased high-margin on-demand film sales, to top £1bn for the first time.

The quarter did not include the impact of pay-TV price rises of as much as 9pc that Sky announced in late march and will come into force in June. The increases were announce months in advance of the usual schedule and soon after Sky agreed to pay the Premier League a record-breaking £4.2bn to maintain its dominance of live domestic football until 2020.

Jeremy Darroch, Sky’s chief executive, said he was confident that “customers will take it” because of the broader range of on-demand services and programming on offer. Churn, the closely watched measure of contract cancellations, edged down quarter-on-quarter in the UK and Italy, and rose slightly in Germany.

Sky did not reveal what proportion of its new customers signed up to the cheaper Now TV service rather than satellite pay-TV. Average monthly bills did not rise in the quarter, and have risen by only £1 in the last two years, however.

The company said it was focused on attracting new customers and that there was little evidence of satellite households switching to Now TV.

Sky will launch itself into intensified battle with BT at the end of the Premier League season next month. The telecoms giant is preparing a major attack based on its exclusive rights to Champions League football from next season, including a new ultra-HD set-top box and packages that will include mobile service for the first time.

Mr Darroch rejected calls from some City analysts for Sky to bring forward the launch of its own mobile service, scheduled for next year, in response.

"I don't see any need to bring it forward," he said. "We've got a pretty busy set of plans for the rest of this year so it's steady as she goes on that."

Sky’s plans are understood to include a new set-top box of its own, for introduction this summer, and more investment in original programming. It said its big show for the third quarter, the Arctic drama Fortitude, had been its most successful yet in terms of selling the rights to other broadcasters.

Barclays analyst Julien Roch said: “Yes, the market is more competitive in the UK with players offering new alternatives. But Sky has now demonstrated they can still grow nicely thanks to a superior TV product.”

The broker Morningstar claimed the shares are now overvalued, however.