Last updated: October 17, 2013 4:17 pm

Sky earnings hit by BT sports battle

British Sky Broadcasting suffered a decline in operating profits over the quarter as it ramped up spending on content and marketing to defend against BT’s move into televised sports.

The 8 per cent decline in operating profits to £285m over the three months to the end of September was not as bad as investors had feared, however, sending Sky shares up sharply on Thursday.

Investors were also relieved that Sky managed to add 111,000 broadband customers in the quarter, taking its total to more than 5m. The figure was ahead of the 102,000 net new additions reported last year, and much higher than analyst expectations of just 75,000.

Sky is locked in a big-budget battle for sports fans with BT, which has to date invested about £1bn in its recently launched sports channels to bolster the appeal of its broadband services.

Jeremy Darroch, Sky chief executive, said the decline in operating profits “was in line with our expectations as we invest in new services and absorb higher Premier League costs”.

Sky this year negotiated a Premier League deal that involved paying £760m a year for the next three years. This compares to about £540m a year under its previous contract.

The company’s total programming costs for the quarter rose 6 per cent compared with the same period last year to £622m. Marketing costs were up 21 per cent to £320m.

Sarah Simon, media analyst at Berenberg, said Sky would face more pressure to increase spending on sports rights. Bids for rights to the Champions League football competition are due next month and BT has indicated that it may enter the running and challenge current UK rights holders ITV and Sky.

Sky’s total revenues rose 7 per cent to £1.8bn in the quarter. The company reported strong growth across all its television offerings, adding 37,000 net new TV products and 107,000 new customers to its high-definition service.

The company ended September with 11.2m retail customers, adding 71,000 in the quarter.

Mark O’Donnell, media analyst at JPMorgan, said that while Sky’s results were better than expected, it was still too early to draw definitive conclusions about the consequences of increased competition from BT.

“Given that BT and other key UK broadband players are yet to report [their results], the market will need to wait to put Sky’s broadband additions for the quarter into context,” he said.

Sky said its investment in content was “resonating strongly with customers” and it reported record viewing of the first 23 live Premier League matches of the season. Sky Sports viewing increased by almost 15 per cent in the quarter.

The company said more customers than ever were using its mobile TV service Sky Go. Sky Sports viewing on Sky Go was up more than 40 per cent on the same time last year.

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