Sky posted an 11 per cent drop in operating profits today as it announced a nwe partnership with US company HBO to produce ‘world-class drama series’ together.
The broadcaster, which has accepted a takeover offer from Rupert Murdoch’s 21st Century Fox, said operating profits fell to £1billion in the nine months to the end of March because of rising costs from screening rights for Premier League football.
Along the results, the group also announced a $250million (£195million) partnership with HBO, the company behind Game of Thrones, to co-produce high quality drama series. The group said the first programmes will be aired in 2018.
Deal: Sky will co-produce new ‘high drama’ with Game of the Thrones maker HBO
This adds to the rights deal Sky already has with HBO which allows it to show the US network’s programmes on its Sky Atlantic channel until 2020.
‘The HBO and Sky partnership will be open to pitches from across the creative community, in both the US and Europe, and is looking for ideas consistent with the content strategies of HBO in North America and the Sky Atlantic brand in Europe,’ Sky said.
The broadcaster said profits declined because the bill for its Premier League screening rights rose by £494million as well as because of a ‘weaker UK advertising market’.
Shares in Sky rose 1.25p to 983.25p this morning.
The broadcaster said customer numbers in the UK had remained steady after a decline in the previous quarter and despite announcing new price rises.
It added 40,000 new customers in the UK in the first three months of the year, while overall the group added 100,000 new customers.
Group revenues slowed down in the third quarter, rising 5 per cent to £9.6billion, compared to a 6 per cent rise in the first six months and 7 per cent in the first quarter.
UK revenues grew by 4 per cent, but the biggest growth was in Germany at 10 per cent, followed by Italy at 7 per cent.
Profits in Germany and Austria and Italy each grew strongly, together delivering a year-on-year growth in operating profit of over £100million.
However, the group said that ‘weaker consumer markets in the UK and Italy’ meant ‘tougher advertising markets’.
Boss Jeremy Darroch said: ‘We enter the final quarter of our fiscal year in good shape. Despite the broader consumer environment remaining uncertain, we continue to deliver on our strategy and are on track for the full year.’
The results come as Sky is the subject of a £11.7billion takeover bid from Rupert Murdoch’s 21st Century Fox, which is aiming to acquire the 61 per cent of Sky it does not already own.
The deal has the green light from EU regulators, but Ofcom and the CMA have until May 16 to investigate the deal.
Looming takeover: Sky is the subject of a £11.7bn takeover bid from 21st Century Fox
Nicholas Hyett, equity analyst at Hargreaves Lansdown said: ‘With Sky set to be acquired by 21st Century Fox, today’s results are a bit of a side show, though perhaps that’s a good thing because the numbers represent a little bit a wobble.’
‘Growth is slowing, although still respectable, in the key UK & Ireland and Italian markets, while the outlook for advertising is far from rosy as consumer conditions deteriorate. That’s coming just as the increased cost of Premier League football rights is starting to bite – up a whopping £494m so far this year. The group is doing its best to mitigate the impact with a firm grip on other expenses, but it’s a huge headwind to overcome.
‘A lot of this was expected however, and there are certainly positives. Germany delivers a positive operating profit for the first time, while Italy has also seen profits move meaningfully upwards. Once the group is folded into the Fox giant though, these green shoots of longer term future growth will be little more than a footnote in the credits.’