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Last Updated: Wednesday, 4 August, 2004, 15:53 GMT 16:53 UK
Subscriber slowdown hammers BSkyB
Digital satellite dish and set-top box
BSkyB aims to attract 10 million subscribers by 2010
More than 2bn was wiped off BSkyB's stock market value on Wednesday after the UK pay TV giant reported a slowdown in subscriber growth.

BSkyB shares dropped 19% to 488p after the firm said it had gained just 81,000 new viewers from April to June.

BSkyB needs to sign up an average of 100,000 new subscribers every quarter in order to hit its target of 8 million viewers by the end of 2005.

The share price plunge came despite a surge in full-year profits.

After-tax profits for the year to 30 June came in at 322m ($580m), a 75% increase on the previous year, BSkyB said.

New growth plan

A fresh growth strategy aimed at boosting subscriber numbers from the current 7.4 million to 10 million by 2010 also failed to reassure investors.

The company said it would increase its marketing expenditure by between 40% and 50% next year in order to help it meet its subscriber target.

The strategy also includes a 450m boost in capital investment, and a commitment to returning surplus cash to shareholders.

But BSkyB admitted that the cost of signing up new viewers would increase "marginally in the short term, and by around 10% in the medium term."

"When you have a strategic review that emphasises long term growth at the expense of short term profit, the market will focus on the downside," said Paul Richards at Numis Securities.

"It will take an awfully long time for them to demonstrate the efficacy of their strategy."

Murdoch under pressure

Mr Richards said the decline in BSkyB's shares had been exacerbated by negative market sentiment following recent sharp oil price rises.

BSkyB's quarterly subscriber growth has slowed dramatically from a peak of 244,000 in the final three months of 2002, although the latest figure is up on the 66,000 increase registered between January and March this year.

James Murdoch, BSkyB chief executive
BSkyB boss James Murdoch faces a challenge
But two successive quarters of sub-par growth are seen as a sign that BSkyB will now have to work harder to achieve any further significant expansion of its subscriber base.

One reason behind the subscriber slowdown is thought to be the growing popularity of Freeview, the free-to-air digital service which BSkyB part-owns.

Freeview has attracted nearly 4 million users since its launch in 2002.

The weaker subscriber numbers look set to pile pressure on BSkyB chief executive James Murdoch, the son of media tycoon Rupert Murdoch, whose News Corp empire owns nearly 36% of the satellite broadcaster.

James Murdoch succeeded BSkyB's highly-regarded former chief Tony Ball last year, despite opposition from some shareholders.

NTL in the red

Separately, NTL, Britain's biggest cable TV operator, said that losses for the three months to June had widened to 249.8m, with debt repayments accounting for much of the increase.

The company said it had attracted 325,000 net new broadband subscribers and a further 140,000 new telephone customers, lifting sales by 6% on the same period last year to 584.4m.

NTL chief executive Simon Duffy said he expected the firm to make "continued progress" in the months ahead.

NTL, which is listed on the US stock market but has all its operations in the UK and Ireland, was forced to seek emergency protection from its creditors two years ago after nearly collapsing under the weight of hefty debts built up during a costly 1990s expansion programme.

The company emerged from bankruptcy protection in January last year after its lenders agreed to swap 6.8bn worth of debt for stock, leaving its original shareholders with nothing.

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