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Part of this may be due to the fact that its free float -- the proportion of its shares that can be traded on the market -- is quite small. This is because three companies hold almost two-thirds of its shares: News International, the French conglomerate Vivendi and BSB Holdings. Sky is also a difficult business to value on pure fundamentals. In order to hasten the roll out of digital TV, Sky is accepting short term losses by offering cheap set top boxes. This makes it difficult for the individual investor to assess where the company will be once this initial stage passes.
Whilst the valuation still seems tiny compared to the £220b behemoth that is AOL Time Warner (Nasdaq: GIANT) it is perhaps the best that the UK has to offer. Whilst AOL boasts 22m subscribers, Sky sits at around the 8m mark. The difference in subscriber numbers suggests the gap between the two may be a lot smaller than the market valuations initially suggest. And each Sky subscriber provides a reasonably reliable monthly income stream in a very similar manner to AOL.
Sky seems to attacking on all fronts at the moment. It has made its first foray into Europe with the recent purchase of a 24% stake in KirchPayTV. This is the market leader in Germany, a country with over 33m TV households, the largest in Europe. It already has 2m subscribers and launched its own digital service in October.
In the UK Sky Digital is streets ahead of OnDigital. Back in the middle of October it had 1.8m subscribers and it is likely to have cruised past the 2m mark by the end of 1999. OnDigital, the joint venture between Carlton Communications (LSE: CCM) and Granada (LSE: GAA), said today it has 552,000 subscribers. Being a sports and movies buff I'm fairly keen to enter the digital circus. But being a cable customer it seems like I may have a bit of a wait. My local supplier is Cable & Wireless Communications (LSE: CWZ). Although they were about to be taken over by NTL (Nasdaq: NTLI) the Competition Commission has stepped in and is not due to report until February 25. Until then I'll have to be content with seeing Tottenham (LSE: TTNM) let in a hatful of goals from only one camera angle. Another channel on Sky's Digital service that may be of particular Foolish interest is the Money Channel (LSE: MNY). It will offer a 24-hour-a-day broadcast starting from February 7. Who knows, we could even see Fool TV at some stage as well.
Sky also has finger in the pie that is Interactive TV through its 32.5% stake in Open. Yesterday Open revealed that its service had been accessed over 8m times, with half of Sky Digital subscribers using the service at least once a week. Open had processed 128,000 orders between its launch date on October 12 and Christmas, with sales topping £1m a week in the pre-Christmas rush. These sort of revenue levels, in its embryonic stage, suggest this will be a major player and a serious threat to the Internet retailers that seem to spring up on a daily basis. Gameplay.com (LSE: GAM) offer a computer game service through Open and in December this accounted for half of their online revenue. On the banking side HSBC (LSE: HSBA) say that 40,000 customers now use Open to access their accounts. Other companies that have benefited from Open are Woolworths, owned by Kingfisher (LSE: KGF), Dominos Pizza (LSE: DOM) and Toyzone, which has also signalled its intention to float in the near future.
Sky is reportedly pushing for a flotation of Open itself. British Telecom (LSE: BT.A) also own a similar stake in the business along with minority holders HSBC and the Japanese manufacturer Matsushita. By all accounts the UK really is leading the way in interactive TV services. Given that the UK has 23.5m TV households compared to the world total of 1b, this offers some rather nice little expansion opportunities. China is the key market as it has over 30% of the world's TV households. The US follows with 10% with India claiming the bronze at 6%. Is this a market where being the first mover gives Sky a unique opportunity?
In the UK market the rights to Premiership football have received a lot of attention. Many believe securing the continuing rights to twice-weekly bouts of footie with Richard Keys (the hairiest hands on TV) is absolutely fundamental. That seems to be missing the bigger picture. It is one of the key attractions at the moment; after all, Sky paid £743m for the current four-year deal which runs out in May 2001. The fact that Sky are snapping up 9.99% stakes in as many football clubs as possible is an indication that they will not give up this prize without a bitter fight. No company is permitted to own more than 10% in more than one Premiership club.
Finally we have today's announcement from the Office of Fair Trading. They are to conduct another review of Sky's position in pay TV, following a previous review back in 1996. The Director General, John Bridgeman said that "the UK has a unique position in digital broadcasting and the TV industry is rapidly evolving. We have to be sure that competition is healthy and responsive to developments. Our approach is from the perspective that regulation should be kept to the minimum necessary to promote competition". This begs the question why they feel the need intervene in such a young, potentially world-beating industry. At least the United States had the grace to let Microsoft (Nasdaq: MSFT) become the largest company in the world before they got too uppity.
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