British Sky Broadcasting Group Plc Subscription Services Soar Despite BT Group Plc Rivalry

The shares of BSkyB (LSE: BSY) (NASDAQOTH: BSYBY.US) rallied by 5% to 920p this morning after the pay-TV giant revealed it had grown its paid-subscription services by 800,000 last quarter.

Sky’s position as the dominant market leader in premium television services has been under scrutiny in recent months, after BT Group launched its own heavily-marketed sports channel. Despite going head-to-head in competition for Premier League viewing rights, Sky’s customer retention remained strong at 89%, while TV and broadband subscriptions reached new all-time highs.

Reflecting the boost in subscription services, Sky’s revenue grew by 7% to £1.8bn for the quarter. Operating profits fell by 8% to £285m however, as the step-up in Premier League fees, marketing campaigns and higher infrastructure costs weighed on Sky’s margins.

With rumours that BT are likely to bid heavily for the rights to UEFA Champions League coverage, Sky investors will be mindful of any further impact on margins from higher content costs.

Commenting on the results, Sky chief executive Jeremy Darroch added:

“We have made a very good start to the year. Strong growth across the board drove a 7% increase in revenues and we added 50% more new subscription products than last year as customers continued to respond to the quality and value we offer. Adjusted operating profit was in line with our expectations as we invest in new services and absorb higher Premier League costs.”

With a market cap of £14bn, Sky’s shares trade at 15 times expected earnings, and offer a prospective dividend yield of 3.4%.

Of course, it’s early days in the battle between Sky and BT, and it remains to be seen whether Sky can continue to grow its huge customer base.

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> Mark owns no shares mentioned in this article. The Motley Fool has recommended Sky shares.