Mixed forecasts dampen sunny outlook for weathered BSkyB

Fantasy Schedule” was the title of the opening session of this year’s Edinburgh TV festival, the traditional curtain-raiser to the autumn ratings battle. These days there’s a fantasy element about all TV scheduling, as controllers yearn for a magic wand to conjure up gaps in their competitors’ line-ups and impregnable blockbusters in their own.

With five terrestrial channels and 40 other stations competing for viewers, the days of the odd soft slot – for the fast-on-their-feet to exploit – are long gone.

Breakfast, post-10pm, the World in Action and Panorama slots, 6pm all the weak areas have been plugged several times over by channels aiming at target groups not currently served at those times. Now daytime’s being tackled too, with new offerings from the BBC, Granada Sky Broadcasting and the Carlton Food Network. It all makes Dawn Airey’s job, as she tries out to carve out a place for Channel 5, increasingly challenging.

But for real fantasy broadcasting, TV executives need look no further than BSkyB’s annual results, which produced the type of figures rival companies can only dream of – profits up 66 per cent, turnover up 30 per cent to over a billion pounds, and UK subscribers breaking the 5 million mark.

Having just secured its all-important contract with the Premier League, survived the cable companies’ bid to have its power curbed by the Office of Fair Trading, and signed a digital TV deal with Leo Kirsch in Germany, it has been a remarkable few months for the satellite broadcaster.

You might have thought that would have satisfied the City, but ungratefully it marked down the shares, after months of growth. By contrast, the price of Flextech shares went UP by 27p on stories that it was talking to the BBC about launching a raft of new channels. Unlike BSkyB, Flextech has never made a profit – indeed, the following day it announced an increase in its half-year losses.

Cynics might say the difference between the two reactions is that analysts believe Flextech’s performance can only get better, whereas BSkyB will find it hard to improve on its glowing results.

Despite its dominant position, BSkyB will not have things quite its own way in the year ahead. While its costs are going up – for the next Premier League contract and its expensive German venture, not to mention the prospect of the UK digital services – most of its UK subscriber growth last year came from cable homes, which bring it less revenue than direct-to-home satellite (DTH).

Cable subscriptions were up by 40 per cent, to 1.77 million, compared with 3.25 million DTH. And though total subscriptions grew by 900,000 during the year, to 5.5 million (a higher increase than last year), those figures are for the UK and Ireland combined. BSkyB did not reveal how many were new UK subscribers, stating only that the UK total was now 5.02 million.

How many more subscribers can it expect? Asked by the BBC, BSkyB head of programming David Elstein said it doesn’t have a target but analysts had estimated it might yet double, to 9 or 10 million homes. And when asked whether it could continue to increase its charges without customers resisting, he revealed why the company remains so confident about the future:

“Historically, people in the UK spend 70 per cent of their leisure time with the TV, but only ten per cent of their leisure budget” he said. “There’s an enormous gap between what people do and what they have hitherto spent, and BSkyB has expanded into that gap.”

This autumn it’s putting up its all-in subscription by two pounds to 26.99 a month, on the back of its 11 new channels, or part-channels. But the big question is how much its charges will go up next year, when it tackles the tricky marketing conundrum of persuading several million of its existing customers to switch from their current 40 analogue channels to 200 digital ones.

Assuming its subscribers are relatively satisfied with what they are currently receiving, how much more will they be prepared to pay for the new services, including access to the Internet, which it has now promised? And how much for a new set-top box to replace the perfectly good one they’ve got at the moment? Even if it finds a partner to subsidise the boxes, it’s unlikely to hand them to viewers free of charge.

Elstein believes two new elements will attract subscribers and produce revenue. The first is a large number of pay-per-view offerings, including sport, music, events and movies when the viewer wants them – “Jurassic Park every half-hour”.

The second is a wide range of interactive, “transactional” services, such as banking, booking holidays, buying insurance and so on, which will produce extra revenue, to help the sums add up. It is talking to BT about the possibilities here.

To those who doubt the viewer’s willingness to embrace pay-per-view, he points to the Bruno-Tyson fight, which – despite a heavy campaign by rival media to persuade viewers not to pay – attracted 650,000 subscribers at five o’clock in the morning at 10 a time. And he believes the pay-per-view movie is a realistic alternative to the video shop – offering greater convenience and high quality digital pictures and sound.

BSkyB’s chief executive Sam Chisholm says digital satellite has been “the hottest consumer electronics launch in US history” and will attract similar response here.

I’m not sure I would bet on it – but if anyone has the money, the marketing skills and the subscriber base to make it work, it is undoubtedly BSkyB. If it succeeds, it will go down as one of the great marketing case histories.

In the meantime, where on earth does it leave the Government’s plans for Digital Terrestrial Television? Relegated to the Fantasy League?