We expect Jeremy Hunt to announce the fine details of the proposal to give editorial independence to Sky News within the next few days. After a perfunctory further consultation, the regulatory barriers to the purchase of BSkyB by News Corp will be cleared in July

News Corp will need to reach agreement with BSkyB over price and only then can proceed with its proposal for a ‘scheme of agreement’ to take over the company. We expect the purchase to be concluded by about the middle of October if BSkyB cooperates, but early in 2012 if News Corp is forced to use a takeover bid

News Corp can acquire BSkyB while any judicial review of Mr Hunt’s decision is taking place but it runs the very small risk of having to unwind the transaction

In the attached note we present our analysis of BSkyB revenue and cost trends over the five years 2006 - 2010 and our forecasts to 2015

More than a year has passed since News Corp proposed to buy the 61% of BSkyB that it did not already own. With clearance of the proposed transaction now imminent, this note examins the strategic value of the BSkyB acquisition to News Corp. In examining the business prospects of BSkyB it concludes the business is embarked on a high growth trajectory in revenues and operating profits over the next three to four years, putting BSkyB in a good position to face more challenging competitive conditions in the future

We have revised our central case forecasts of total year-on-year NAR (Net Advertising Revenue) growth in 2011 from 5% to 1%, as the advertising outlook has progressively worsened since mid April

2011 is marked by a further round of consolidation in airtime sales and a number of noteworthy channel and programming changes

Channel 4 Sales, and above all its flagship Channel 4, appears the most challenged of the leading market players, while we expect the ITV group to continue to outperform the NAR market in the rest of 2011 and 2012

Sky is managing to sustain strong underlying growth in the face of a challenging retail environment, in which it has maintained strong growth rates in quarterly gross TV additions and home communications products

Revenues were slightly down on the previous quarter, but this was mainly due to the January increase in VAT and seasonal variations in advertising spend, while the results confirmed the company’s strong discretionary control over costs

As the period of peak product additions passes, we can look forward to a strong growth trajectory in operating profits over the next three years

The concept of demerging Sky News is evidently a plausible one and we consider it very unlikely that critics of the deal will have much success undermining its appropriateness as a protection of plurality

However, it is harder to judge whether the proposed implementation secures the channel’s independence as fully and clearly as it might

We outline a series of issues that the information supplied for the public consultation does not appear to deal with. We note, in particular, that the proposed undertakings seem not to block Rupert Murdoch, or members of his family, from buying the 60.9% of the shares in Sky News not to be held by News Corp

The year ended on a strong note, as Sky broke passed its milestone of ten million homes and achieved yet another record breaking quarter for multi-product take-up

Home communications once more achieved exceptional growth, with triple play penetration jumping from 18% to 24%, while HD take-up resumed strong momentum after halving in Q1 2011

Financially, the company has never looked in better shape, with good prospects for continuing strong multi-product growth, leaving the question of where Sky will choose to invest next to drive further revenue growth

Jeremy Hunt announced on 25 January his intention to refer News Corp’s bid for BSkyB to the Competition Commission

However, he is first providing News Corp with the opportunity to address Ofcom’s concerns, and in so doing protecting his department and Ofcom from any legal threats

If Ofcom or the OFT say the News Corp remedies don’t go far enough, Jeremy Hunt will be then almost obliged to refer the transaction to the CC

With the completion of digital switchover still on track for mid 2012, stabilisation of the main digital broadcast platforms is expected, with roughly equal numbers of subscription pay-TV and free TV homes, though with marked differences between the platforms in terms of demographic composition and the proportion of pay-TV customers

Further marked differences exist between the satellite, cable and terrestrial platforms with regard to PVR adoption, notably higher in pay-TV households where distribution can benefit from box subsidies and greater product consistency. National PVR penetration of TV homes is expected to grow from slightly below 50% in 2010 to over 70% in 2015

As DSO nears completion, the stage is set for broadband connectivity. Although household penetration of internet-enabled TV devices is expected to exceed 50% by 2015, the emergence of hybrid broadcast and broadband services is expected to proceed much more slowly, limited by a number of factors – not least the ability of service providers to monetise their non-linear on demand offerings

Sky Songs will shutter on 7 February 2011, ending a brand extension experiment that probably cost parent BSkyB some £5 million end-to-end

A PC-based ad-free subscription service, Sky Songs failed to offer the mobility and exclusive content that music fans are most willing to pay for

Spotify’s reported 750,000 European customers as of November 2010 have moved the subscription side closer to breakeven, while the ad-supported side bleeds on

In this short presentation we show our analysis of trends in UK broadband and telephony to September 2010, based on the published results of the major service providers and Ofcom telephony data. We include our own estimates where reported data is incomplete. This quarter’s edition includes a revision to some historical trends resulting from our own interpretation of BT’s recent adjustment to the volume of unbundled lines.

Highlights in the quarter included exceptionally strong growth in broadband net additions at Sky and the resumption of the long term rate of decline in broadband market growth by volume.