Sky plc has produced a strong first quarter across its three markets in terms of subscriber growth, record low churn and continuing firm control over costs, which has contributed to a 5% increase in revenues and 20% increase in operating profit over the first nine months of fiscal 2015

As expected, practically all the retail customer growth in Q3 occurred in the UK & Ireland and in Germany & Austria. Nevertheless, the results were also positive in Italy, as it registered the highest net customer increase in 3 years and record low churn

It is still too early to judge the success of the Sky plc strategy in terms of synergies, innovation and content origination. Whilst the potential appears great, the imminence of the next Bundesliga auction is a reminder that the issue of sports rights inflation is unlikely to disappear even after the latest PL auction

News has entered a new phase, defined by the disruptive forces of mobile, social media and video, effecting rapid changes in consumption and the underlying economics for news businesses: the level of change and innovation is rewiring the structure and financial models for news more quickly than many news providers are able to respond. While charging for news looks to be a successful route for some brands, we note that the scale of charging for the industry is substantially smaller than in print. Apart from this, three models are gathering traction: selling audience engagement; selling news services; and selling news to businesses. Each of these options involves very different strategies and opposing objectives which can only be pursued at the same time by those with the deepest pockets. Everyone else has to choose.

Sky plc, the coming together of BSkyB, Sky Deutschland and Sky Italia, has enjoyed an excellent start, as adjusted H1 2015 figures delivered a 5% increase in revenues versus a 3% increase in costs, resulting in EBITDA growth of 7% and with free cash flow up by 25%

The strong financial results were accompanied by strong subscriber growth figures, especially in the operations covering Austria, Germany, Ireland and the UK, while all markets showed large reductions in churn, reinforcing confidence in the strategic approach of Sky plc

It is too early to assess Sky’s delivery of its target group synergies. Individually, the former BSkyB and Sky Deutschland markets may be showing much stronger subscriber and product growth, but they also look to be more exposed to risk over football rights, while Sky Italia has more going for it than may appear at first sight

Speculation has arisen about a possible acquisition by Sky of Mediaset Premium, the DTT competitor to Sky Italia. The unprofitable platform faces a 50% cost increase this summer due to the start of new football broadcast contracts

Getting rid of competition would allow Sky to raise prices, but also burden it with the new contracts. At best, if it kept the Premium subscribers on DTT to limit churn, Sky would have a small revenue upside

But the regulatory risk looks substantial, including mandated third-party access to the platform and wholesale of content. On balance, we believe that it would be better for Sky to let the situation play out