Sky Italia failing to meet targets; News Corp to consolidate Sky Deutschland

Sky Italia swung to a loss and shed customers in the most recent quarter and parent company News Corp gave notice that the Italian pay TV operator will not meet earlier performance targets. The poor performance of Sky Italia came as News Corp’s other cable TV and production divisions reported a strong quarter.

Sky Italia reported a loss of US$20 million (€15 million) in the three months to end-2012, compared with a US$6 million profit in the same period a year earlier. Sky recorded €30 million in increased programming costs, largely associated with Champions League football rights. News Corp said the wider economic problems in Italy also caused a reduction in Sky’s customer base in the quarter: it lost 28,000 subscribers, leaving it with 4.38 million customers at year-end.

News Corp president and COO Chase Carey said: “We now expect [the Sky Italia] business to be about a US$100 million below target this year and around a US$150 million off last year’s results. We do not expect the economy to improve in the short term so our focus is reducing the cost base particularly programming cost. We plan to take over US$200 million out of the cost base over the next two to three years by not renewing some agreements and modifying others.”

Carey nevertheless said that Sky Italia’s “competitive position is stronger than ever which bodes well for our medium- and long-term future.” He said: “We believe this business should and needs to get to a double-digit profit margin [assuming] no improvement in the economy. From there, we can improve the margin and profitability as the economy recovers.”

He also referred to the promise of Sky and Fastweb’s recently renewed combined Home Pack offer, where the pair added third-screen services and mobile calls to the original offer launched in 2011 that bundled satellite pay-TV with broadband internet and fixed line telephone service. According to Sky Italia, this new offer has seen a stronger uptake than the original triple-play bundle.

Speaking about Sky Deutschland, Carey said the German pay TV operator is well positioned for growth. “Germany in particular has been an area of focus and we’re excited about the recent restructuring that gave us the majority position there,” he said. “This business has just gotten stronger and stronger in the past few quarters with both key content and distribution agreements. It is truly establishing itself as the premier video platform in Europe’s biggest market Germany.”

Following its recent agreement to provide additional finance for Sky Deutschland and raise its stake in the company to about 55%, News Corp said it would include the German pay TV operator in its consolidated accounts from the fiscal third quarter of 2013.

News Corp added that the process of separating its publishing and film and TV divisions should be complete by end-2013.

Following overall strong results, Carey also noted that Fox International channels performed well in the quarter. FIC boss Hernan Lopez recently told DTVE sister title TBI that the business is on track to deliver US$1 billion in operating profit by mid-2015.

News Corp reported overall US$9.43 billion of total revenue for the three months ending December 31, a $450 million or 5% increase over the $8.98 billion of revenue reported in the prior year quarter. The revenue increase was led by $398 million or 18% growth at the company’s Cable Network Programming segment.