By Lilly Vitorovich
British Sky Broadcasting Group PLC (>> British Sky Broadcasting Group plc) said Wednesday its "strong" track record as a U.K. broadcaster should be the key factor in determining its fitness to hold a broadcasting license, a day after scathing criticism from U.K. lawmakers of News Corp. (NWS), which has a 39% stake in BSkyB, in a report on the tabloid phone-hacking scandal.
U.K. communications regulator Ofcom said last month it is looking into whether BSkyB should continue to hold a U.K. broadcasting license amid a broader investigation into journalism standards.
"The company is engaging with Ofcom in this process and continues to believe that it remains a fit and proper license holder," BSkyB said.
Chief Executive Jeremy Darroch said there was no timetable for Ofcom's investigation into whether News Corp. is a suitable owner of BSkyB, but that the company will stay in contact with the regulator.
"It's important to remember that Sky and News Corporation are separate companies," Mr. Darroch told reporters on the company's earnings call. "We believe that Sky's track record as a broadcaster is the most important factor in determining our fitness to hold a license."
Earlier Wednesday, the pay-TV operator posted an increase in revenue and profit for the nine months ended March 31, driven by new customers and demand for its broadband and phone products, and said its Internet streaming service, Now TV, is on track to launch in the first half of 2012.
BSkyB-which counts Virgin Media Inc. and BT Group PLC's BT Vision as its two biggest competitors-booked a 19% increase in net profit to GBP689 million ($1.12 billion) for the nine months ended March 31 from GBP581 million a year earlier, helped by higher revenue and a break fee from News Corp. for its failed takeover.
Operating profit before exceptional items, a measurement of how the main business is performing, rose 15% to GBP908 million for the nine months ended March 31, slightly above market expectations of GBP902 million. That compares with GBP790 million over the same period a year earlier.
BSkyB added 326,000 new customers in the nine months, up 3.2% from a year earlier, taking its total subscriber base to 10.6 million.
While the company didn't provide third-quarter financial numbers, it did release some operational indicators. The group signed 78,000 new customers in the third quarter.
Revenue rose 5.1% to GBP5.08 billion in the nine months to March 31 from GBP4.83 billion, in line with market expectations. Average revenue per customer rose 1.7% to GBP546.
News Corp.'s bid to take full control of BSkyB collapsed last July following revelations of phone hacking at the now-defunct News Corp. tabloid News of the World. News Corp.'s 39.1% stake makes it BSkyB's biggest shareholder. News Corp. also owns Dow Jones & Co., publisher of The Wall Street Journal.
In a statement Tuesday, News Corp. said: "Hard truths have emerged from the Select Committee Report: that there was serious wrongdoing at the News of the World; that our response to the wrongdoing was too slow and too defensive; and that some of our employees misled the Select Committee in 2009." But it called some of the report's commentary "unjustified and highly partisan."
BSkyB is highly cash generative because of its large number of customers lured by its live coverage of the English Premier League soccer and new movies. But customer growth is starting to slow as competition heats up in a tough economic environment. As a result, management are focused on getting existing customers to take more of their products, such as high definition TV and 3-D.
The stock has fallen 18% over the past 12 months on concerns over the Ofcom investigation and the potential extra cost of extending its rights to broadcast live coverage of the bulk of the English Premier League soccer matches, a core offering on its pay-TV channels that it can't afford to cede to rivals. The result of an auction for the rights over the next three years is expected in June.
-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; email@example.com