LONDON (Reuters) - European pay-TV group Sky (>> SKY PLC) said a twin focus on product innovation and top-class sport and entertainment would help deliver a better-than-expected rise in revenue in the year ahead after it reported 12 percent higher full-year profit.

Sky, in which Rupert Murdoch's Twenty-First Century Fox (>> Twenty-First Century Fox Inc) owns 39 percent, has been seeking to earn more money from existing customers through new products and price rises instead of chasing new subscribers with cut-price offers.

Rival BT (>> BT Group plc), Britain's biggest telecoms group, also updated the market on Thursday, saying demand for broadband boosted its first-quarter earnings, which include a first contribution from mobile operator EE.

The two companies have been playing to their strengths -- premium TV content for Sky and broadband for BT -- while selling extra products to existing customers.

Sky's shares had their best rise in nearly three years, up as much as 7.3 percent. The stock was trading 2.6 percent higher at 911.5 pence at 1426 London time, while BT shares were 3.4 percent higher at 416 pence.

Analysts at Citi said Sky's results "should be greeted with relief" as investors had been worried about the company failing to keep customers or add enough new ones.

Churn - the percentage of customers leaving - rose to 11.2 percent in the fourth quarter, at the higher end of analysts' expectations.

Sky's Chief Executive Jeremy Darroch said he was "actually very happy" with the churn rate, saying it had risen with its growing proportion of broadband-only customers who were more likely to switch suppliers. He also said a number of cut price offers that had boosted subscribers were ending.

Analysts at stockbroker AJ Bell, however, said Sky had a customer loyalty problem on its hands.

"The broadcaster has historically tried to keep the level below 10 percent, but clearly its recent decision to put up TV prices and limit retention discounts hasn't gone down well," they said.

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The "Game of Thrones" broadcaster added 808,000 customers and 3.3 million new products across its operations in Britain and Ireland, Germany and Austria, and Italy in the year.

"We are continuing to invest in the areas that really matter for customers, whether that's on screen in the very best content, in new product innovation or in delivering the very best customer service," Darroch said.

Sky said it expected revenue growth of 5-7 percent, topping market forecasts of 5 percent, in the year to end-June 2017.

It also increased expected cost savings from the integration of Sky Deutschland and Sky Italia to 400 million pounds by 2020, from 200 million by 2017, and said it would separately reduce costs by 2-3 percent of sales next year.

The savings, analysts said, would help offset higher costs for Premier League football.

Sky's revenue rose 7 percent to 11.97 billion pounds, beating forecasts of 11.75 billion, with adjusted operating profit broadly in line with forecasts at 1.56 billion pounds.

BT reported earnings before interest, tax, depreciation and amortisation of 1.82 billion pounds in the three months to the end of June, compared with a company-supplied analyst forecast of 1.78 billion pounds.

"This is a good start to the year, I think it's ahead of consensus on all the key metrics," said BT's Chief Executive Gavin Patterson.

BT, which is in talks with telecoms regulator Ofcom about restructuring to improve national broadband coverage, said in May it expected to produce core earnings of around 7.9 billion pounds for the year.

(Editing by Kate Holton and Elaine Hardcastle)

By Paul Sandle

Stocks treated in this article : BT Group plc, SKY PLC, Twenty-First Century Fox Inc