UPDATE 3-BSkyB strengthens pay-TV defence with HBO deal

Thu Jan 30, 2014 10:45am EST

* Exclusive deal secures HBO content until 2020

* First-half operating profit beats market expectations

* More customers signing up for HD and on-demand TV

* Shares up 4.1 pct (Adds sports rights announcement)

By Paul Sandle

LONDON, Jan 30 (Reuters) - BSkyB has signed a new deal with U.S. producer HBO to secure exclusive access to blockbuster shows such as "Game of Thrones" until 2020 and strengthen its defence against an increasingly competitive BT .

The deal announced on Thursday is part of efforts by Britain's dominant pay-TV provider to broaden its offering with increased content and services to tie in customers after BT encroached on its traditional stronghold of sports coverage last year.

BT snatched the rights to European Champions League soccer, one of Sky's most prized sports assets, for 2015-2018 last year. Sky, however, announced six new sports deals on Thursday, including the 2017 British & Irish Lions rugby union tour to New Zealand, which it said strengthened its sports offer.

The investment in products, marketing and increasingly expensive rights to televise English Premier League soccer squeezed operating profit in Sky's first half but drove a 7.6 percent rise in revenue, the company said on Thursday.

The 8 percent drop in operating profit was less than the market expected and Chief Executive Jeremy Darroch, while acknowledging that the consumer environment remains challenging, said that more people were joining Sky and taking more products, such as high-definition (HD) television, on-demand movies and broadband.

"We have seen strong demand across the board," he said.

Subscribers took 873,000 new products in the Christmas quarter, Sky said, up 42 percent year on year and beating analyst expectations of 731,000.

One million internet-connected HD boxes were installed in the quarter, making Sky's connected TV platform the biggest in Britain and Ireland with 4.4 million customers.

"Customers love the benefits that a connected box brings them; on-demand usage more than trebled year on year," Darroch said. "The number of movie rentals we are seeing through Sky Store is growing very very quickly; it doubled thanks to the popularity of titles like 'Despicable Me 2'."

TOP BLUE-CHIP CLIMBER

Shares in Sky, minority owned by Rupert Murdoch's 21st Century Fox, rose to an 11-week high of 895.5 pence after the results and were up 4.1 percent at 879.5 pence at 1531 GMT, topping the FTSE 100 leaderboard.

Citi analysts said that Sky's exclusive HBO deal calmed concerns that BT's ambitions would widen to include movie and entertainment content.

"With one of the main rights packages tied up until 2020, this is now less likely, or at least more challenging," they said in a note.

The strength of demand for connected boxes was another surprise.

"This may actually depress earnings in the near term, but the implications operationally are significant," the analysts said, noting that internet-connected boxes drove transactions on the Sky platform and lowered the number of subscribers leaving the service.

Darroch declined to reveal the cost of the deal with HBO, which is owned by Time Warner, but a report in The Guardian newspaper put it at 275 million pounds ($455 million).

Sky reported operating profit for the six months to Dec. 31 of 595 million pounds, ahead of market forecasts for 586 million pounds. Revenue rose by 7.6 percent to 3.75 billion pounds, broadly in line with expectations.

The company increased its interim dividend by 9.1 percent to 12 pence a share. ($1 = 0.6041 British pounds) (Editing by Neil Maidment, David Goodman and Pravin Char)

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