UPDATE 2-BSkyB defies competition with strong TV customer growth

Thu May 1, 2014 5:04am EDT

* Adds 74,000 net new customers in Q3

* Sports rights dent nine-month operating profit

* Nine-month revenue climbs 7 pct

* Shares up 3.9 pct (Adds reaction, background)

By Kate Holton

LONDON, May 1 (Reuters) - British pay-TV operator BSkyB defied increasing competition to add 74,000 net new TV customers in its third quarter, more than twice the growth recorded last year and well ahead of forecasts.

BSkyB, which has broadened its offering with increased content and services after BT encroached on its traditional stronghold of sports coverage, said it had achieved growth in both its satellite subscription package and its cheaper online offering.

The dominant player in the pay-TV market for the past 10 years, BSkyB launched an online offering in 2012 to reach those consumers who were unwilling to sign up to a 12-month package.

That move had sparked fears that the cheaper alternative would erode traditional subscriber numbers and dent margins, but the company said on Thursday that it was seeing good traction for its online Now TV offering, with many customers paying as much as those on basic TV subscriptions.

The one weak spot in the third quarter results was the addition of 70,000 customers to its broadband service, in line with forecasts but down from the 152,000 it signed up in the same period a year earlier.

REVENUE BOOST

The solid trading performance helped the group, 39 percent-owned by Rupert Murdoch's Twenty-First Century Fox , to report nine-month figures in line with forecasts. Investment in sports broadcasting rights sent adjusted operating profit down 9 percent, but revenue increased by 7 percent.

Shares in the group were up 3.8 percent by 0900 GMT.

"Overall TV additions have not only surprised positively but have doubled from a year ago," Citi analysts said. "No doubt Now TV does have a part to play, but we believe (the subscription package) was also positive. We see this as a strong signal of the health of the TV base."

The third quarter was marked by heavy promotion from Sky's rivals, with both BT and Virgin Media pushing their broadband offerings while Sky focused its marketing push on boxed-set TV shows and movie content.

About five million of Sky's TV customers take an internet-connected set-top box that enables them to download programmes. It also allows Sky to direct more relevant advertisements to viewers.

"We have had a strong third quarter and continued to grow at an accelerated rate as customers respond to the quality and breadth of our offering," Chief Executive Jeremy Darroch said.

"We're now more than three quarters of the way through our plan for the year and are on track to deliver returns in line with our expectations." ($1 = 0.5922 British Pounds) (Editing by David Goodman)

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