UPDATE 2-Sky Deutschland marketing push fails to impress

* Q3 core loss of 87.9 mln eur vs Reuters poll avg 82 mln

* Cuts subscriber target to 2.8-3.0 mln from 3.0-3.4 mln

* Confirms outlook

* Shares drop as much as 11.3 pct, now down 5.8 pct

(Adds analyst comment, share price)

By Nicola Leske

FRANKFURT, Nov 12 (Reuters) - Slow subscriber growth hit shares in Sky Deutschland (SKYDn.DE) even as the German pay-TV broadcaster reiterated it aimed to be profitable by 2011 after a sweeping restructuring.

The company, in which Rupert Murdoch's News Corp (NWSA.O) owns almost 40 percent, rebranded itself from Premiere to Sky Deutschland in July and launched a huge marketing campaign to win more customers in Europe's largest TV market.

That drive as well as higher programme costs led to a higher-than-expected third-quarter net loss and did not attract as many new customers as analysts had hoped.

Landesbank Baden Wuerttemberg analysts said subscriber growth was a disappointment given the scope of the campaign, which included elaborate TV commercials and extensive print advertisements.

Sky Deutschland added 63,000 net subscribers in the quarter, which UBS said was below "even relatively low ball expectations" of 80,000.

"We expect a negative share price reaction to the results and disappointing near-term momentum may give rise to concerns about the achievability of longer-term targets," UBS said in a note.

Shares fell as much as 11.3 percent and were off 5.8 percent at 2.92 euros by 1008 GMT, the biggest decliner among German mid-cap stocks .MDAXI

Sky Deutschland is Germany's only pure play pay-TV broadcaster, a tricky business because consumers can choose from more than 30 free channels and are reluctant to pay extra.

In addition, cable companies and incumbent telecom group Deutsche Telekom DTEGN.DE have joined the game by offering their own TV services in an effort to open new revenue streams.

Sky Deutschland's main draw is German premier league soccer. It also broadcasts Hollywood movies, documentaries, dramas and pornography.

HIGHER ARPU TARGET

Sky Deutschland said it had a total of 2.431 million direct subscribers at the end of the third quarter compared with 2.411 million in the previous year.

The company is trying to phase out subscribers with discount contracts that generate low monthly revenues, arguing it wants to focus on quality, not quantity.

It thus reduced its subscriber target to 2.8-3.0 million from 3.0-3.4 million but at the same time is shooting to reach higher average revenue per user (ARPU) of 29 euros by the first quarter of 2010 from 25.77 euros in the third quarter this year.

Commerzbank said slow growth was "most likely due to existing and new customers being reluctant to accept the new, more expensive offering" and that the success of the strategy would only become visible after a few quarters.

Sky Deutschland's third-quarter loss before interest, tax, depreciation and amortisation (EBITDA) widened to 87.9 million euros ($131.8 million) from 27 million a year earlier.

The core loss as well as quarterly sales of 208.5 million euros missed average estimates in a Reuters poll of analysts seeing a core loss of 82 million on sales of 223 million.

Sky Deutschland reiterated it expects negative cash flow of 250-275 million euros and a significant EBITDA loss this year, which it said on Thursday would be 250-270 million euros.

It also said it still aims to break even on an EBITDA basis by the end of 2010 and to turn a profit in 2011 and beyond. ($1=.6668 Euro) (Editing by Simon Jessop)