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| TONY BALL CHIEF EXECUTIVE  |
In the process we became the first broadcaster to offer free Internet access. We also announced plans to invest significantly in new technologies for the future, using our expertise in broadband technology to develop an array of innovative new products. Soon we will become the first broadcaster to offer enhanced television. We are also developing digital text. In short, we are leading change, not being led by it.
Financial perspective Turnover of £1,545 million was up 8% on last year. Advertising revenue increased by 11% to £217 million, outperforming the estimated growth in the market. Due to significant investment in programming and distribution for digital, the free box offer and BiB, profits were down on the previous year. Operating profits before exceptional items were down 46% at £185 million. Profit before tax and exceptional charges was £198 million lower at £73 million. The digital launch At BSkyB we are changing the way people use and interact with their televisions, using digital technology to bring control and choice to our customers. Sky digital launched in October 1998 and the response was phenomenal. At the beginning of May, when we launched our free offer, we had made over 550,000 digital sales. No other digital launch has been this successful. After four months, Direct TV in the US had around 200,000 subscribers in a substantially larger population; Canal Satellite in France had around 100,000. Customer satisfaction So what do our customers think of Sky digital? Research tells us that, for them, digital is measurably more attractive than analogue. Satisfaction ratings of digital customers are a massive 25% higher than those of analogue customers, and the proportion of customers who think digital is good value for money has gone up by 30% compared with analogue. Customers are also actively taking advantage of the choice and control digital delivers. Because they believe digital offers better value, they’re buying more premium packages. As a result, digital customers provide a higher, more reliable revenue stream than analogue customers. In fact, at 30 June 1999, the pay to basic ratio for digital was 319%, while for analogue it was 290%. |
Free box offer Digital television is a huge consumer hit, and our aim is to bring digital to every home in the country, as quickly as possible because, by increasing the number of digital customers, we increase the value of our Company. Digital also offers us cost savings compared with analogue, as well as significant new revenue opportunities and lower churn.
Our strategy is simple. Remove any barrier to taking digital and introduce a raft of exciting new benefits. On 5 May 1999, we announced that we would give away the set-top box free, meaning that to connect to Sky digital, the only standard cost is a £40 installation fee and a monthly subscription. There is no monthly box rental, no connection charge and no other upfront cost. We also introduced free Internet access through Skynow, our ISP, as well as 40% off BT basic rates, including Internet calls, through Skytalk, a telephony offer. This allows our customers to keep their BT line rental and security, but benefit from much cheaper calls. We are able to make these offers because we have enormous confidence in our product. Once they have Sky digital, we know our customers will want to keep it. Especially when it transforms the television into an interactive tool. The new offer has had a dramatic effect on the take-up of Sky digital. At the end of July 1999 there had been over 1.2 million sales and the Company had installed over 1 million digital customers. While sales in May 1999 were weighted towards existing analogue customers transitioning to digital ("transition customers"), the numbers sold to new customers have increased markedly as the new offer became available through retailers, rising to 54% of total sales in June 1999 and 55% in July 1999. The increase in demand from new customers will be reflected in customer numbers in July and August 1999. Our capacity to use the Internet to attract customers will improve rapidly, as more and more consumers become used to using the Internet to buy products and services. We also hope to develop ways of using the Internet as a management tool. |
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New technology; new services The world around us is changing fast. Broadband technology is revolutionising the delivery of entertainment and information across every type of hardware. We are determined that BSkyB will play a key role in this new world. Of course, we already have state-of-the-art broadband technology and so are well positioned to deliver innovative services that will change the way people live their lives forever.
Consider Open, the interactive television service. In a world that demands more choice, more convenience and more control, Open delivers in abundance. Open takes digital technology further than ever before. It allows customers to do what they want, when they want to, but without the constraints that limit e-commerce in its Internet form. Because Open is television-based it makes e-commerce a mass market opportunity. Our customers will be able to play, learn, shop, bank, explore, respond to and communicate with the world, all through the most familiar and intensively used medium in the home - the television set. We are taking advantage of the huge increases in bandwidth delivered by digital by expanding our enhanced television and Near-Video-On-Demand services. At the beginning of the 1999/00 football season in August, we will launch an innovative and exciting new service, Sky Sports Extra. This enables viewers to select highlights, replays, match statistics and an alternative camera angle, while keeping the live game in view. By enhancing sports coverage, we hope to drive subscriptions. Over the next few months, similar services will be introduced to Sky News and will be extended to other sports on Sky Sports. From the autumn, our existing digital offering will be enhanced when we upgrade our pay-per-view movie service, Sky Box Office, from 48 to 72 screens. Programming In our business, content is everything. Regardless of how we deliver services to our customers, they buy content, not technology. Last year we promised more choice and made a commitment to produce more of our own programming. This is because we know what our customers want to see. Our own original programming makes us less dependent on third party suppliers, and provides an excellent stream of revenue for the future. Sky Pictures, which has now completed six feature films, gets us off to a good start. The first of these, Tube Tales, will be screened in November 1999. Our original series are also proving to be extremely popular. Ibiza Uncovered was sold to Channel Four after it first aired on Sky One and achieved huge ratings, beating established Channel Four favourites such as Brookside, The Word and NYPD Blue. During the year we maintained the position of Sky One as the most popular entertainment channel in multi-channel homes, providing an enthralling range of first run and original programming. Sky News was widely acclaimed as providing the best coverage of the crisis in Kosovo. Our joint venture channels built audience share, proving their intrinsic value to the Company. Our relaunched movie channels - Sky Premier, Sky MovieMax and Sky Cinema - have proved hugely popular, helping to make Sky synonymous with film, while Sky Sports continues to be the benchmark against which all sports broadcasting is measured. |
Distribution We have enhanced our call centres in Scotland further to provide the highest standards of customer service. Over the past year we have appointed a new management team and have recruited and are training an extra 3,000 Customer Service Representatives to deal with the massive increase in calls relating to the demand for digital. Across the country over 2,000 extra trained installers have been put in place to deliver digital faster.
BSkyB and the community Changing our customers’ lives for the better is at the core of everything we do. Fundamental to this is our understanding that we must be part of the communities we serve and, as a result, social issues are at the heart of our marketing activities. We believe that our contribution to the British public must have lasting value. Our focus is on encouraging young people to develop themselves through education, the performing arts, television and sports projects. Themes that reflect our intrinsic interests and values as well as making the most of our commercial experience. This past year we have developed the Sky Soccer Roadshows which provide free professional soccer coaching to children from socially disadvantaged backgrounds across the country. Sky Television Production Workshops at the National Museum of Photography, Film and Television in Bradford offer families the unique opportunity to learn how a television programme is made. We also support various grass roots film, theatre and writing programmes such as The Script Factory, The Actor’s Centre and Chicken Shed, as well as The Royal Court Theatre and RADA, and underwrite many national and local education programmes both for youths and adults. BSkyB is also the Official Broadcast Sponsor of the Millennium Experience. Our millennium commitment has two elements. ‘Reach for the Sky’, our biggest social marketing programme to date, aims to provide young people nationwide with the tools to enable them to think about their talents and explore creative career options. In addition, we are host to Skyscape, the entertainment zone at the Dome. On Europe’s largest cinema screens we will show a Sky television original short film as well as an exclusive millennium episode of Blackadder. This special Blackadder will then be shown exclusively on Sky in 2001. This is a major coup for BSkyB, reinforcing our commitment to the best of British talent. Our future 1998 was the year digital technology changed television. 1999 is the year in which interactive television will begin to change the way we live our lives. Digital before interactivity was just the start, like PCs before the advent of the Internet. Our head start in the new digital world is due directly to the determination, passion and sheer hard work of our people. I would like to take this opportunity to congratulate them on their amazing achievement. I believe we can look forward to a rewarding and successful future, and can be confident of BSkyB’s ability to succeed in the new broadband millennium. |
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