By Simon Zekaria
LONDON--Sky PLC (SKY.LN), the British media company facing a multi billion-dollar takeover bid by 21st Century Fox Inc. (FOXA), Thursday reported lower half-year earnings, weighed down by the cost of Premier League soccer broadcasting rights.
Sky said net profit in the six months to end-December fell 11% year-over-year to 321 million pounds ($407 million).
Operating profit excluding exceptional items--a closely watched measure of Sky's performance--fell 9% on a constant-currency basis to GBP679 million. The company said it absorbed additional Premier League rights costs of GBP314 million in the period. Revenue, adjusted and at constant currencies, rose 6% to GBP6.41 billion, boosted by a stronger euro.
The Premier League, one of the world's richest and most watched soccer leagues, has underpinned Sky's sports programming output for decades, and is used to attract subscribers to its suite of other services, such as fiber-optic broadband. Still, U.K. rival BT Group PLC (BT) has challenged Sky's dominance by spending nearly a billion dollars to acquire some of the rights.
In the U.K., the value of the rights soared 70% to near $8 billion for the three years to 2019, compared with the previous auction.
Sky said it is on track to meet its fiscal-year objectives, despite a decline in the U.K. advertising market and pressure on consumer spending across other parts of Europe such as Italy.
The firm said 500,000 new customers joined Sky in the half year. It recently added mobile to its array of services such as broadband and pay-television in a bid to steal subscribers from rivals across the U.K.'s consolidating industry.
"Our financial performance has been good," said Chief Executive Jeremy Darroch.
Still, the rate at which its customers left in the U.K. rose to 11.6% from 10.2% in the same period a year earlier, which Mr. Darroch said was higher than he would want.
Analysts say that as Sky battles subscribers leaving across the U.K.'s competitive media market it may review its spending on the Premier League, but Mr. Darroch said the product is robust.
In early deals, Sky shares were flat. The results are "satisfactory rather than particularly inspiring," said Shore Capital analyst Roddy Davidson.
Still, Mr. Davidson said sports rights inflation ahead of the Champions League soccer auction, U.K. competition, the trading impact of the U.K.'s exit from the European Union and Sky's subscription model are "areas of concern" for investors.
Sky is 39%-owned by Fox which last monthmade a roughly $14.6 billion bid for the shares it doesn't already own in the company, valuing Sky at $23 billion. Members of the Murdoch family are major stakeholders in Fox as well as News Corp (NWS.AU), publisher of The Wall Street Journal.
The two companies, which disclosed an agreement on Dec. 9, now must withstand scrutiny from politicians, regulators and minority shareholders. Mr. Darroch declined to comment on the regulatory process on Thursday.
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January 26, 2017 04:51 ET (09:51 GMT)
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