By Kate Holton
LONDON (Reuters) - BSkyB will offer its popular sports channels online for a daily fee, seeking new customers to offset slowing growth at its core pay-TV service amid sluggish consumer spending.
Sky, Britain's dominant pay-TV group which provides fixed-line telephony, TV and broadband to 10.7 million households, has adapted its strategy during the economic downturn after years of chasing new subscribers to its core TV offering.
The group added 25,000 subscribers to its pay-TV service in the three months to the end of December, well down on the more than 100,000 users it used to routinely add each quarter.
In response, it has focused on selling more products such as high definition TV and broadband to existing customers, and moving online to reach those not willing to sign up to a monthly contract. The approach has enabled the group to consistently post strong financial results and pay higher dividends.
"Although we expect the consumer environment in 2013 to remain challenging, we have a strong set of plans for the year ahead," Chief Executive Jeremy Darroch said on Thursday.
Darroch said the group would offer its sports channels, which show everything from Premier League soccer to Formula One motor racing and cricket, on its new online service called Now TV in the next few months.
Viewers, who do not need to sign up to a contract, will be able to pay 9.99 pounds to watch all six Sky Sports channels for 24 hours. It has already shown movies via the online offering to 25,000 customers since its launch last year.
The new internet drive will help BSkyB compete with existing online services such as Lovefilm and with BT Vision, which has won the right to show its own sports content, but it is also having to bet that its existing customers will not downgrade to the cheaper online offering to save money.
The group's performance in the first half of the year showed that, despite the pressures on consumer spending, customer loyalty had remained relatively solid, with subscribers spending on average 568 pounds a year, up 24 pounds on the year before.
"Net additions were slightly below our estimates reflecting the tough consumer environment," analysts at Numis said. "(But) encouragingly, take up of new products continues to increase, driving customer satisfaction and loyalty."
Those customers taking all three main services - TV, broadband and telephony - accounted for 33 percent of the user base, up 4 percentage points year on year.
The rise in customers helped the group to post first-half operating profit up 8 percent to 647 million pounds ($1 billion) against a forecast of 632 million pounds. Cost control helped the group pay an interim dividend up 20 percent to 11 pence.
"We believe the BSkyB investment case has evolved over the past year or so, with the challenging consumer environment making the addition of new households to the (pay-TV) service more difficult," Numis said.
"The group has rightly prioritized the increased penetration of multiple products, notably HD and broadband, which drive average revenue per user and reduce churn over the medium/long term. We are supportive of investment in products such as Now TV which offer an attractive risk/return in our view."
Shares in BSkyB were up 1 percent to 819 pence in mid-morning trade, following a 21 percent rise in the last 12 months, and valuing the group at 13.2 billion pounds.
(Reporting by Kate Holton; Editing by Rhys Jones and Mark Potter)
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