Sky see potential for further price rises as loyalty stays strong

By Kate Holton LONDON (Reuters) - Pay-TV group Sky believes its customers will accept higher prices, it said on Tuesday after reporting a 20 percent jump in nine-month profit, sending its shares to a 14-year high. Sky, which formed from the combination of Britain's BSkyB, Sky Deutschland and Sky Italia to serve 20 million customers across Europe, reported results showing strong demand in Britain and record growth in Germany. While the company has shown a solid performance in all its five markets, a key concern has been the 4.2 billion pounds it had to pay to retain rights to English Premier League soccer, and subsequent price rises to fund the deal. Chief Executive Jeremy Darroch told reporters it was too early to see the impact of the higher prices, which will come into force in Britain from June, but said he thought there was potential to increase prices across its markets. "We think generally the prospect for a little bit higher pricing, as we invest more in the service and offer more value to customers, are good across all of the markets," Darroch said. The prospect of higher prices without denting customer retention rates, with overall "churn" levels improving in Britain, Ireland and Italy, bodes well for the group's future profitability, analysts noted. "The striking thing from the results is the better churn," said analysts at Citi. "(The effect is) better growth and a more solid platform for pricing, which has already been exploited in the UK and Italy. We think this should be seen as a key support for the investment thesis." BSkyB last year embarked on a plan to enter Germany, Austria and Italy by buying Rupert Murdoch's assets in those markets, where pay TV was not yet as popular, or profitable. In Britain it reported the highest customer growth and lowest level of customers leaving in 11 years, with 127,000 new users signed up to its satellite and online TV platform in the third quarter, up 41 percent on last year. It recorded record growth in Germany and Austria, with 103,000 new customer additions, while in Italy, its toughest market, it reported its best third-quarter trading in three years. Darroch said the potential for growth in the Italian market was improving after it added 12,000 new customers in the quarter, reversing a loss in the previous year. Sky Italia has also partnered with Telecom Italia to offer its full content of programming on the broadband company's networks, increasing its reach in a bid to fend off fierce rival Mediaset. Sky's nine-month operating profit grew 20 percent to 1.03 billion pounds versus 16 percent growth for the first six months and in line with a company-supplied consensus. Its shares were up 4 percent at 1,095p by 0926 GMT. (Editing by Neil Maidment and David Holmes)