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British Sky Broadcasting (BSY), or Sky as it is more commonly known, strengthened its market position this week following the collapse of Setanta, the Irish domiciled broadcaster. Setanta, with 1.2 million subscribers in the UK and Ireland, failed to meet a £30m payment obligation to the British Premier League and fell into administration on Tuesday 23rd June. Last minute efforts to re-finance the business failed and the original private equity investors will see their equity lost as creditors move in to claim what little assets remain.

The move, though a disaster for Setanta’s staff and investors, gives Sky the opportunity to boost subscriber numbers to its sport proposition which competed head-on with Setanta’s offering. ESPN has secured the rights to Premier League matches previously owned by the Irish broadcaster, though details of the deal remain unclear.

Sky is already enjoying a solid start to 2009, despite the recession. A key measure, average revenue per user (ARPU), progressed to £452 for the latest reported quarter, on an annualized basis, whilst revenues improved 7% to £3,960 relative to the same period a year earlier (£3,706). The high definition proposition grew strongly to 1.02 million subscribers. Total subscribers across all products are fast approaching 10 million. Sky’s efforts to diversify into broadband and telephony are also paying dividends with 15% of all new customers opting for the complete portfolio of products (TV, broadband and telephony). Earnings per share jumped 13% to 19.2p from 17.0p.

In a recent conference call with investors, Sky management empathized with recession concerns but voiced optimism that churn rate would not deteriorate sharply and a reasonable proportion of lost customers would likely return after the wider economy improved. Looking forward, the company is highly confident of increasing bundle sales of 2-3 products per new subscriber and growing market share in all its propositions.

The stock, BSY, from a technical point of view has struggled to break through 500p (UK) and $30.00 (US ADRs), repeatedly falling back when touching the key resistance level over the past year. One American Depositary Receipt equals four BSY London Stock Exchange shares.

It’s worth keeping one eye on the company’s next update due late July for hints from management regarding subscriber growth following the demise of Setanta. Any signs that Sky has enjoyed a boost to its market share could be enough for the stock to break through the 500p ceiling and make new progress.

Disclosure: The writer holds no financial instruments that provide direct, or indirect, exposure to any company mentioned in this review.

Source: British Sky Broadcasting Could Rise on Setanta's Demise