Questor share tip: More to BSkyB than BT battle

This means turnover continues to grow despite the threat from BT – adjusted revenue was up 7.6pc in the six months to the end of December at £3.75bn. However, the major worry for investors is higher costs.

2012’s auction of Premier League rights, spending on which kicked in this season, is costing BT and Sky a combined £3bn, a 71pc increase on the 2009 price. Analysts say that the next auction, for rights from 2016, could fetch at least double that.

Sports rights inflation is already hitting profits. In Sky’s half-year, £108m of extra spending resulting from 2012’s auction drove adjusted pre-tax profit down 9.2pc to £554m. With BT likely to flex its muscles again next time round, investors fear that Sky risks another profit-sapping auction, or worse, losing out on having the best package of rights, a position the company’s success in the last two decades has been built on.

That said, there is a danger of overstating the value of sports television to consumers. Sky has invested heavily in other areas in recent years, beefing up its drama programming and commissioning original content. A tie-up with the American network HBO, and an exclusive deal to screen ITV’s new drama channel, cement Sky’s position as the premier entertainment broadcaster, and will cost significantly less than football rights.

The company also enjoys a close relationship with the Hollywood Studios, meaning its position in films is likely to remain safe, and Sky is better placed than most to cash in from consumers moving from buying DVDs to on-demand content. Film rentals are double what they were a year ago and the company has a foothold in internet television with its NOW TV service, opening up a more price-conscious segment of the market.

Sport remains a key focus – Sky announced six new rights deals including Lions rugby and Scottish football yesterday – and the next Premier League auction will continue to worry investors, but Sky has spread its wings enough to reassure investors.

Thursday’s 9pc increase in its interim dividend suggests that Sky is confident that it will continue to record strong growth despite investing heavily.

With a price-to-earnings ratio on a par with the FTSE 100 average, and the ever-present prospect of Rupert Murdoch’s 21st Century Fox rekindling takeover ambitions, there are more upsides than downsides. Buy

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