Cost of ITV 'blocking stake' blows a hole in BSkyB profits

BSkyB was nursing a £616 million self-inflicted wound in its finances today, the cost of its aggressive attempt to prevent arch-rival Virgin Media merging with ITV.

The huge cost of the foray to take a blocking stake in ITV all but wiped out the company's profits. However, on an otherwise underlying level they were good enough to indicate that it can be confident pay-TV is weathering an economy apparently heading for recession.

BSkyB took a 17.9% stake in ITV at a cost of £940 million to prevent the struggling commercial television station merging with Virgin Media, the group formed out of the old NTL/ Telewest cable TV companies.

While successful in blocking the merger, BSkyB was subsequently told by the competition authorities to sell down the stake to 7.5% as the holding was in contravention of media ownership rules.

BSkyB has yet to divest itself of that stake, and according to accounting convention it has to revalue at the bombed-out ITV share price and show the £616 million loss on the investment.

That saw pre-tax profits tumble from £724 million to just £60 million in the financial year to 30 June.

Sky's performance indicators however reveal a company still growing despite fears that a weaker economy would see Brits rein in their spending on life's add-ons like paidfor television.

"While people are cutting other elements of their spending, home entertainment remains pretty important," said Jeremy Darrock, the chief executive promoted from finance director when James Murdoch moved up to be chairman.

"What we offer remains great value compared to the cost of a family going to the cinema for the evening."

BSkyB said that new customer additions over the last quarter came in at 310,000.

Churn - - the industry phrase for people quitting the service - fell to below 10% at 9.8% while the average spend per customer was up at £427 a year.