ARPU Growth in Focus as Penetration Reaches Saturation Point for Sky TV

We have reviewed Sky TV's core subscription business and retain our view that it has lower growth prospects than in the past, as subscriber penetration has reached saturation point. However, we also believe there are good opportunities to lift the average revenue per user, or ARPU, as subscribers upgrade to MYSKY (a personal video recorder). This should support ARPU growth going forward. The upgraded MYSKY box will be available to subscribers in November/December 2014 and will contain enhanced pay-per-view and video-on-demand features. We are anticipating revenue to grow by 4.7% per annum on average during the next five years, mainly driven by ARPU growth. Sky TV's capital expenditure is also expected to decline during the next five years as growth in its subscriber base slows, reducing the need to purchase decoders. As a result, we expect cash flow to improve going forward, potentially increasing the prospect of a special dividend.