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27 Jul 2012

TalkTalk has pushed the button on its long-awaited television service, promising to revolutionise pay TV – and without the chaos that accompanied the company's introduction of free broadband six years ago.

The company unveiled plans for a budget deal to compete against BSkyB, Virgin Media and BT for the 7.5 million Freeview households who have not so far been tempted to spend on subscription TV.

At the same time, in a sign that the budget pay TV market is moving centre stage, BSkyB revealed it intends to spend £30m on launching its new internet service Now TV in the next 12 months.

Announcing record pretax profits up 17% to £1.2bn, Sky said that Now TV would offer movies, sport and entertainment channels on desktop computers, mobile devices and games consoles, and its arrival would be accompanied by a massive marketing campaign to take on rivals including LoveFilm and Netflix.

Growth of BSkyB's traditional pay TV business continues to slow, with just 20,000 new customers signing up in the three months to the end of June. Sky's TV subscriber base, which grew by just 101,000 over the year, stands at 10.2 million.

The company also announced a £500m capital return to shareholders via a share buyback. BSkyB shares ended the day at 706.5p, up by just over 3% on the previous closing price.

The TalkTalk TV service could eventually reach 75% of the group's current 4 million customers. Chief executive Dido Harding said: "Our scale ambitions are every bit as big as they were for free broadband, and this time we are going to do it well."

TalkTalk's former parent company, Carphone Warehouse, kicked off Britain's broadband revolution by buying AOL's UK business and promising free internet to phone customers in 2006, but engineers struggled to keep up with demand and thousands were left waiting for a service they had paid for but could not be connected to.

The cornerstone of the new service is a YouView set-top box, which combines a digital video recorder with a Freeview channel receiver and an internet connection for television on demand. It offers a classic series archive and a seven-day TV catchup service. The box will cost £299 but will be free for TalkTalk's 1.1 million top-tier customers, along with a year-long subscription to Lovefilm online video rentals, unlimited broadband and free calls to UK landlines.

The deal is priced slightly below the cheapest BT Vision package, costing £24 a month including line rental.

Separately, TalkTalk will resell all the Sky sports channels and Sky Movies. In a break from typical pay TV packages, customers can subscribe to one channel at a time for a month at a time, rather than being forced to buy basic channels as part of the bundle. And users will be able to order and cancel them via their remote controls rather than having to ring a call centre.

The company is already talking to BT about carrying its sports channel, which will broadcast the Premier League football rights bought by the telecoms operator in an auction battle against Sky.

But Harding said she had no ambitions for TalkTalk to become a media owner. "We want to be the marketplace for content, not the content rights owner. It's a big boy's game buying rights."

TalkTalk's move into the entertainment business was underscored by the arrival of Sony chairman Sir Howard Stringer as one of two new non-executive board members.

"This is going to transform TalkTalk and transform the market," said chairman Charles Dunstone. The television launch lifted TalkTalk's share price 2% to £1.76, despite first-quarter results which showed the company again missed forecasts that it would return to net subscriber growth. The group lost 19,000 customers in the three months to 30 June, although Harding said the trend had turned positive in June and July. Revenues fell 2% year on year to £414m, but guidance that the company would return to revenue and subscriber growth in the full year was reiterated.


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