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Customers are deserting Sky – and analysts have blamed Netflix

The number of customers deserting Sky has climbed to a nine-year high, with analysts blaming the rise of Netflix and Amazon.

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The pay-TV company, which is 39%-owned by Rupert Murdoch’s 21st Century Fox, said its so-called customer “churn” rate in the UK and Ireland stood at 11.2% in the 12 months to 30 June.

This was a marked increase on 9.8% in 2015 and was at its highest level since 2007, when customer cord-cutting hit 12.4%.

Tyrion Lannister Game of Thrones
Sky is the home of "Game of Thrones" in the UK. Macall B. Polay/HBO

This was despite Sky adding 808,000 new customers across all of its products and territories, which now include Italy and Germany. Its total subscriber base stands at 21.8 million.

Sky said the cord-cutting was a result of price rises of up to 5% and limits on "retention discounts", but some analysts lay blame at the door of online video companies, including Netflix and Amazon Prime Instant Video.

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“Sky has a customer loyalty problem on its hands," said AJ Bell in a note.

"The broadcaster has historically tried to keep the level [of customer churn] below 10% but clearly its recent decision to put up TV prices and limit retention discounts hasn’t gone down well. Netflix, Amazon and BT are now serious competitors.”

A note from Liberum said: “[Higher customer churn] indicates that competition is increasing and the OTT [over the top] services like Netflix and Amazon particularly in the UK are driving competition.”

The customer churn rate did not prevent Sky from heralding an “excellent performance” in the year to June 2016. Revenues were up 7% to £11.95 billion ($15.7 billion), while adjusted operating profit climbed 12% to £1.55 billion ($2 billion).

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On the earnings call, Sky chief executive Jeremy Darroch said he was relaxed about the impact of Brexit, arguing that when people are strapped for cash they stay at home and watch television.

“If the UK went more into recession, as we’ve seen on the past when that happens, people tend to regress to the home,” he said.

“They are more careful about where they spend their money, and as you’ve seen we’ve done very well in that environment because we offer a great service for families to entertain themselves in the home.”

Earlier this week, UK commercial broadcaster ITV said it plans to cut costs by £25 million ($32.8 million) by 2017 to protect itself from the economic shockwaves of Brexit that have flattened the advertising market.

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