BSkyB's row with Virgin Media could drag down profits further

Sky added 83,000 net new customers in the quarter with churn - a measure of subscriptions cancelled - falling to its lowest level in more than a year.

But the firm's pre-tax profit fell to �121m, down from �166m a year earlier.

Virgin's refusal to screen certain key Sky channels because of a row over transmission costs was partly to blame.

Virgin launched a High Court action against BSkyB in April, accusing the broadcaster of abusing its dominant position in the pay-TV market.

The overall picture from a market perspective is still positive Richard Hunter, equity strategist, Hargreaves Lansdown See BSkyB's shares Why is the Sky-Virgin row about?

According to an agreed timetable, the case is unlikely to be heard before next summer.

The firm estimated that its operating profit would be hurt by about �15m for each full quarter that the channels, including Sky One, Sky News and Sky Sports News, remained unavailable to Virgin Media's 3.3 million subscribers.

"We expect that performance for the full year will be in line with our plans," said James Murdoch, BSkyB chief executive.

Silver lining?

Other reasons given for the fall in profit included higher marketing costs and substantial investment in its recently launched broadband and phone packages.

The new contract to cover Premier League football and spending on programmes such as Sky One's much-advertised Are You Smarter Than A 10-Year-Old, were also cited as contributed to added costs.

BSkyB shares closed down 4.3% at 660p following the trading update.

Analysts were encouraged by surging demand for the Sky+ and High Definition TV services as well as the popularity of Sky's broadband package, which has attracted one million customers in 14 months.

But Richard Hunter, equity strategist at Hargreaves Lansdown, said the run on Sky's shares "centred around some slight disappointment on the profit numbers".

This, he noted, came on top of continuing uncertainty surrounding the firm's contentious 17.9% stake in rival broadcaster ITV and the distraction of the Virgin Media lawsuit.

"Nonetheless, the overall picture from a market perspective is still positive," he added.