Assessment of Sky’s profitability and cost of capital

This is the non-confidential version. Confidential information has been redacted. Redactions are indicated by [  ]. Pay TV statement – Annex 3 – non-confidential version Contents Section Page 1 Introduction 1 2 The use of IRR in profitability analysis 7 3 Have Sky's returns exceeded its cost of capital? 12 4 Why have Sky's returns exceeded its cost of capital? 16 5 Are Sky's returns likely to continue to be above the cost of capital? 23 6 What do alternative measures of Sky's profitability tell us? 25 7 Disaggregate profitability 34 8 Conclusions 42 Appendix Page 1 Sky's cost of capital 43 2 Oxera's second report 3 Brattle Report on Sky's Beta Pay TV statement – Annex 3 – non-confidential version