Sky seals £195m HBO deal but costs soar on the back of Premier League TV rights battle

Sky has announced a multi-year co-production deal worth £195m with US television network HBO, which will see the pair produce "high-end drama".

The telecom giant expects the deal with HBO, the producer of The Sopranos, The Wire and Boardwalk Empire among others, to deliver at least two drama projects per year with the first project coming to screen in 2018.

"HBO and Sky have for many years shared a common creative culture and a common vision for the development of high quality drama," said Sky chief executive Jeremy Darroch.

"This new venture deepens that relationship, maintains our leadership position in world-class content."

News of the partnership came as the FTSE 100-listed company said it remained on track to meet its annual targets, after double-digit revenue growth in the first nine months of its financial year.

Helped by the weak pound, revenue rose 11% year-on-year to £9.64bn, while growth on a constant currency basis stood at 5%. Advertising revenue was 4% higher than in the corresponding period last year, despite a tougher market environment in the UK and Italy in particular.

Operating profits slid from £1.14bn to £1.01bn, largely on the back of higher costs related to the Premier League broadcasting rights, which were £494m higher than last year and saw total costs rise 8% on the year.

However, when stripping out the impact of the TV rights, costs rose by just 2%, despite the roll out of its new Sky Q product in the UK and launch of Sky Mobile, and Sky+ Pro in Germany.

"It's been another strong quarter for Sky, despite this being our seasonally quietest period. We continue to perform well, attracting another 106,000 customers across the group in the quarter, taking growth to 769,000 over the last 12 months," Darroch added.

"Looking forward, we enter the final quarter of our fiscal year in good shape. Despite the broader consumer environment remaining uncertain, we continue to deliver on our strategy and are on track for the full year."

Meanwhile, the group added the UK government has requested a report from Ofcom on 21st Century Fox's bid for Sky, with Britain's telecoms regulator expected to deliver its findings by 16 May this year.

Earlier this month, the European Commission's competition authority cleared 21st Century Fox to buy the 61% of broadcaster Sky that it does not already own.

The announcement removed another obstacle to media mogul and Fox owner Rupert Murdoch's bid for complete control of Sky, atop his ownership of leading UK newspapers such as the Times and the Sun.