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UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

|                                             | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|-------------------------------------------- | ------------------------------------------------------------------------------------------------
|                                             | OR                                                                                              
|                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934            
|                                            
|For
      the fiscal year ended 30 June 2008
|                                             | OR                                                                                              
|                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        
|                                             | OR                                                                                              
|                                             | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     
|                                            
|Commission file number: 1-13488             

British Sky Broadcasting Group plc(Exact name of Registrant as specified
in its charter)England & Wales(Jurisdiction of incorporation
or organisation)

Grant Way, Isleworth, Middlesex,
  TW7 5QD, England(Address of principal executive
  offices)

**David Gormley
  Company Secretary
  British Sky Broadcasting Group plc
  Grant Way, Isleworth, Middlesex, TW7 5QD, England 
  Telephone +44 20 7705 3000
  Facsimile +44 20 7705 3008***(Name, telephone, e-mail and/or facsimile number and address of Company
  Contact Person)*

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Securities registered or to be registered pursuant to Section 12(b) of the Act:

|Title of each Class                                       |  | Name of each exchange on which registered
|--------------------------------------------------------- |  | -----------------------------------------
|                                                          |  |                                          
|Ordinary shares (nominal value 50p per share)             |  | New York Stock Exchange(1)               
|American Depositary Shares, each of which represents four |  | New York Stock Exchange                  
|Ordinary shares of British Sky Broadcasting Group plc     |  |                                          
|(nominal value 50p per share)                             |  |                                          
|6-7/8% Notes due February 23, 2009                        |  | :New York Stock Exchange                 
|                                                          |  |                                          

(1) The
  listing of Registrant's ordinary shares on the New York Stock Exchange is for
technical purposes only and without trading privileges.

Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock at the close of the period covered by the annual report.
Ordinary shares (nominal value 50p per
share) __________ 1,752,842,599

Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

|Yes                                                                                                                                                                                                               |  | No
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                                                                                                                                                                                                                  |  |   
|If
        this report is an annual or transition report, indicate by check mark
    is the registrant is not required to file reports pursuant to
    Section 13 or 15(d) of the Securities Exchange Act of 1934
|                                                                                                                                                                                                                 

|Yes                                                                                                                                                                                                                                                                                                                                                                                      |  | No
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                                                                                                                                                                                                                                                                                                                                                                                         |  |   
|Indicate
        by check mark whether the registrant (1) has filed all reports required
    to be filed by Section 13 or 15(d) of the Securities
        Exchange Act of 1934 during the preceding 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2)
    has been subject to such filing requirements for the past 90 days.
|                                                                                                                                                                                                                                                                                                                                                                                        

|Yes                                                                                                                                                                                                                                                                   |  | No
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                                                                                                                                                                                                                                                                      |  |   
|Indicate
        by check mark whether the registrant is a large accelerated filer, an
    accelerated filer, or a non-accelerated filer. See
        definition of accelerated filer and large accelerated filer in
    Rule 12b-2 of the Exchange Act (check one)
|                                                                                                                                                                                                                                                                     

|Large
          accelerated filer      Accelerated
          filer      Non-accelerated
          filer
|-------------------------------------------------------------------------------------------------------
|                                                                                                       

|Indicated by check mark which
        basis of accounting the registrant has used to prepare the financial
    statements included in this filing
|-------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                 
|U.S. GAAP                                                                                                                                        
|                                                                                                                                                 

|If Other has
        been checked in response to the previous question, indicate by check
    mark which financial statement item the
    registrant has elected to follow.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                             
|Item
        17                                                                                                                                                              

|                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------------------------------------
|If this is
        an annual report, indicate by check mark whether the registrant is a
    shell company (as defined in Rule 12b-2 of the Exchange Act)
|                                                                                                                                                        
|Yes                                                                                                                                                     
|                                                                                                                                                        

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Back to Contents

|Table of contents
|-----------------
|                 
|                 
|                 

|Chairmans
      statement                          | 2  
|--------------------------------------------------- | ---
|                                                    |    
|Directors
      report  review of the business    |    
|Chief
      Executive Officers statement           | 3  
|The
      business, its objectives and its strategy | 5  
|Corporate
      responsibility                      | 18 
|People                                              | 18 
|Risk
      factors                                  | 19 
|Government
      regulation                         | 21 
|                                                    |    
|Directors
      report  financial review          |    
|Introduction                                        | 29 
|Financial
      and operating review                | 30 
|Property                                            | 38 
|                                                    |    
|Directors
      report  governance                |    
|Board
      of Directors and senior management      | 39 
|Corporate
      governance report                   | 41 
|Report
      on Directors remuneration             | 46 
|Other
      statutory information                   | 54 
|                                                    |    
|Consolidated
      financial statements             |    
|Statement
      of Directors responsibility        | 55 
|Auditors
      reports                             | 56 
|Consolidated
      financial statements             | 57 
|Group
      financial record                        | 102
|                                                    |    
|Shareholder
      information                       | 104
|                                                    |    
|Glossary
      of terms                             | 112
|                                                    |    
|Form
      20-F cross reference guide               | 114
|                                                    |    
|                                                    |    

This constitutes the Annual
    Report on Form 20-F (the 20-F) of British SkyBroadcasting
    Group plc (the Company) in accordance with the requirements
    of the United States (US) Securities and Exchange
    Commission (the SEC) and is dated 1 August 2008. This
    document also contains the information set out within the Companys Annual
    Report in accordance with International Financial Reporting Standards (IFRS)
    and with those parts of the Companies Act 1985 applicable to companies reporting
    under IFRS, dated 30 July 2008, as updated or supplemented at the time of
    filing of the 20-F with the SEC. References to IFRS refer to the application
    of International Financial Reporting Standards, including International Accounting
    Standards (IAS) and interpretations issued by the
    International Accounting Standards Board (IASB) and
    its committees, and as interpreted by any regulatory bodies applicable to
    the Group and adopted by the European Union (EU).
    In addition, the Group also complied with IFRS as issued by the IASB. Forward looking statementsThis
document contains certain forward-looking statements within the meaning of the
US Private Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operations and business, and our strategy, plans and objectives.
These statements include, without limitation, those that express forecasts, expectations
and projections, such as forecasts, expectations and projections with respect
to the potential
for growth of free-to-air and pay television, fixed line telephony and Direct-to-Home
(DTH) subscribers, broadband and bandwidth requirements,
advertising growth, Multiroom, Sky+ and other services penetration, churn, DTH
and other revenue, profitability and margins, cash flow generation, programming
costs, subscriber management costs, administration costs and other costs, marketing
expenditure, capital expenditure programmes and proposals for returning capital
to
shareholders. These statements (and all other forward-looking statements contained in this
document) are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are difficult
to predict and could cause actual results to differ materially from those expressed
or implied or forecast in the forward-looking statements. These factors include,
but are not limited to, the fact that we operate in a highly competitive environment,
the effects of laws and government regulation upon our activities, our reliance
on technology,


which is subject to risk, change and development, failure of key suppliers, our
ability to continue to obtain exclusive rights to movies, sports events and other
programming content, risks inherent in the implementation of large-scale capital
expenditure projects, our ability to continue to communicate and market our services
effectively, and the risks associated with our operation of digital television
transmission in the United
Kingdom (UK) and Republic of Ireland (Ireland). Information on the significant
    risks and uncertainties associated with our business is described in Directors
    report – review of the business – Risk factors in
    this document. All forward looking statements in this document are based on
    information known to us on the date hereof. Except as required by law, we
    undertake no obligation publicly to update or revise any forward-looking statements,
    whether as a result of new information, future events or otherwise.




|                                         |  |  
|---------------------------------------- |  | -
|                                         |  |  
|British
      Sky Broadcasting Group plc |  | 1
|Annual
      Report 2008                

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Back to Contents

|Chairmans
      statement
|--------------------------
|                          
|                          
|                          

Over the last year, we have continued to position our business to take advantage of fundamental changes in the way in which customers consume media and communications. These changes are
creating significant opportunities for companies that have the capability and the appetite to adapt their businesses. The steps that we have taken are delivering results. We have gained exposure
to an enlarged growth opportunity in the broad marketplace for entertainment
and communications. The expansion of our product set has provided more tools
than ever to meet the needs of our existing and future customers, and our focus
on quality, choice and value is being met by increased demand. As a consequence,
more customers are choosing Sky for a broader range of products and services
than ever before. Sky is a business that makes a positive contribution to life in the UK and Ireland:
through the products chosen by millions of customers; through our investment
in much-loved content; and through our commitment to innovation. A further dimension
of that contribution is the sense of responsibility that we bring to the way
we do business. We continue to make progress in our work to contribute to a healthy
environment and to develop our
activities in sport and the arts. After serving for 18 years on the Board of the Company, Rupert Murdoch decided
to step down as Chairman and as a Director in December 2007. On behalf of the
Board and shareholders, I would like to express our gratitude for his unparalleled
contribution and tireless dedication to Sky. His spirit and vision have been
instrumental in growing the business from a standing start to reach more than
one in three households across the UK and
Ireland. Having stepped down as Chief Executive in December 2007, I am pleased to have
the opportunity to continue to serve the Company in a new role as Non-Executive
Chairman. I am delighted to have been succeeded as Chief Executive by Jeremy
Darroch, who is the first person from within Sky to have been appointed to that
role. Jeremy has been a key part of the Companys leadership team since joining
Sky as Chief Financial Officer in August 2004 and has been instrumental in our
progress over that period. The Board considered Jeremy to be the outstanding
candidate for the role of Chief Executive and I am certain that under his leadership
the Company will continue to grow and prosper. Andrew Griffith joined the Board in April 2008 on his appointment to succeed
Jeremy as Chief Financial Officer. Andrew was previously Skys Director
of Group Finance, M&A and Investor Relations and his appointment is further
evidence of the strength in depth of our management team. I would also like to
welcome Daniel Rimer to the Board following his appointment as a Non-Executive
Director, also in April 2008. Finally, I would like to thank all my colleagues at Sky, including those at Amstrad
who have recently joined the Group, for their hard work and commitment over the
past 12 months. The opportunity for Sky has never been greater and we are well
positioned to achieve continued growth on behalf of shareholders. That confidence
is reflected in the proposed 8% increase in the full year dividend to 16.75 pence
per share. James MurdochChairman 30 July 2008




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|------------------ |  | ----------------------------------------
|                   |  |                                         
|2                  |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|Directors report  review of the business
|------------------------------------------
|                                          
|                                          
|                                          

Chief
    Executive Officers statementOur goal is to be consumers
    first choice for entertainment and communications. We believe that customers
    deserve better: better content; better products; better service and better
    value. This fundamental belief underpins both our strategy and our operational
    performance. It is the basis for our confidence that we have both the opportunity and the
capability for long-term, sustainable success. The opportunity is substantial. The coming together of previously adjacent market
sectors provides significant headroom for growth. A growing consumer appetite
for choice, control over viewing and connectivity is driving increasing demand
across our core product categories. And consumers are rewarding trusted providers
who meet their needs for quality, value and service. Our capability as an organisation is the basis for competitive advantage. The
strength of our franchise and our position today as the choice of more than one
in three families in the UK and Ireland provides a strong foundation. The combination
of our brand, product set, content offering and service infrastructure sets us
apart in a competitive marketplace. Continued execution against this opportunity and capability will deliver an expanded
customer base, top-line revenue growth and accelerated financial returns, creating
significant value for
shareholders. Looking back, 2008 has been a year of significant achievement, particularly against
the backdrop of a more challenging consumer environment. We have grown our customer
base in line with our targets, reaching 8.98 million in June; we have established
ourselves as the fastest growing broadband and home phone provider in the UK;
we have seen record new product take-up, in particular with Sky+; and the actions
we have taken to improve the quality of our customer base have delivered a step-change
in churn. More customers are choosing Sky, they are taking more products from
us and they are staying with us for longer. There is no doubt that the consumer environment is more challenging today than
it has been for some time. Against that backdrop, our business has continued
to perform well. No consumer business can be entirely immune to an economic downturn
and it is impossible to predict with certainty the effects the current environment
will have. However, there are a number of factors specific to Sky that mean we
are well placed relative to other consumer businesses. These include the strong,
high-quality business that we have today, the value of our product set and the
fact that there is good headroom for growth in all of the segments in which we
operate. Our ability to save customers money through broadband and telephony,
investment in products like Sky+ that improve loyalty and satisfaction, focus
on quality in our acquisition and retention strategy, and leadership in customer
service are all important in this
context. One of the greatest opportunities
    for our business is the chance to offer more products to the homes that choose
    Sky. We are already seeing positive trends, with over five million product
    sales during the year, a threefold increase over the last four years. This
    demand is driving new customer acquisition and helping to cement customer
    loyalty. Over half of our customers now take more than one product from us,
    and for new customers this percentage is even greater. There remains a substantial
    opportunity for growth with only around one in ten of our customers taking
    all three of TV, broadband and telephony from Sky. Sky+ puts our customers in charge of what they watch and when they watch it.
It has established itself as the gold standard for digital video recorders and
has been a key driver of demand. This year, an additional 1.3 million homes chose
Sky+ and it is now in more than 3.7 million households or 41% of our customer
base. It is helping us attract new customers with strong product advocacy, and
high customer satisfaction means that Sky+ customers tend to stay with us for
longer. The growth of Sky+ is having a transformative effect on the way our customers
watch TV, with an estimated 4.4 billion instances of time-shifting over the last
year. Our Sky+ HD service takes this technology to a new level, with all of the
well-loved features of Sky+ combined with a new high definition quality of TV
experience providing us with a good platform for growth.


Our broadband and telephony
    businesses are quickly achieving scale. In less than two years more than
    1.6 million households have joined Sky Broadband and we are making similar
    strong progress in Sky Talk, where we have grown to well over a million customers.
    As more customers respond to the great value and high quality that we offer,
    Sky Talk came first in seven of the 11 categories in uSwitchs 2008
    Home Phone Customer Satisfaction
Awards, including best overall satisfaction. Alongside growing demand for our products, we have made some important changes
that support the quality and durability of our customer base. With a wider range
of products and a stronger value proposition than ever before, we have been able
to reduce the use of viewing package discounts to attract and retain customers.
As a result, we are seeing a positive and measurable effect on the quality of
new customers joining Sky and improved loyalty from existing customers, with
churn at its lowest level for three years. Content is our life-blood
    at Sky. We are continuing to strengthen our offering through investment in
    distinctive programming that makes us stand out and encourages people to join
    Sky. Alongside our successful partnerships with third-party broadcasters,
    we continue to develop our wholly-owned channels in sports, news, movies,
    entertainment and the arts. For example, weve recently renewed our agreement
    for coverage of the UEFA Champions League and will offer more live games than
    ever before. Sky One, our flagship entertainment channel, goes from strength
    to strength with outstanding original commissions such as Ross Kemp in Afghanistan,
    The Colour of Magic, Dont Forget The Lyrics and Gladiators, alongside
    compelling US drama like Lost, 24 and Prison Break. Sky News continues to
    set standards for coverage of breaking news, winning the Royal Television
    Societys News Channel of the Year Award for the sixth time in the last
    seven years, and we are further broadening Skys appeal through our content
    offering with Sky Arts, the UKs only channel dedicated to all areas
    of the arts. Customer service is as
    integral a part of the Sky experience as putting good content on screen. Our
    contact centres already handle over one million calls from customers a week,
    and our field engineers make over four million home visits a year. Our aspiration
    is not just to set the benchmark for the best customer experience in our own
    industry, but the best in any industry. Financially, we are in good health and our strategy is delivering strong revenue
growth to almost £5 billion. Operating profit of £724 million in the
2008 financial year was impacted by a number of expected cost headwinds, but
we remain on track for our goals. After passing the peak of investment in the
roll-out of broadband and telephony, we are focused on delivering enhanced profitability
in line with our 2010 margin targets. We have a greater opportunity for growth
than ever before and we are well positioned to create significant value for shareholders. We believe that a successful and sustainable business is a responsible business;
one that sees the bigger picture. We are committed to making a positive contribution
to society, embracing the opportunity to work with our staff and customers to
tackle the issues they care about. We have focused on three areas in particular
where we believe Sky can make a real difference: encouraging participation in
sport; making the arts more accessible
and helping to tackle climate change. We have already reduced
    our direct carbon footprint by 27%, and have worked with our customers to
    reduce their energy consumption. One year after launch, our auto standby
    feature  a world first  has been downloaded to more than four
    million Sky+ and Sky+ HD boxes, saving our customers £12 million on their
    electricity bills as wellas
    52,000 tonnes of CO2.
    To help make the arts accessible and appreciated by all, wehave
    partnered with a number of leading arts organisations and events across the
    UK, including English National Opera (ENO), English National Ballet and the
    Hay Festival. Our work with ENO has allowed thousands of Sky customers to
    attend performances for just £5, and hundreds of local schoolchildren
    have been offered educational workshops. Through our recently announced partnership
    with British Cycling, we want to help one of Britains most successful
    Olympic teams achieve even more success, develop the next generation of talent
    and inspire millions of people to get on their bikes. Our Sky Sports Living
    for Sport programme  now in its fifth year  has helped more than
    17,000 students at risk of opting out of school life to reach their full potential.
    We are proud of the contribution weve made in each of these areas and
    are committed to building on these foundations in the years ahead.




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|British
      Sky Broadcasting Group plc |  | 3
|Annual
      Report 2008                

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Back to Contents

|Directors report  review
    of the business
|----------------------------------------------
|continued                                     
|                                              
|                                              

We challenge ourselves constantly to be a business that is adaptable and embraces change; an organisation thats prepared to take decisions and control its own destiny. That culture has
been part of Sky since the very start. Its from that culture that weve derived our success: in backing our belief that people wanted more choice in television viewing; in raising the bar for the way in which sports and news are covered
on TV; in developing innovative products like Sky+ and Sky+ HD which transform the television experience; and in building a broadband and telephony business to scale from scratch. That capability within the organisation is growing every day. Our people are
the key to our success and I would like to pay tribute to them for their hard
work, creativity, dynamism and dedication. All of us at Sky will continue to
focus our efforts on the things that we know really matter to our customers:
great content, great value and great service. We see huge potential for continued
growth and value creation and we believe we
are better placed than ever to deliver. Jeremy DarrochChief Executive Officer


|                   |  |                                       
|------------------ |  | --------------------------------------
|                   |  |                                       
|4                  |  | British Sky
    Broadcasting Group plc
|Annual Report 2008

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The business, its objectives and its strategyIntroduction British Sky Broadcasting Group plc and its subsidiaries (the Group) operate the leading pay television broadcast service in the UK and Ireland as well as broadband and
telephony services. We acquire and commission programming to broadcast on our own channels and supply certain of those channels to cable operators for retransmission by the cable operators to their subscribers in the UK and Ireland. We retail
channels (both our own and third parties) to DTH subscribers and certain of our own channels to a limited number of DSL subscribers (reference in this Annual Report to the number of DTH subscribers includes the number
of DSL subscribers to whom Sky retails its content directly). We also make three of our channels available free-to-air via the UK DTT platform as part of the branded Freeview offering and we have announced that we are
developing plans to replace these channels with new pay TV channels on the DTT platform (see Government Regulation  Broadcasting Act Licences below). At 30 June 2008, there were 8,980,000 DTH subscribers to our television service,
and 1,248,000 subscribers of the cable operators to whom we supply certain of
our channels, in the UK and Ireland. Up to 28 February 2007, the Group supplied
certain of the Sky Basic Channels to Virgin Media (see Cable distribution – UK below).
This supply arrangement has now ceased although the Group continues to provide
Virgin Media with versions of the Sky Premium Channels. According to estimates
of Broadcasters Audience Research Board (BARB), as at
30 June 2008, there were 12.5 million homes in the UK receiving certain of our
channels via
DTT (see DTT distribution below). Our total revenue in
fiscal 2008 was £4,952 million (2007: £4,551 million), as set out in
the table below. 2008
	
	2007For the year to 30 June
	£m
	
	£mRetail subscription
	3,769
	
	3,406Wholesale subscription
	181
	
	208Advertising
	328
	
	352Sky Bet
	44
	
	47Installation, hardware and service
	276
	
	212Other
	354
	
	326Revenue
	4,952
	
	4,551 We operate principally within the UK and Ireland, with activities conducted primarily from the UK. Our revenue principally arises from services provided to retail and wholesale customers
within the UK with the exception of £365 million (2007: £289 million) which arises from services provided to other countries. Our fiscal years end on the Sunday nearest to 30 June in each year. References
in this document to a fiscal year ended 30 June is to the fiscal year ending
on the Sunday nearest to 30 June. We publish our financial statements in British
pounds sterling. References to US dollars, dollars, US$, $ and ¢ are
to the currency of the United States (US), references
to Euro and € are
to the currency of the participating European Union countries, and references
to pounds sterling, £, pence and
p are to the currency of the UK. For information with
respect to exchange rates, see Shareholder
Information – Exchange Rates. Our consolidated financial statements are prepared in accordance with IFRS as
adopted by the EU, the Companies Act 1985 and Article 4 of the IAS Regulations.
In addition our consolidated financial statements also comply with IFRS as issued
by the IASB. Certain terms used herein are defined in the Glossary of terms which
appears at the end of this Annual Report. The Company, a public company limited by shares and domiciled in the UK, operates
under the laws of England and Wales. It was incorporated in England and Wales
on 25 April 1988. Our principal executive offices are located at Grant Way, Isleworth,
Middlesex, TW7 5QD, England. Tel: +44 (0)20 7705 3000. A list of our significant
investments is set out in note 31 to the consolidated financial statements.


ProgrammingWe provide subscribers
with a broad range of programming options. Programming is an important factor
in generating and maintaining subscriptions to the Sky Channels. With respect
to the channels we own and operate, we incur significant expense to acquire exclusive
UK and Ireland television rights to films, exclusive UK and Ireland television
rights to broadcast certain sports events live and television rights to other
general entertainment programming. We also produce and commission original entertainment
programming and have acquired the rights to market the television services of
third parties to DTH subscribers. Currently, we own, operate, distribute and retail 25 Sky Channels via our DTH
service (or 28 including multiplex versions of the Sky Channels, but excluding
simulcast channels and the
business channels SkyVenue and the Pub Channel). A multiplex of
a channel is a time-shifted version of that channel, a version that is manifestly
linked by theme to the principal channel or a version where the content is transmitted
at different times. We also simulcast some of the Sky Channels or programming
from some of the Sky Channels in high definition. A simulcast channel is a simultaneous
transmission of programmes on other channels. We currently retail to our DTH
subscribers 149 Sky Distributed Channels (including multiplex versions of certain
channels) (the Sky Distributed Channels). We do not own
the Sky Distributed Channels, although we have an equity interest in certain
of them. In addition to the Sky Distributed Channels, we currently retail to
our DTH subscribers the digital audio services Music Choice and Music Choice
Extra, as well as the Sky Box Office service (a pay-per-view service offering
movies, sporting
events and concerts). The Sky Distributed Channels packages as at 30 June 2008, were as follows: 3rd PartyPackage
	ChannelsVariety Mix
	32Style & Culture Mix
	24Kids Mix
	20Knowledge Mix**
	21Music Mix
	17News & Events Mix
	11ROI Bonus Mix
	10Adult Nightly
	9Disney Cinemagic*
	2MUTV
	1Chelsea TV
	1 *
	Disney Cinemagic also available as a bonus to subscribers of both Movies Mix
packages.**
	On 28 July 2008, the Military History channel launched as part of the Knowledge
Mix. In addition the HD service includes six third party Channels.




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|British
        Sky Broadcasting Group plc |  | 5
|Annual
        Report 2008                

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|Directors report  review
        of the business
|--------------------------------------------------
|continued                                         
|                                                  
|                                                  

The business, its objectives and its strategycontinued The Sky Channels, and their multiplex versions, as at 30 June 2008, were as follows: Sky Channel
	
	Multiplex/
	
	
	
	EPG Channel
	
	Basic/Multiplexes
	
	Simulcasts
	
	Genre
	
	PremiumSky Movies Premiere
	
	Sky Prem+1
	
	Sky Premiere HD
	
	Movies
	
	PremiumSky Movies Comedy
	
	
	
	
	
	Movies
	
	PremiumSky Movies Action
	
	
	
	
	
	Movies
	
	PremiumSky Movies Family
	
	
	
	
	
	Movies
	
	PremiumSky Movies Drama
	
	
	
	
	
	Movies
	
	PremiumSky Movies SciFi andHorror
	
	
	
	
	
	Movies
	
	PremiumSky Movies Classics
	
	
	
	
	
	Movies
	
	PremiumSky Movies
        Modern Greats
	
	
	
	
	
	Movies
	
	PremiumSky Movies Indie
	
	
	
	
	
	Movies
	
	PremiumSky Movies Screen1
	
	
	
	Sky Screen 1HD
	
	Movies
	
	PremiumSky Movies Screen 2
	
	
	
	Sky Screen 2HD
	
	Movies
	
	PremiumSky Sports 1
	
	
	
	Sky Sports HD1
	
	Sports
	
	PremiumSky Sports 2
	
	
	
	Sky Sports HD2
	
	Sports
	
	PremiumSky Sports 3
	
	
	
	Sky Sports HD3
	
	Sports
	
	PremiumSky Sports Xtra
	
	
	
	
	
	Sports
	
	PremiumSky Sports News
	
	
	
	
	
	Sports
	
	BasicSky One
	
	
	
	Sky One HD
	
	Entertainment
	
	BasicSky Two
	
	
	
	
	
	Entertainment
	
	BasicSky Three
	
	
	
	
	
	Entertainment
	
	BasicSky News
	
	
	
	
	
	News
	
	BasicSky Real Lives
	
	Sky Real Lives+1Sky Real Lives 2
	
	
	
	Lifestyle & Culture
    
    BasicSky Arts
	
	
	
	Sky Arts HD
	
	Lifestyle & Culture
    
    BasicSky Travel
	
	
	
	
	
	Shopping
	
	BasicSky Vegas
	
	
	
	
	
	Gaming
	
	BasicSkyPoker.com
	
	
	
	
	
	Gaming
	
	Basic We retail packages of channels to our DTH subscribers. The way they are packaged offers subscribers a choice of up to six mixes of
  both Sky Basic Channels and Sky Distributed Channels. Each mix contains channels
  broadly within a specific genre of interest, to which subscribers have the
  option to add a combination of Sky Premium Channels and Premium Sky Distributed
Channels. We also offer Sky Box Office to all our DTH subscribers. On the DTH platform,
  the Sky Premium Channels, the Sky Basic Channels (other than Sky News), Sky
  Box Office, Music Choice, Music Choice Extra and the Sky Distributed Channels
  are encrypted in order to limit access to paying subscribers only. Virgin Media (see Cable distribution  UK below)
  carries versions of the Sky Premium Channels (including multiplex channels)
  on its digital networks (see Sky Premium Channels below). We also broadcast versions of three of the Sky Channels, Sky News, Sky Sports
  News and Sky Three, unencrypted free-to-air via DTT in the UK as part of the
  Freeview offering (see Distribution  DTT Distribution below).
  We have announced that we are developing plans to replace these channels with
  new pay TV channels on the DTT platform (see Government Regulation  Broadcasting
  Act
Licences below). We also operate a High Definition TV (HD) service.
  The Sky HD service channel line up consists of: Sky One HD, Sky Arts HD, FX
  HD, Eurosport HD, National Geographic HD, Discovery HD, The History Channel
  HD, Rush HD, Sky Box Office HD (two screens), Sky Sports HD (three channels)
  and Sky Movies HD (three screens). BBC HD, Channel 4 HD and Luxe TV HD are
  also available on our platform. According to surveys produced by BARB, as of 30 June 2008, an estimated 34%
  of the estimated 25.7 million television homes in the UK were equipped with
  digital satellite reception equipment; 13% subscribed to a cable television
  or SMATV package (single mast antenna television which is primarily for buildings
  that receive programming by means of a single satellite antenna connected to
  a head end and which distributes


television signals to individual
    units in the building by cable); and 48% had digital terrestrial television.
    The
    percentage figures given for each means of delivery include homes which receive
    television services via more than one of such delivery means. According to
    BARB estimates, during the 52 weeks ended 30 June 2008, the Sky Channels
    (including Sky Box Office and Sky Box Office Events but excluding SkyPoker.com
    and Sky
    Vegas)
    accounted for an estimated 16.3% of viewing of all satellite and cable channels
    (excluding BBC1, BBC2, ITV1, Channel 4 (and S4C, not Channel 4, in Wales
    only) and five (collectively the traditionally analogue terrestrial
    channels)) in homes that are able to receive those channels in the UK (Multi-Channel Homes)
    (or an overall 7% viewing share of all channels (including the traditionally
    analogue terrestrial channels) available within Multi-Channel Homes during
the same period). For the 52 weeks ended 30 June 2008, BARB estimates that 52% of all viewing
  in UK homes with digital satellite reception equipment (digital
  satellite homes) was of channels available via digital satellite
  other than the traditionally analogue terrestrial channels. BARB estimates
  that, in the same period, Sky Channels accounted for 24% of multi-channel viewing
  (i.e. viewing of all channels excluding the traditionally analogue terrestrial
  channels) in UK digital satellite homes, with an overall 12.3% viewing share
  across all channels available (including the traditionally analogue terrestrial
  channels) within UK digital satellite
homes. We hold equity interests in ventures that own 17 (not including time-shifted
  multiplex versions) of the Sky Distributed Channels (including certain Premium
  Sky Distributed Channels) which are operated and distributed in the UK (for
  the purposes of this filing, any reference to the UK in relation to the distribution
  of the Sky Channels and Sky Distributed Channels includes the Isle of Man and
  the Channel Islands) namely Attheraces, Nickelodeon, Nick Jr., Nick Jr. 2,
  Nicktoons, National Geographic Channel, National Geographic HD, Nat Geo Wild,
  Chelsea TV, MUTV, Paramount Comedy, Paramount Comedy 2, The History Channel,
  Military History, The History Channel HD, The Biography Channel and Crime and
  Investigation Network. We also have a 33.33% equity interest in the venture
  operating the Sky News Australia Channel, which is based in Australia. Premium channelsSky Premium ChannelsSky Movies channelsSky Movies features 10 channels of different genres divided into two packs: Pack 1Sky Movies Comedy
Sky Movies Family
Sky Movies Classics
Sky Movies Modern Greats
Sky Movies Screen 1 Pack 2Sky Movies Action/Thriller
Sky Movies Sci-Fi/Horror
Sky Movies Indie
Sky Movies Drama
Sky Movies Screen 2 Sky Movies Comedy, Family, Classics, Modern Greats, Action/Thriller and Drama
  broadcast 24-hours per day, seven days a week. Sky Movies Sci-Fi/Horror broadcasts
  from 8am  5am, seven days a week and Sky Movies Indie broadcasts from
  9am  5am seven days a week. The channels principally broadcast the output
  of recent release movies, made-for-television movies and certain library movies
  (in respect of which we are typically granted exclusive UK and Ireland rights
  to broadcast during the relevant pay television window) by major Hollywood
  and independent US and
European licensors. Customers can elect to subscribe to Pack 1, Pack 2 or both packs. Sky DTH and
  digital cable subscribers subscribing to both packs receive Sky Movies Premiere
  and Sky Movies Premiere +1 free. Sky Movies Premiere broadcasts 10am  2am,
  seven days a week and exclusively shows titles in their first run TV windows
  (after the pay per view and VoD windows). The movies are recent theatrical
  releases, made for video and




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made for TV movies, including foreign film content. Sky Movies Premiere typically broadcasts five new films per week, and two films from the previous week every day for seven days. Sky Movies
Premiere +1 is a one hour delayed multiplex of the Premiere channel, broadcast from 11am  3am. There are three Sky Movies HD channels dedicated to movies broadcast in high
definition: Sky Movies Screen 1 HD, Sky Movies Screen 2 HD and Sky Movies Premiere
HD. Sky Movies Screen 1 HD is available to subscribers to our HD service who
also subscribe to Pack 1 and Sky Movies Screen 2 HD is available to subscribers
to our HD service who also subscribe to Pack 2. Sky Movies Premiere HD is available
to subscribers of our HD service who subscribe to both Pack 1 and Pack 2. Sky
Movies Screen 1 HD, Sky Movies Screen 2 HD and Sky Movies Premiere HD are a simulcast
of Sky Movies Screen 1, Sky Movies Screen 2 and Sky Movies Premiere respectively.
Screen 1 (and HD simulcast) broadcasts
midday  4am and Screen 2 (and HD simulcast) broadcasts 11am  3am,
both seven days a week. Sky Sports channelsSky Sports 1 and Sky
Sports 2 each provides on average 22 hours of sports programming per day, including
live coverage of sports events. Sky Sports 3 currently offers, on average, 18 hours of sports programming per
day. It is available without extra charge to DTH and cable subscribers who subscribe
to both Sky Sports 1 and Sky
Sports 2. Sky Sports Xtra is available as a stand alone premium channel as well as being
provided free as an additional channel to DTH and cable subscribers who subscribe
to both Sky Sports 1 and Sky Sports 2. Sky Sports Xtra currently offers, on average,
16 hours of sports programming per day. Sky Sports HD1, Sky Sports HD2 and Sky Sports HD3 are available to subscribers
to our HD service who are entitled to the corresponding standard definition channel.
This year the Sky Sports HD
channels have included live HD coverage of Englands domestic Test matches,
one day internationals and county matches in cricket, Engage Super League rugby,
Heineken Cup and Guinness Premiership rugby, the US Open, US PGA and selected
European Tour events in golf, the NFL Super Bowl and a range of live football
including matches from the Football Association Premier League (FAPL),
Coca-Cola Football leagues, Carling Cup, UEFA Champions League, FA Cup, Scottish
Cup
and some international games. In March 2006 the European Commission rendered legally binding the FAPLs
commitment to sell live TV rights in six balanced packages, with no one bidder
being allowed to buy all six packages. In May 2007, the Group successfully bid
for four of those six available packages (each of 23 games) of exclusive live
UK audio visual rights to FAPL football, and four of the seven packages of live
audio visual rights for broadcast in
Ireland. In addition, the Group has near live long form rights
to 242 games per season of FAPL football in both the UK and Ireland (in the case
of the UK, in a joint bid with British Telecommunications plc
(BT)) and mobile clips rights to FAPL football in both
the UK and Ireland. The bid for mobile clips rights in the UK was made by the
Group in partnership with News Group Newspapers. In all cases these rights run
from the
beginning of the 2007/08 season to the end of the 2009/10 season. In addition to those FAPL rights, our programming rights for the Sky Sports channels
include exclusive live rights to broadcast, in the UK and Ireland, a range of
sport including a number of football, rugby union, rugby league, cricket, motor
sport, golf, boxing and tennis events. Those events include: (i) broadcast rights
to Football League matches and the Carling Cup for the 2008/09 to 2011/12 domestic
football seasons; (ii) broadcast rights to the UEFA Champions League for the
2008/09 to 2011/12 seasons; (iii) exclusive live rights to Englands primary
domestic cricket matches and all of Englands home test matches and one
day internationals for the 2006 to 2009 domestic cricket seasons; (iv) exclusive
live rights in English for the International Cricket Tours of India from 2006
to 2010; (v) a number of rugby union matches including autumn international matches,
Guinness Premiership matches, England A Team matches from the 2005/06 to 2009/10
seasons; (vi) exclusive live rights to the Heineken Cup and the Challenge Cup
for the 2006/07 to 2009/10 seasons; (vii) exclusive rights to all tri-nations
rugby union matches between Australia, New Zealand and South Africa, plus all
summer tours to these three countries made by England,


Scotland, Wales, Ireland and British and Irish Lions and exclusive rights to
domestic competitions in those territories, including the Super 14 Tournament
and Currie Cup until December 2010; (viii) exclusive live rights to the Ryder
Cup and the PGA European Tour until 2012; and (ix) exclusive live rights to the
Hickstead Royal International Horse Show until 2010. We also purchase rights
to broadcast a wide range of additional sports programming on both an ad hoc
and longer term basis. Premium subscription channels retailed by SkyDisney
CinemagicUnder an agreement
with The Walt Disney Company Limited, we have the exclusive rights to distribute,
via DTH in the UK and Ireland, Disney Cinemagic and its multiplex channel as
bonus channels to those of our DTH subscribers receiving both Sky Movies packs
(see Sky Movies channels above), and to other DTH subscribers
as a stand alone premium channel. Chelsea TVChelsea Digital Media
Limited (a company in which we own a 35% equity interest), operates a digital
subscription pay television channel dedicated to showing certain programming
relating to
Chelsea Football Club (Chelsea TV). We offer Chelsea
TV to our DTH subscribers as a stand alone premium channel. MUTVWe are party to a
joint venture, MUTV Limited, with Manchester United PLC. We own a 33.33% equity
interest in MUTV Limited which operates a digital subscription pay television
channel dedicated to showing certain programming relating to Manchester United
Football Club (MUTV). We offer MUTV to our DTH subscribers
as a stand alone premium channel. Music Choice ExtraIn addition to Music
Choice, which is included in certain of our Basic Packages
(see Basic Channels  Basic Sky Distributed Channels below),
we offer Music Choice Extra, which consists of an additional 38 digital audio
channels, to our DTH subscribers as a stand alone premium channel. Basic ChannelsSky
Basic ChannelsSky One is the general
entertainment flagship channel of the Sky Channels and is available to our DTH
and certain DSL and cable subscribers. It is targeted primarily at a 16-44 age
group audience and includes UK-commissioned drama, factual and family entertainment
series and major event programming in addition to first-run acquired US series.
According to BARB surveys, during the 52 weeks ended 30 June 2008, Sky One was
viewed by approximately 37% of individuals in all UK television homes and Sky
One/Two/Three combined by approximately 69% of individuals in all UK television
homes. Sky One is simulcast in HD, available to subscribers to our HD service
and includes a range of Sky One programmes in high definition including all major
new commissions and acquisitions. Sky Two broadcasts primarily a catch-up schedule of programming from Sky One
and is complemented by Sky Ones programming library and some exclusive
content and is available to our DTH and certain DSL and cable subscribers. Sky
Three broadcasts a schedule of programming from Sky Ones library, content
from Sky Travel, Sky Real Lives and Sky Arts, as well as some exclusive content.
Sky Three is also currently shown on some cable networks in the UK and Ireland
and on DTT as part of the Freeview offering in the UK. Sky News provides national and international news to viewers in the UK, Ireland
and across the globe. The channel is broadcast unencrypted on Astra satellites
(see Satellites below), and distributed to viewers via
cable and satellite networks in Europe, Africa, the Middle East and Asia. It
is also currently shown on some cable networks in the UK and Ireland and on DTT
as part of the
Freeview offering in the UK. Sky Sports News provides 24-hour national and international sports news coverage.
It is currently available to our DTH subscribers, some cable and DSL customers
in the UK and Ireland and in the UK on DTT as part of the Freeview offering in
the UK. Sky Arts broadcasts arts-oriented programming, including classical music, opera,
literature, theatre, cinema and dance. It is currently available to our DTH subscribers.




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The business, its objectives and its strategycontinued Some programmes on Sky Arts are simulcast in HD, available to all subscribers to our HD service. Sky Real Lives and its multiplexes Sky Real Lives +1 and Sky Real Lives 2 focus
on real life human interest stories appealing to a female audience. The Sky Real
Lives channels are available
to our DTH subscribers. Sky Travel is an entertainment and travel retail business incorporating a channel
and a website. Sky Travel, broadcasts entertainment and teleshopping programming
and is currently available to our DTH subscribers and some cable subscribers
in the UK and Ireland. Sky Travel programming also features on Sky Three, which
currently broadcasts on DTH and on DTT as part of the Freeview offering in the
UK. Viewers of the teleshopping programming on Sky Travel on DTH and users of
the skytravel.co.uk website are able to purchase a wide range of flights, hotels
and holiday packages by the telephone or internet. Sky Vegas and SkyPoker.com are interactive television channels which currently
broadcast on a 24-hour a day basis and are currently available to our DTH subscribers. Basic Sky Distributed ChannelsOur agreements with the
owners of the Sky Distributed Channels typically grant us the exclusive right
to offer these channels to residential DTH subscribers in the UK and Ireland. The owners of the Sky Distributed Channels generally sell their own advertising
time on their channels, although we act as an advertising sales representative
for certain of these channels
(see Advertising below). Pay-per-viewOur Sky Box Office service
currently offers our DTH subscribers over 50 screens of television premieres
of movies and occasional live sports and other special events on a pay-per-view
basis. We have acquired certain exclusive DTH rights from Hollywood and independent
distributors, which enable us to show their movies on Sky Box Office. Sky Box
Office HD offers at least 10 movies each week in high definition on a pay-per-view
basis. We also offer seven screens of adult movies, between 10.00pm and 5.30am,
to our
DTH subscribers via our 18 Plus Movies service. Sky Anytime on TVIn March 2007 the Group
launched Sky Anytime on TV, an on-demand service that provides access to selected
programmes that are added to the service overnight with approximately 30 hours
of content available at any one time. Viewers have seven days to watch programmes
or store them on their Sky+ planner (see description of Sky+ in DTH
Distribution below) as newer programmes are added and older programmes
are deleted. Sky Anytime on TV uses additional storage capacity on relevant set-top
boxes to automatically store selected programmes for viewing on-demand and the
customers personal recording capacity remains unaffected. Sky Anytime on
TV is available to all Sky HD customers and customers with the latest generation
of Sky+ set-top boxes at no extra charge in accordance with their subscriptions
(for example, customers who subscribe for the Sky Movies channels will have access
to certain
Sky Movies programming on Sky Anytime on TV at no extra charge). DistributionWe distribute our
programming services directly to DTH subscribers through the packages described
above. Cable subscribers, by contrast, contract with cable operators, which in
turn acquire the rights to distribute certain of the Sky Channels from us, which
they combine with other channels from third parties and distribute to their subscribers.
Since 28 February 2007, Virgin Media has not carried certain of the Sky Channels
over its
cable networks (see Cable distribution  UK below).
DTT viewers must have either an integrated digital television set or an appropriate
set-top box (see Competition  Digital Terrestrial Television  Top
Up TV below).


As at 30 June(In thousands)(1)
	2008
	
	2007Distribution of Sky ChannelsDTH homes
	  8,980
	
	  8,582Cable homes(2)
	1,248
	
	1,259Total Sky pay homes
	10,228
	
	9,841DTT homes(3)
	  9,200
	  (4)
	9,139 (1)
	  Each of the above figures
        includes homes that receive Sky Channels via more than one means of distribution.(2)
	  The number of cable
        homes is reported to us by the cable operators.(3)
	  The DTT homes number
        consists of the Office of Communications (Ofcom)
        estimate of the number of homes where DTT is the only platform. The number
        of DTT homes for all periods disclosed above is based on Ofcoms
        Digital Television Update published quarterly in arrears.(4)
	  Latest data available
        is at 31 March 2008 with an estimated number of DTT homes of over 9.2
        million. DTH distributionAs
at June 2008, the total number of DTH subscribers in the UK and Ireland was 8,980,000,
representing a net increase of 398,000 subscribers in the fiscal year. DTH churn
in total was 10.4% in fiscal 2008 (2007: 12.4%) . We define DTH churn as the
number of DTH subscribers over a given period who terminate their subscription
in its entirety, net of former subscribers who reinstate their subscription in
that period (where such
reinstatement is within a twelve month period of the termination of their original
subscription). In fiscal 2008, we derived £3,769 million (76%) of our revenue from DTH subscription revenue (2007: £3,406
million (75%)). As at 30 June 2008, we had a total of 8,980,000 DTH subscribers, with 65% of
subscribers taking a combination of Sky Basic Channels and at least one Sky Premium
Channel as well as Sky
Distributed Channels. Of more than 8,980,000 DTH subscribers; 3,714,000 were Sky+ subscribers, 1,604,000
were Multiroom subscribers and 498,000 were Sky HD subscribers. The standard price (inclusive
    of VAT, where applicable) to a residential DTH subscriber of our basic package
    containing the largest number of basic channels (known as the Variety
    Mix) is currently £16 per month in the UK and€20
    per month in Ireland. The range of prices (inclusive of VAT, where applicable)
    to a DTH subscriber taking one or more basic channel Mixes with Sky Premium
    Channels (which varies depending upon the number of basic channel Mixes and
    Sky Premium Channels taken) is currently £26 to £45 in the UK, and
    €39 to €68 in Ireland. We also offer a number of our services, including Sky HD, to commercial DTH subscribers
in the UK and Ireland under a range of contracts. The types of contract, and
the channels, which are available to any particular commercial subscriber depend
primarily upon the type of business premises within which such subscribers wish
to show our services. Our commercial DTH subscribers include offices, retail
outlets, hotels, pubs and clubs. Each such operator with a SMATV system is considered
to be a single commercial DTH subscriber regardless of the number of points (e.g.
rooms in a hotel) within the premises the television signal is distributed to.
As at 30 June 2008, there were approximately 44,695 subscribers to our commercial
DTH services in the UK and Ireland (including approximately 5,078 commercial
DTH subscribers operating a SMATV system). The majority of our UK DTH
    commercial customers are subscribers under our pubs and clubs subscription
    agreement. Under that agreement, the subscription prices range from £89
    to £3,001 per month (exclusive of VAT). In Ireland, prices to pubs and
    clubs subscribers range from€278
    to €686 per month (exclusive of VAT). Digital satellite reception equipmentUKIn order to
receive our DTH service, subscribers are required to have a digital satellite
system which includes a satellite dish and LNB (low noise block converter), a
digital satellite
receiver (set-top box), a smart card (see Technology
and Infrastructure below) and a remote control. We have worked with
a number of manufacturers and




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continue to work closely with selected manufacturers to manufacture digital satellite receivers based upon our specifications. Standard installation for all new DTH subscribers taking the free standard set-top
box offer during fiscal 2008 was £30 with an additional £30 charge
for weekend installations. From
1 July 2008 all new DTH subscribers will pay £60 for a standard installation
whether the installation is booked on a weekday or on the weekend (or £30
for new DTH subscribers joining with a Sky+ or Sky+ HD box or Sky Broadband and
Sky Talk). Non-DTH subscribers taking up the free standard set-top box offer
(which is different from purchasing our freesat proposition, see Distribution  Free-to-view
Satellite Proposition below) during fiscal 2008 were, and currently
are, charged £120 for standard installation regardless of whether the installation
is booked for a weekend or a weekday. The services received by a non-subscriber taking up the free Digibox offer depend
upon the number of unencrypted services and free encrypted services available
on the Astra and Eutelsat satellite systems, and also upon whether the non-subscriber
receives encrypted channels from third party broadcasters on a subscription or
pay-per-view basis. During fiscal 2008, we have continued to offer the Sky+ box, a set-top box that
we have developed which contains two satellite tuners and an integrated PVR allowing
programming to be recorded directly on to a hard-disk contained within the box.
This enables DTH subscribers to watch one live satellite programme (or a previously
recorded programme) while simultaneously recording another or to simultaneously
record two programmes, to pause or rewind live television and to record automatically
some series of programmes. During fiscal 2008 the standard cost to DTH subscribers of a Sky+ box was between £99
and £149. From 1 July 2008, the standard cost to DTH subscribers of a Sky+
box is a one-off fee
of either £75 or £150 depending on the services to which they subscribe.
A DTH subscriber can only receive one discounted Sky+ box. Sky+ customers need a Sky+ subscription to use the Sky+ recording features. DTH
subscribers receive the Sky+ subscription for free. Customers who do not subscribe
to a Sky package
(non-DTH subscribers) pay a monthly charge of £10
for the Sky+ subscription. DTH subscribers with a Sky+ subscription and a compatible
Sky+ box can also receive Sky Anytime TV at no extra cost. This is an on-demand
service which provides a selection of programming on the Sky+ box hard-disk which
a customer can watch whenever they like. During fiscal 2008 the standard cost to DTH subscribers of a Sky+ HD box was
between £199 and £299. From 1 July 2008, the standard cost to DTH subscribers
of a Sky+ HD box is a
one-off fee of either £75 or £150 depending on the services to which
they subscribe. A DTH subscriber can only receive one discounted Sky+ HD box.
DTH subscribers currently pay a monthly subscription fee of £10 for the
HD service (in addition to the subscription fee for the package of channels taken).
Sky HD customers require a Sky+ subscription to use the Sky+ recording features
of the Sky+ HD box. The subscription is free for DTH subscribers or £10
a month for non-DTH
subscribers. We also offer our DTH subscribers and non-DTH subscribers the opportunity to
purchase up to seven extra Digibox receivers or three Sky+ or Sky+ HD boxes for
use at the same residence as their original set-top box, which enables them to
watch different satellite programmes in different rooms at the same time using
just one satellite dish. DTH subscribers can purchase a Multiroom subscription
for each extra box at a cost of an extra £10 a month which provides all
the channels included in his or her main DTH subscription package for one extra
set-top box. During fiscal 2008, the standard cost of an extra standard box for a DTH subscriber
was, and currently is, £49; the standard cost of the Sky+ box varied from £99
to £149; and
the standard cost of the Sky+ HD box varied from £199 to £299, in each
case providing the customer took up a Multiroom subscription. From 1 July 2008,
the standard cost of an extra Sky+ or Sky+ HD box is £150. DTH subscribers
who do
not take up a Multiroom subscription, pay £399 for an extra Sky+ HD box, £199
for an extra Sky+ box and £99 for an extra standard Sky box.


Both digital satellite reception equipment and subscriptions to our DTH services
are offered by us directly and through a variety of retailers. We also provide
installation and equipment repair services. In fiscal 2008, 1.3 million digital
satellite reception systems were newly installed in the UK by or on behalf of
one of our subsidiaries (2007: 1.3 million). IrelandIn Ireland, both
satellite equipment and subscriptions to our DTH services are offered directly
by us and through a large number of Irish retailers. Some of the channels offered
in Ireland
differ from those offered in the UK. Sky ActiveWe offer our viewers
    enhanced and interactive services. We offer enhanced broadcast applications
    behind a number of Sky Channels, including Sky Movies Active (behind our movie
    channels), Sky Sports Active (behind our sports channels), Sky News Active
    (behind Sky News) and the interactive betting service available behind SkyPoker.com
    and Sky Vegas. We offer interactive services which can be accessed whilst
    the programming on the channel to which the interactive service relates stays
    in view. We provide an interactive television platform for the development and delivery
of interactive television services by means of either stand-alone portals (including
the Sky Active portal) or in conjunction with certain broadcast channels. Such
interactive services include betting, customer services, interactive advertising,
games, competitions, voting, and quizzes. Sky Active is currently offered at no additional charge to all of our DTH subscribers
and each viewers telephone line is the return path for these interactive
services via a modem in
the set-top box. Third party channels (and third party stand-alone interactive portals such as
QVC, PlayJam, Teletext Holidays, Ladbrokes, Directgov, and NHS Direct Interactive)
make use of the interactive potential of the digital DTH platform. Third party
broadcasters such as the BBC, ITV, Channel 4, five, Nickelodeon, and the Disney
Channel have launched interactive services on our DTH platform. Third party channels
may offer such interactivity in conjunction with Sky Active or provide their
interactive services independently, including making use of competing interactive
infrastructures connected to our DTH platform. Sky BetThe Group offers
    a range of betting and gaming services under the Sky Bet,
    Sky Poker, Sky Vegas and Sky
    Bingo brands in relation to which the Group acts as bookmaker
    and operator. The Sky Bet fixed odds sports betting service has since 1 September
    2007 been licensed by the UK Gambling Commission and is available across multiple
    platforms, including by means of set-top boxes (including Sky+ and Sky+ HD),
    by telephone, WAP and on the internet and customers can bet on virtual dog
    and horse racing on the Sky Vegas channel. Skys gaming operations, which
    include poker, bingo and an online casino are licensed in Alderney in the
    Channel Islands. SkyPoker.com launched in February 2007 on DTH. Customers
    can participate through their set-top boxes or through the internet (at www.skypoker.com)
    and can have the option of watching the show on the SkyPoker.com channel.
    Sky Bet also continues to develop a range of popular games products on the
    internet (at www.skyvegas.com) and on the DTH platform, through both the Sky
    Vegas 24/7 games service and Sky Vegas interactive. Sky Bingo was launched
    on the internet in December 2007 and on interactive television in May 2008.
    In fiscal 2008, we derived £44 million of Sky Bet revenue (encompassing
    betting and gaming) (2007: £47 million). The gambling business is certified
    by the Gambling charity Gamcare and has in place stringent social responsibility
    measures for the protection of minors and other vulnerable people. We take
    active measures to prevent persons resident in the US participating in our
    internet gaming and betting services. Such measures include geo-location checking
    software and credit card checks. On 23 January 2007, the Group completed its acquisition of 365 Media Group plc
(365 Media). The total consideration for the acquisition
was £105 million. 365 Media is an operator of sports and gaming websites
including the odds comparison service Oddschecker (www.oddschecker.com) which
compares betting, gaming, poker and bingo odds of third party operators. The
customers of the 365 Media websites totalbet.com and ukbetting.com were migrated
to Sky Bet in June 2007.




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The business,
  its objectives and its strategycontinued Digital subscriber
  line (DSL) and other fixed line distributionSky PlayerSky Player is a PC-application
  that provides access to a range of on-demand programmes and live channels including
  Sky Sports, Sky One and Sky Movies programming. Customers can access a range
  of entertainment, sports and movies content with Sky Player via www.sky.com/skyplayer
  provided they have a compatible computer and operating system. This offers downloads
  and streamed content to a customers home PC. The cost and availability
  of content depends on whether the customer is a DTH subscriber and what DTH
  subscription package they have. Certain content is available on a pay-per-view
  and subscription basis. Sky By WireSky By
  Wire refers to television services retailed directly by us over
  the fixed line networks of other operators. The first such Sky By Wire offering
  was made available in August 2004 when we began offering subscriptions to certain
  of the Sky Channels to households connected to the HomeChoice platform. We now
  have Sky By Wire offerings available via a number of other platforms in Ireland
  (Magnet Networks Limited, Smart Telecom, Broadworks Communications and SCTV
  Digital). Following its acquisition of Video Networks Ltd the operator of the HomeChoice platform, Tiscali UK Limited (Tiscali) re-branded the platform as Tiscali TV on 1 March
2007. Tiscali now distributes pay television and broadband access services across its whole unbundled local loop network. Under arrangements with Tiscali,
    we have access to the Tiscali TV platform to enable us to retail certain of
    the Sky Premium Channels to customers who already subscribe to Tiscalis
    services. In addition, Tiscali provides us with certain customer management,
    billing and sales agency services in respect of our subscribers receiving
    Sky Premium Channels via its platform. In return for these services, we pay
    Tiscali a fixed monthly fee per subscriber who subscribes to a Sky Premium
    Channel on the Tiscali platform. In June 2007 the Group concluded an agreement
    with Tiscali to supply the Sky Basic Channels for retransmission to Tiscalis
    DSL subscribers as part of Tiscalis own retail pay-TV offering. EasynetThe Group completed
  its acquisition of Easynet Group plc (now Easynet Group Limited (Easynet))
  in January 2006. Founded in 1994, Easynet is a global networking company, providing
  customers with IP based wide area network solutions. Easynet has operations
  in ten countries (UK, Spain, France, Germany, the Netherlands, Belgium, Italy,
  Switzerland, USA and China) enabling companies to connect their sites to a high
  quality, secure and reliable Multi-protocol Label Switching (MPLS)
  network. Easynet offers a portfolio of IP services including national and cross
  border IP virtual private networks (VPN), managed video
  conferencing services, internet connectivity, carrier services, hosting and
  co-location in purpose built data centre facilities, and security solutions. In the UK, Easynet engages in local loop unbundling (LLU), which involves placing equipment in BT exchanges enabling the Group to offer differentiated services to
businesses and consumers. As at 30 June 2008, the Group (through its acquisition of Easynet and LLU that has been carried out by the Group since that acquisition) had unbundled 1,189 exchanges. Sky BroadbandWe launched Sky Broadband,
  our broadband internet access service in July 2006. The service is available
  to all of our DTH subscribers in the UK. For DTH subscribers covered by our broadband network, three different broadband products are available: Sky Broadband Base; Sky Broadband Mid; and Sky Broadband Max. Sky Broadband Base is
free with download speeds of up to 2Mb/s and 2GB monthly usage. Sky Broadband Mid costs £5 per month and offers download speeds of up to 8Mb/s and 40GB monthly usage. Sky Broadband Max costs £10 per month and offers download speeds of up
to 16Mb/s and unlimited monthly usage.


Set up costs for Sky Broadband vary between £0 and £75 according to the Sky Broadband product taken, the other services to which the relevant customer subscribes and whether the Sky
Broadband customer is adding the service or taking up the service at the point of first subscription to Sky or as an existing DTH customer. As at 30 June 2008, our broadband network covered approximately 72% of UK households. We also offer Sky Broadband Connect to our DTH subscribers in the UK who are not within the coverage area of our broadband network. Sky Broadband Connect offers an equivalent service to Sky
Broadband Mid and costs £17 per month. Sky Broadband Connect customers will be offered Sky Broadband Base, Sky Broadband Mid or Sky Broadband Max if and when our broadband network extends to their area. Sky TalkSky Talk is a telephony
  service available to all Skys DTH subscribers in the UK. Sky Talk Freetime
  offers DTH subscribers free (for up to one hour per call) UK evening and weekend
  calls and Sky Talk Unlimited offers DTH subscribers unlimited UK calls (for
  up to one hour per call) and unlimited calls to certain international destinations
  for £5 a month. In October 2007 the Group launched Sky Talk Line Rental, an opportunity for DTH subscribers to take their telephony line rental directly from Sky. This is available
for £10 a month to DTH subscribers who also take a Sky Talk product. OnlineWe own and operate
  a number of established websites including sky.com, skysports.com and sky.com/news. Sky launched a full-service online portal in October 2007 encompassing e-mail, search and other new channels such as money, motoring, property and travel to sit alongside the existing
verticals of skysports.com and sky.com/news. Sky also extended its commitment to protection of its customers by introducing the Sky Security Centre where users can obtain information and products relating to online security and
protection. Mobile networksSky
  Anytime on Mobile and Sky Mobile TVSky Anytime on Mobile
  is a mobile phone application that provides access to Sky Sports, Sky News,
  Sky One and Sky Movies mobile content. This offers news and entertainment information
  on compatible mobile handsets. It also allows customers to access the 7-day
  TV guide. It is available at no extra cost to our DTH subscribers. The application
  is available across all mobile networks to customers with a compatible handset
  with mobile internet access via GPRS or third generation cellular telephone
  systems (3G). In addition, customers on Vodafone, Orange or T-mobile mobile networks in the UK or the Vodafone network in Ireland and with a compatible mobile handset can subscribe to Sky
Mobile TV. Sky Mobile TV offers over 25 channels streamed direct to the subscribers mobile phone. Depending on the customers mobile network they can subscribe to up to four packages which cost from £3 to £5 per
month (or on a daily or weekly basis in Ireland). We also offer 24-7 Football. This allows customers to watch football clips on a compatible mobile handset. It is available on all mobile networks in the UK and certain
Irish networks and you do not need to be a DTH subscriber to register. UK customers can either subscribe for £5 a month or buy each clip for £0.50. We also syndicate various content (alerts, text based and video clips) under our brands to mobile operator portals. Cable distributionUKThe combined cable
    operator businesses previously operated by Telewest Global, Inc (Telewest)
    and NTL Incorporated (ntl) were relaunched under a
    common brand, Virgin Media, on 8 February 2007. The merged entity was renamed
    as Virgin Media




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Inc. (Virgin Media).
  Virgin Media also operates the Virgin Mobile business in the UK and has entered
  into an exclusive licence agreement with Virgin Enterprises Limited for the
  use of the Virgin brand for its consumer business. The Virgin Media re-brand coincided
    with the harmonisation of the television offering across the legacy cable
    systems of ntl and Telewest. Virgin Media continues to provide both analogue
    and digital cable services across its cable systems and accounts for a substantial
    proportion of our wholesale revenue, which is revenue derived from the supply
    of Sky Channels to UK and Irish cable platforms. On 28 February 2007, our
    agreements with Virgin Media for the distribution of our basic channels on
    the legacy cable systems of ntl and Telewest expired and we have been unable
    to conclude any replacement agreement for the carriage of any of our basic
    channels on Virgin Medias platform and, therefore, the Sky Basic Channels
    are currently not distributed to Virgin Medias cable customers. On 12
    April 2007, Virgin Media commenced legal proceedings in the High Court against
    Sky in relation, amongst other things, to the supply of the Sky Basic Channels
    to Virgin Media (see Government Regulation  UK competition
    rules below). In fiscal 2008, we derived £181 million in
    subscription fees from cable operators (2007: £208 million). We estimate,
    based on public disclosures by Virgin Media and the number of cable homes
    reported to us by other cable operators, that, as of 30 June 2008, Virgin
    Media subscribers represented greater than 99% of all cable television subscribers
    in the UK. Virgin Media continues to carry versions of Sky Premium Channels
    on its digital networks (and Sky Sports 1 and Sky Sports 2 on its analogue
    network). Cable operators pay us a monthly per subscriber fee per channel in respect of their subscribers to the Sky Basic Channels (other than Virgin Media who no longer carry the Sky Basic Channels)
and a monthly per subscriber fee per channel package for the Sky Premium Channels. Cable operators are able to offer their subscribers any choice or combination of the Sky Premium Channels pursuant to the rate card terms on which we supply such
channels. Where applicable, the Sky Basic Channels are not included in our current wholesale rate card and we negotiate separate commercial arrangements with each cable operator for the carriage of these channels. We have contracts with Smallworld, Newtel and Wightcable for their distribution of all of our basic standard definition channels. These three regional cable operators operate the only other
major pay TV cable services outside the Virgin Media network, covering the Borders region, Jersey and the Isle of Wight respectively. In addition, various of the Sky Channels are distributed on a number of narrowband cable networks. These are generally smaller cable operators that have limited channel capacity (when
compared with digital satellite or digital cable) and accordingly do not generally carry all of the Sky Channels. IrelandWe currently have
  arrangements in place with UPC Communications Ireland Limited (UPC)
  for the re-transmission of certain of the Sky Channels, including Sky Basic
  and Sky Premium Channels, to their subscribers over the legacy networks of ntl
  Ireland and Chorus (previously the two leading Irish cable operators but which
  were brought under the common ownership of UPCs parent company, Liberty
  Global Inc., in December 2005). UPC operates both analogue and digital cable
  services in Ireland. In addition, various of the Sky Channels are distributed on a number of local cable networks in Ireland. These are generally smaller cable operators that have limited channel capacity (when
compared with digital satellite or digital cable) and accordingly do not generally carry all of the Sky Channels. In Ireland, cable subscriber fees for the Sky Premium Channels are charged on a per subscriber per channel package basis. The level of prices charged to cable operators for most Sky Channels
is lower than in the UK. DTT distributionWe broadcast versions
  of three of our channels, Sky News, Sky Sports News and Sky Three, unencrypted
  free-to-air via DTT in the UK. These channels are broadcast on a DTT multiplex
  for which the licence is held by National Grid Wireless (which owns and operates
  shared wireless communications and broadcast infrastructure).


The channels broadcast via DTT by us, together with a number of other channels broadcast free-to-air via DTT by other broadcasters, are marketed to consumers under the generic brand
Freeview. We have announced that we are developing plans to replace these three channels with new pay TV channels on the DTT platform. An application to Ofcom to amend our Digital Television programme services licence
(DPS) to enable us to launch these new pay TV channels on the DTT platform was submitted in April 2007. Ofcom has announced that it will publish a consultation document on the Groups pay DTT proposal by the end of
summer 2008 (see Government regulation  Broadcasting Act licences below). Free-to-view
  satellite propositionWe offer purchasers a
  freesat proposition with access to over 270 free-to-view television and radio
  channels (including regional variants) and interactive services, without a monthly
  subscription fee. Consumers can purchase a package of digital satellite reception
  equipment, including a digital satellite smart card and standard installation,
  for £150. The free-to-view channels on DTH include Sky News, and a range
  of television and radio channels provided by, among others, the BBC and ITV.
  Access to the encrypted signals of Sky Three, Channel 4 and five is available
  as a result of the provision of a digital satellite viewing card, which we provide
  as part of the package. The purchasers of this proposition are not obliged to
  subscribe to our pay television service; however, the proposition offers an
  easy upgrade path to our DTH pay television service. Emerging forms
  of distributionWe are also evaluating
  various other possible new means of distributing our services other than by
  DTH, cable, DSL and DTT, such as wireless broadband using Wimax or other similar
  technologies, mobile TV using technologies such as Digital Video Broadcasting
  for Handhelds (DVB-H), MediaFLO by Qualcomm, the internet,
  IP Wireless/ TDtv, General Packet Radio Service (GPRS)
  and UMTS (3G mobile telephony). We also participate actively in the Digital Video Broadcasting (DVB) standardisation group both in the various working groups and at the level of the DVBs
Steering Board, which gives us early exposure to other emerging technologies. SeasonalityHistorically DTH subscriber
  subscriptions to our channels have tended to be higher in the first half of
  our fiscal year, which, as a result of us expensing the cost of acquiring customers
  as incurred, has tended to provide a modest weighting of profit towards the
  second half of the year. There can be no assurance that these trends will continue
  in the future. MarketingThe principal types
  of marketing used by us to promote our products and services are press (including
  both national and regional newspapers and magazines), media inserts, door drops,
  direct mailings, outdoor activity (such as billboards and bus backs), on-air
  advertising on both national and regional radio and television channels (on
  both promotional and commercial airtime), outbound calling, on-line advertising
  on both third party websites and on sky.com, advertising in our customer magazine,
  point of sale advertising in retail outlets which sell our products and services
  and Sky retail stores. AdvertisingIn fiscal 2008, we
  derived £328 million of our revenue from advertising sales revenue (2007:
  £352 million). We sell advertising for all of the 25 Sky Channels (as well as for their multiplexes) around all programmes that are broadcast on these channels. We also act as the advertising sales
representative for certain third party channels. We sell advertising time across all of the Sky Channels and third party channels represented by us, and tailor distribution according to the target audience an advertiser is trying to
reach. According to BARB estimates,
  across all UK Multi-Channel Homes, our average share (for all of the Sky Channels)
  of commercial audiences (excluding those of the BBC) for fiscal 2008 was 11%,
  a decrease from 12.05% at the end of the previous fiscal year. Our subscribers
  households tend to be younger and more affluent than the average




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The business,
    its objectives and its strategycontinued UK household and tend to over-represent the 16-34 year old, ABC1 (i.e. upmarket) and male demographic profiles sought by many advertisers. SponsorshipIn fiscal 2008, we
  derived £30 million of revenue from sponsorship (2007: £34 million),
  which is included in advertising sales revenue. We acquire programme sponsors for the Sky Channels and work alongside the sales teams of partner channels (such as National Geographic Channel, Discovery Channel, The History Channel and
Hallmark) to help secure broadcast sponsors for their channels. Programme sponsorship is generally either title sponsorship (e.g. Nintendo Wii/ Gladiators) or themed sponsorship (e.g. Sci Fi programming on
Sky One sponsored by EA Games). We outperform the television sponsorship sector delivering approximately 6.5% of total revenue from sponsorship against an industry average of approximately 4%. CompetitionIntroductionSky is a channel provider,
  a distributor of television services and a DTH (satellite) platform service
  provider. Sky also offers broadband and telephony services to its DTH customers,
  as well as a range of other services including variants of VOD, games via both
  interactive TV and the internet, and gambling services via TV, telephone and
  the internet. Sky competes with a number of communications and entertainment companies to secure a supply of content, for audiences for that content, for advertising sales and for customers to its content
distribution, broadband and telephony services. This competitive set is summarised below under the following headings: •
    competition from other
      video distributors and video distribution channels;•
    competition from broadband
      and telephony (fixed and mobile) providers;•
    competition from other
      broadcasters; and•
    competition from sellers
      of advertising air time. In recent years, large parts
  of telecoms network infrastructure have been upgraded from circuit-switched
  networks to packet-switched (IP) networks. These IP
  networks are able to carry video content in addition to voice and other data
  and, together with the digitalization of content, have facilitated a convergence
  between media and telecoms companies. This technical convergence has also increased the propensity for companies to offer a bundle of services to customers (typically, a triple play of broadband access,
telephony and video content) as they seek to make efficient use of their networks. Competition
  from other video distributors and video distribution channelsPay
  servicesCable ServicesCable operators compete
  with Sky as an alternative service to DTH distribution. In the UK, the principal cable operator is now Virgin Media, which was formed as a result of the merger of ntl and Telewest. Virgin Media provides both analogue and digital cable television
services in the UK. In Ireland cable television services are provided principally by UPC Broadband (a division of Liberty Global Inc.) via its UPC Ireland, Chorus and ntl Ireland subsidiaries. These offer both analogue and digital cable and
multipoint microwave distribution system (MMDS) television services in Ireland. There are areas in the UK and Ireland where it may not be economically feasible to offer cable television services, including some rural areas. There are also certain areas in the UK and
Ireland, such as conservation areas, where, due to planning and local


regulations, DTH satellite equipment may not be installed. According to Ofcom, cable networks currently cover approximately 45% of UK homes, whilst, according to the Commission for
Communications Regulation (ComReg) (the national communications regulatory authority in Ireland), cable and MMDS services cover nearly 80% of Irish homes. Approximately 13% of UK homes currently subscribe to a cable
television service, whilst approximately 51% of Irish homes currently subscribe to cable or MMDS television services. In January 2005, ntl and Telewest launched a VOD service in the UK. This VOD service has now been rolled out to all of Virgin Medias digital TV subscribers. The Virgin Media VOD
services include movie and television programme content and provide viewers with pause and rewind functionality. Digital cable subscribers to whom the services are available do not need to upgrade their equipment to receive the services though some
VOD services are only available for an additional fee depending on the basic package subscribed to. As an additional service, Virgin Media also offers V+, a HD PVR set-top box which enables its customers to record programming
and watch HD content on the Virgin Media platform. IPTV servicesTwo operators have
  developed the capability to deliver linear television channels via their DSL
  networks to homes: Kingston Communications in Kingston-upon-Hull (which closed
  its TV service in April 2006) and Tiscali (through the acquisition of Video
  Networks Ltd (VNL) in August 2006). Tiscalis service was re-branded in March 2007 (previously branded as HomeChoice) and offers access to a range of broadcast channels and video-on-demand content, including movies,
packaged together with broadband internet access and telephony. According to Ofcom, as at November 2007, 36,000 television homes in the UK were viewing linear television via a DSL platform. Several other operators have or are developing the capability to combine linear television channels delivered over the DTT platform and on-demand video services
(including paid for on-demand video services) delivered via a DSL connection. The principal operator with services currently available is BT, which launched its service (BT Vision) in December 2006 and had 214,000 customers
at the end of March 2008. BTs service also incorporates PVR functionality and VOD services. Programming available over
  the internetBroadband-enabled telephone
  lines, principally using DSL technology, are being used to deliver video content
  to consumers. This includes content delivered on an on-demand
  basis (for example, via the internet) and broadcast content. It also includes
  delivery of content to consumers PCs, and to their television sets, via
  compatible set-top boxes. DSL services have grown significantly in the UK in the recent past, both in terms of the number of providers, and the number of users. According to British Telecom plc
(BT), as at 31 March 2008, there were 12.7 million DSL and LLU connections in the UK (including 4.3 million LLU lines). However, only a very limited number of these subscribers currently use these services for digital
television (as opposed to downloading content or viewing streamed content over the internet which is much more widespread). Whilst consumer broadband DSL access remains principally focused on the provision of internet access, several operators have
developed the capacity to deliver digital television via DSL lines. There are also a number of established and emerging operators offering video content to consumers via the internet whose websites/services are accessible from the UK. The increase in the average speed of internet connections and the emergence of new codecs such as MPEG-4 and WM9 means that consumers can also increasingly download video or watch streamed
video over the internet. Additionally, the use of peer-to-peer technology for both legitimate and illegitimate video downloading is growing in popularity. Terrestrial broadcasters are
  making a selection of their programming available for download or streaming
  it via their websites, using a mixture of pay and free-to-air business models.
  Channel 4s PC-based download service 4oD offers a free 30
  day catch up service for programmes currently broadcast on its linear
  channels and




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access to its archive of original programming,
  it charges a fee per download for episodes of its acquired series (outside
  the 30 day catch up period) and for rental of movie titles. Downloaded episodes
  are available to watch on the users PC for 48 hours. It also distributes
  content supplied by the National Geographic channel and the FX channel via
this service. The BBC launched its iPlayer service in December 2007 offering a large selection of TV and radio content for free through a PC-based application. The iPlayer is also available on the Apple
iPhone, iPod Touch and Nintendo Wii. The BBC also streams BBC3 as a simulcast online. ITV offers a streaming catch up service for its content via its website, but has plans to expand this significantly. Five has recently added more content to its Demand Five PC VOD service and offers free, pay to rent and pay to own content. In November 2007, BBC Worldwide,
    ITV and Channel 4 announced plans to launch a joint venture VOD offering with
    the working title of Project Kangaroo. The service will initially
    be developed for PC and later for set-top boxes. It will aggregate content
    from each of the parties to the joint venture and offer third party content
    using a mix of ad-funded, download to own and download to rent models. The
    launch date for the PC service is currently set for 2009. The joint venture
    has been referred to the Competition Commission “CC” for consideration. In addition the BBC, ITV and Channel 4 have also made some of their series available
to Apples iTunes service in the UK on a download to own basis enabling
users to watch programmes on
their PC or portable Apple device. There are also a number of new operators offering a TV-like experience online.
Joost is available as an expanded beta test to users in the UK and offers content
for free. Babelgum has also launched offering video content for free online.
Currently, there is only a limited amount of content available on these services
in the UK, but that Joost in particular has been successful in securing content
rights for distribution in other
territories. Several operators offer video content over the internet, such as YouTube, which
compete for consumers leisure time. DTTTop Up TV (which
launched in March 2004) offers a pay television service via DTT. Top Up TV changed
its business model from the provision of pay linear television channels delivered
via DTT into a VOD service with content downloaded using DTT capacity to the
set-top box where it is stored on a hard disk and made available for viewing.
Following the change, customers must now purchase a new Top Up TV set-top box,
available since October 2006, to receive the service. The customer can use the
box as a PVR. The set-top box also features conditional access technology allowing
customers to subscribe to pay linear television channels available on DTT, for
example, a Setanta Sports channel, which is also available through BT Vision
set-top boxes. As at June 2008, there were 50 encrypted digital satellite pay television channels
for DTH reception retailed independently of us available on a subscription or
a pay-per-view basis. These include channels offered as part of the Setanta Sports
subscription package (Setanta Sports 1, Setanta Sports 2, Arsenal TV, Setanta
Golf, Celtic TV, Rangers TV, Racing UK, LFC TV, NASN). The remainder comprises
specialist standalone à la carte channels (such as Zee TV and Sony TV
Asia) and adult channels. Other DTH pay TV providersPartly
as a result of Skys regulatory obligations to offer conditional access
services, the digital satellite platform is an open platform and there are alternative
subscription retail packages on that platform available from retailers other
than Sky. Sky competes with these subscription retail packages (which include
the Setanta Sports package and the Zee TV and Playboy packages) for subscription
revenue. DVDsDVD sales and rentals,
which have largely replaced sales of video cassettes, have performed well in
the UK. In addition to offering consumers an alternative source of


programming to television services, the DVD window for new movies generally
  starts before both the pay television window and the pay-per-view or VOD television
  window. This window, which has been brought forward by some studios in recent
  years, can start as soon as three months following a movies UK cinema
  release. Currently, the pay-per-view television/VOD window generally commences
  two to three months later. Sky has, to date, been able to develop a significant
  customer base for its pay-per-view services and movie channels, notwithstanding
  competition from the DVD industry. However, such services will come under increasing
  pressure as EST(electronic
  sell through) and VOD offerings continue to become more widely available from
  services such as Lovefilm, a subscription DVD rental service. Free-to-air servicesAs a result of the
availability of free-to-air television channels some consumers choose to rely
entirely on free-to-air services for television viewing rather than choosing
also to subscribe to a pay television service. Currently in the UK the principal
means of delivering free-to-air television services are: analogue television
services, DTT and freesat propositions (consisting of a service from Sky; and
a separate, recently launched
proposition from the BBC and ITV). Analogue television servicesFive analogue terrestrial
channels and regional variants are broadcast throughout the UK, although channel five is
unavailable in some areas and bilingual channel S4C is broadcast instead of Channel
4 in Wales. Additional local analogue terrestrial channels are broadcast in Northern
Ireland. The number of homes using analogue terrestrial as a primary TV reception means
  has fallen as adoption of digital multi-channel TV services has grown. On 11
  July 2008 Ofcom announced that, at 31 March 2008, analogue terrestrial was
  the main TV reception means in 3.3 million UK homes, down 7% since 31 March
  2007. The discontinuation of analogue television broadcasting is proceeding
  on a region by region basis with completion planned in
2012. Four analogue terrestrial channels are broadcast throughout the Republic of
  Ireland. On 17 June 2008, the Commission for Communications Regulation announced
  that, at 31 March 2008, analogue terrestrial was the main TV service in 352,000
  Irish homes. FreeviewIn the UK, free-to-air
channels on the DTT platform are marketed under the Freeview brand.
There are over 40 TV channels available in total as part of this offering, although
availability varies regionally, and over 25 radio channels. There are also several
television channels available on a regional basis within the
UK. Freeview services are currently able to be received by around 75% of UK homes.
  It is anticipated that this will increase significantly by 2012 as the process
  of discontinuing analogue television broadcasting progressively in different
  regions of the UK is completed (digital switchover).
  Digital switchover will release radio spectrum currently used to broadcast
  analogue television services, which could be used for a number of purposes;
  for example, to expand the number of channels broadcast via DTT, to allow the
  broadcast of HD services via DTT, to increase the spectrum available for mobile
  telephony, or for a mobile television service (or a mix of these things). In
  April 2008, Ofcom announced that spectrum will be made available for four HD
  channels, one of which will be a BBC channel. In November 2007, Whitehaven and Copeland became the first area within the
  UK to have the signal for analogue terrestrial television switched off. The
  target for full digital switchover is 2012, with a phased switchover taking
  place in the run up to this date. In order to receive Freeview services consumers purchase either a set-top box,
  which is relatively inexpensive, or a television set with a built in DTT tuner
  (an Integrated
Digital TV", or IDTV). Customers also have to ensure
that they have a suitable aerial to receive the signals (it is estimated that
an aerial upgrade, where necessary, costs £150
on average). In addition, in May 2007, the joint venture behind the Freeview brand launched
  a separate brand called Freeview Playback which has
  since been rebranded Freeview+ and which certain suppliers
  are able to use
to market DTT PVRs. Players


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The business, its objectives and its strategycontinued which meet specific quality and functionality criteria are able to use the Freeview Playback logo for marketing purposes. Take-up of Freeview services has grown quickly since its launch in October
  2002. On 11 July 2008 Ofcom reported that, at 31 March 2008, 16.1 million homes
  were viewing DTT on at least one device and Freeview was the sole means of
  receiving digital multichannel TV services in 9.2 million UK homes. There is currently no DTT service in Ireland but DTT pilot projects have been
  ongoing since August 2006. The current phase is due for completion in August
  2008 and involves 1,000 homes across the east coast of Ireland. Each trial
  participant has been provided with receiver equipment which has been specially
  adapted for the trial, and content provided from a number of sources e.g. the
  BBC News Channel and Sky News. It is expected that a full service will roll
  out across Ireland in late 2008. In July 2008, the Broadcasting Commission of Ireland announced its decision
  to award licences to operate three DTT multiplexes to Boxer DTT Limited. Separately,
  RTÉ has been assigned a single DTT multiplex to make the four existing
  analogue terrestrial free-to-air channels in Ireland
available. Free-to-view satellite propositionsAll households with Sky DTH set-top boxes (including Sky subscribers, former Sky subscribers, and households who have never been Sky subscribers) receive television and radio services
broadcast free-to-air via satellite to the UK and ROI. There are now over 250 such services. In October 2004 Sky launched a hardware and installation proposition which enables households who wish to receive free-to-air television and radio services
via satellite to do so without taking a Sky subscription. From May 2008 the BBC and ITV began promoting the availability of new set-top
  boxes and IDTV with built in DTH satellite tuners, which also receive a number
  of television and radio services that are broadcast to the UK and ROI free-to-air
  via satellite, under the brand freesat. These set-top boxes do not contain
  conditional access technology and therefore cannot be used to receive pay TV
  channels broadcast via satellite. There are currently five manufacturers of BBC/ITV freesat receivers, which
  are sold by independent retailers and four major high street multiples. Prices
  range from around £50 for a SD
receiver to around £120 for an HD receiver. IDTVs manufactured by Panasonic
are currently priced in excess of £1,000. Installation of the appropriate
satellite reception equipment is arranged separately if required; install prices
start
from around £80. HD receiving equipment enables consumers to view the BBC HD channel and a red-button
  ITV HD service, the latter of which is currently exclusive to the service.
  Although no PVR equipment designed for the freesat proposition is currently
  available, BBC/ITV freesat have stated that this will be available soon. In order to be received by the new BBC/ITV freesat set-top boxes, existing
  channels broadcast via satellite need to be configured to appear on both platforms.
  Currently, the new set-top boxes and IDTVs can receive more than 80 TV and
  radio channels. This number is expected to expand significantly in the coming
  months as more services are configured to appear on both platforms. Competition from broadband and telephony providersBroadband
  and telephony servicesSky competes with
other providers of broadband internet access and fixed telephony in the UK. These
include BT, Virgin Media, Carphone Warehouse (CPW), Tiscali,
Orange and O2. Sky does not currently offer these services in the Republic of
Ireland. BroadbandAccording to the
Office of National Statistics, broadband internet connections accounted for 92%
of all internet connections in the UK and dial-up connections accounted for 8%
of all
connections at March 2008.


Fixed broadband in the UK is primarily offered via DSL or cable. Cable coverage
in the UK is 45% with Virgin Media the main cable operator. BT provides DSL services
with the BT network covering 99.6% of the population. Other DSL providers are
able to make use of the BT network to provide their services either taking a
regulated wholesale product from BT or installing their own equipment in BT local
exchanges and rent the last mile from BT at regulated
prices (a process known as Local Loop Unbundling (LLU)). Sky uses partial LLU (unbundling only the section of the copper used to deliver
broadband services as opposed to Full LLU which unbundles
the copper in respect of both telephony and broadband elements) and had unbundled
1,189 exchanges at 30 June 2008. Other significant unbundlers are CPW (1,645
exchanges unbundled at 31 March 2008), Tiscali UK (850 as at 31 March 2008) and
Cable & Wireless
(C&W) (802 exchanges on completion of roll out).
C&W offers a wholesale LLU service to other operators and in May 2007 agreed
a 4-year deal to provide this service to Virgin Media for areas outside of their
cable
network. According to Ofcom, there were 15.6 million residential and small and medium-sized
enterprises (SME) broadband connections as at 31 December
2007, of which 27% were BT Retail DSL; 27% were other BT Wholesale provided DSL
(excl. LLU); 22% were via Virgin Media cable and 24% were classified as other
(mainly LLU). Average broadband download speeds continue to increase. At the end of June 2007
the estimated average headline connection speed was 4.6Mbit/s, up from 3.6Mbit/s
in 2006, according to Ofcom.
Currently Sky Broadbands highest download speed is up to 16Mbit/s. Speeds
available from providers are expected to increase further, particularly from
LLU and cable operators as cable continues to upgrade its network and BT rolls
out its
21stCentury Network and trials a fibre network roll out in Ebbsfleet
in Kent, the first of its kind in the UK. Virgin Media has announced that a broadband
service offering speeds of 50Mbit/s will be available to 70% of its customers
by the end of 2008. Fixed telephonyThe majority of fixed
telephony services in the UK are provided by BT. Other providers can offer telephony
services via Carrier Pre Select (CPS) or using BT
Wholesales Wholesale Calls product, whereby the customer pays them for
calls but continues to pay BT for line rental; via Wholesale Line Rental (WLR),
whereby the customer pays them for line rental (this can be combined with CPS
or Wholesale Calls to cover calls and line rental); and via Full LLU, whereby
the customer pays them for calls and line rental. Sky has historically used CPS
to deliver telephony services to its customers but is in the process of migrating
to use of the Wholesale Calls product from BTWholesale
to provide those services. We also use WLR to provide line rental services to
our customers. The total number of BT Retail and Wholesale lines was 27.9 million at end June
2007, according to BT. Of which, 23.6 million were BT Retail lines and 4.3 million
were WLR lines. The number of CPS lines for the same period was 6.1 million (i.e.
22% of lines). Virgin Media reported 4.1 million telephony customers as at end
March 2008. Mobile telephonyThere are five
    mobile network operators (MNOs) active in the UK:
    Vodafone; Orange; T-Mobile; O2; and 3 Hutchison (3G only). As at 31 March
    2008 Vodafone had the most subscribers in the UK (18.5 million) followed by
    O2 (18.4 million), T-Mobile (17.1 million), Orange (15.8 million) and 3 Hutchison
    (4.4 million at end of December 2007). There are several mobile virtual network operators (MVNOs)
who take capacity from MNOs but do not own their own network. Virgin Mobile is
the largest of these with 4.4 million subscribers as at 31 March 2008. Virgin
Mobile uses T-Mobiles network and its customers are included in the T-Mobile
total. Mobile TV services are available from several UK operators via third generation
cellular telephone networks (3G) networks. Sky Mobile
TV packs, which include a mix of content from Sky Sports, Sky News and other
third party pay television channels, are available on Vodafone, Orange and 3
UK and compete with other mobile TV and video offerings on those networks.


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Competition from Triple Play/Quad Play providersAs a result of media
and telecoms convergence described in the introduction, Sky now offers TV, fixed
telephony and broadband internet access to our customers as part of a package
which is sometimes referred to as a triple play. Tiscali and BT also offer a
triple play service, whilst Virgin Media offers a quad play which,
in addition to TV, fixed telephony and broadband internet access, also includes
mobile
telephony. Virgin Medias predecessor (ntl: Telewest) launched its quad play service
of TV, broadband, fixed telephony and mobile telephony in September 2006. In December 2006, BT launched BT Vision, a hybrid DTT/broadband television service.
BT Vision provides users with access to Freeview services and Setanta on DTT
through a set-top box in
addition to access to VOD content over BTs DSL network. BT has set a medium
term goal of 2-3 million customers for BT Vision and had 214,000
customers at the end of March 2008. Tiscali acquired HomeChoice in August 2006 as a result of a merger with HomeChoices
parent company, VNL. Tiscali offers a triple play package containing telephony,
internet access packages (including both a dial-up and broadband package providing
up to 8Mb/s broadband) and a selection of TV channels via IPTV. Competition from Dual Play providersIn addition to triple/quad
play providers, some operators provide customers with two services (typically
these are communications providers offering broadband and telephony
services). CPW, an independent retailer of telephony services, acquired internet service
provider AOL UK in October 2006 making it the third largest broadband provider,
with over 2 million customers. AOL UK is currently being run separately from
CPWs own TalkTalk brand. O2 UK (acquired by Telefónica of Spain in 2006) moved into the broadband
sector by purchasing Be, a telecoms network provider,
and subsequently launched O2 Broadband in October 2007. The service reported
131,000 subscribers at the end of March 2008. In January 2007, Vodafone UK launched the broadband service, Vodafone
At Home, for Vodafone mobile contract customers. Vodafone at Home
is delivered using a wholesale DSL service from BT rather than LLU. The service
is available to 99% of UK households via BT Wholesales broadband network.
The number of subscribers to the service has not been published. Orange UK offers Broadband Unlimited, a service providing
wireless broadband access at up to 8Mb through the Livebox wireless
router which also serves as a VoIP telephony port. France Telecom, parent company
of Orange UK, also offers IPTV services in France, and Orange has stated in April
2008 that it plans to launch an IPTV service in the UK by the end of 2008. Competition from other broadcastersSky competes, among other competitors, with other broadcasters for the acquisition of programming and programming rights: for viewers, for distribution and for advertising and sponsorship
revenue. In both the UK and Ireland, the television channels and other audio-visual service
providers with the largest audience shares are traditionally analogue terrestrial
channels, which are broadcast free-to-air. In the UK, these channels are BBC1,
BBC2, ITV1, Channel 4 and five, while in Ireland these are RTE1 and Network 2,
the Irish language channel TG4, and the commercial channel TV3. In the UK, as
well as being available via analogue terrestrial television, the five traditionally
analogue terrestrial channels are also available via DTH, cable, DTT and DSL,
and, in the case of DTH and DTT, on a free-to-air basis. Within UK Multi-Channel Homes, the Sky Channels (for the purposes of this paragraph,
including Sky Box Office and Sky Box Office Events, but excluding SkyPoker.com
and Sky Vegas) in aggregate attract viewing levels which are comparable to some
of the traditionally analogue terrestrial channels. The Sky Channels jointly
have an overall viewing share (within Multi-Channel Homes) significantly greater
than each of Channel


4 and five in those homes, although the Sky Channels combined viewing share
is still less than that of ITV1 in these homes. Based upon BARB surveys for the
52 weeks ended 30 June 2008, the viewing shares in UK Multi-Channel Homes of
the traditionally analogue terrestrial channels and the combined Sky Channels
were, respectively, BBC1 20.1%, BBC2 7%, ITV1 17.8%, Channel 4 6.9%, five 4.6%,
and the Sky Channels 7% (of which Sky One
accounted for 14% of the Sky Channels viewing share (and had an individual
viewing share of 1%)). The remaining 36% of viewing in UK Multi-Channel Homes
was of other (non-Sky) satellite, cable and DTT channels. The UK analogue terrestrial broadcasters also own and operate a range of digital-only
channels that are available via DTH, cable, DTT and DSL, and, in the case of
DTH and DTT, on a free-to-air basis. These channels are cross-promoted by their
analogue associated channels. As Sky and other broadcasters all seek a range of compelling programming to attract
viewers, in both the UK and Ireland, there have been, and may in the future be,
bidding competitions and/or regulatory intervention which could increase our
programming acquisition costs, or which could mean that certain programming in
which Sky is interested may not be available to us. For example, in 2006, Setanta
Sports secured the live audio visual rights to two of the six available UK packages
of live FAPL football rights for the 2007/08 to 2009/10 seasons, for which Sky
also bid. In addition, the US PGA Tour announced a six year deal starting on
1 January 2007 granting Setanta Sports exclusive live rights to all US PGA Tour
events (excluding the US Open, the USA PGA Championship and the US Masters).
In 2007, the FA announced a deal granting Setanta Sports and ITV exclusive live
rights for a range of FA events (including The FA Cup and England home matches)
from August 2008 to July 2012. Competition from other sellers of advertising air timeOur
primary competitors for television advertising sales are ITV, which sells advertising
on ITV1, ITV2, ITV3, ITV4, and CITV, Channel 4 (which also sells advertising
for E4, More 4 and Film Four and their multiplexes), five, Interactive Digital
Sales (IDS) (which sells advertising on behalf of the UKTV group of channels and the Virgin Media TV channels (Living, Bravo, Trouble and Challenge)), and Viacom Brand
Solutions (VBS) (which sells advertising on behalf of
the Paramount, MTV and Nickelodeon channels). Based upon the latest BARB survey estimates, ITV1 and Channel 4 were available
to approximately 25.49 and 25.24 million television homes, respectively, in the
UK (both digital and analogue), with approximately 95% of the estimated 25.49
million television homes in the UK receiving an acceptable terrestrial analogue
signal for five. In addition, according to BARB survey estimates, as at June
2008, approximately 21.7 million UK homes have access to satellite, cable, or
digital terrestrial television. Both ITV1 and Channel 4 have a significantly
greater overall UK television viewing share than any individual Sky Channel.
Partly as a result of the ability of ITV1 and Channel 4 to reach almost all UK
television homes, these channels are able to generate greater advertising revenue
than we do. We also compete with the Sky Distributed Channels and all other commercial
channels for television advertising sales. Technology and infrastructureWe
control access to some DTH channels through the use of a conditional access system,
VideoGuard (see Encryption of digital services below).
The satellite reception equipment provided to DTH customers is owned by such
customers (whether or not they are subscribers), except for certain aspects such
as the smart card (a credit card size plastic card containing a chip that provides
conditional access
functionality), some of the software in all set-top boxes and a proportion of
the hard drive capacity in some of the Sky+ PVRs and Sky+ HD PVRs. The Group completed its acquisition of Amstrad plc (Amstrad)
in fiscal 2008. The total consideration for the acquisition was £127 million.
Amstrad designs, develops and sells standard definition and high definition set-top
boxes and PVR set-top boxes and has been a major supplier to the Group for a
number of years. The EPG in the set-top box has been and continues to be developed for us by NDS
Limited (NDS) uses an operating system which we license
from OpenTV, Inc.
(OpenTV). The OpenTV operating system provides a virtual
machine interface which enables applications to be authored once, yet still be
capable of running on all our different types of DTH set-top boxes once the application
is downloaded to the set-top




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The business, its objectives and its strategycontinued boxes. This simplifies the development of applications for the set-top box and ensures universal availability of services to all DTH set-top boxes. The operating system in each set-top box is
licensed upon payment of a per set-top box royalty by the set-top box manufacturer to OpenTV. Encryption of digital servicesVideoGuard is a conditional
access technology which can be used to encrypt and decrypt digital television
and audio services. We use it to control DTH viewers access to encrypted
satellite non-subscription channels and encrypted digital pay and pay-per-view
television and audio channels broadcast on digital satellite for reception in
the UK and/or Ireland. We use the VideoGuard technology and distribute smart cards in the UK and Ireland
  under an agreement with NDS which expires in 2010, but is renewable, at our
  option, for a further three years. NDS supplies smart cards and undertakes
  ongoing security development and other support services in return for the payment
  of fees by us. In conjunction with NDS, we maintain a policy of refining and updating theVideoGuard
  technology in order to restrict unauthorised DTH reception of our services.
  We take appropriate measures to counter unauthorised reception, including the
  implementation of over-the-air countermeasures altering authorised smart cards
  in a manner which then renders counterfeit smart cards obsolete and seeking
  legal remedies, both civil and criminal, reasonably available to us. We also
  periodically replace smart cards in circulation with smart cards containing
  progressively more sophisticated technology. Such replacement has rendered
  useless all smart cards then in circulation, whether genuine or counterfeit.
  The first periodic replacement of digital smart cards since our digital launch
  in October 1998 was successfully completed in November 2003. We are actively working with cable operators in the UK to investigate the use
  of any cable piracy devices. We believe that we have suffered a loss of wholesale
  cable revenue as a result of the availability of cable piracy devices (in relation
  to both analogue and digital cable television services). We are unable to quantify
  this loss, including whether or not such loss is material. We have not (to
  date) invoiced any cable operator in respect of such lost cable revenue and
  therefore, such lost revenue has not been recognised within our consolidated
  financial statements. We distribute our channels to cable operators via satellite. To enable reception
  of the satellite signal, a smart card is located at the site of the cable operators
  feed into its cable transmission system, permitting decryption of the signal,
  which the operator in turn distributes to those of its subscribers (often re-encrypted)
  who are
authorised and equipped to receive the service. Encryption of channels retailed by third partiesAny potential DTH broadcaster
wishing to operate and independently retail an encrypted television service within
the UK and Ireland must either acquire an alternative encryption and conditional
access technology from someone other than us, and build its own decoder base
capable of receiving transmissions encrypted using that technology, or, in respect
of digital services, contract with us for conditional access services in respect
of access to the installed VideoGuard decoder base. In addition to providing broadcast conditional access services, both for our
  own DTH offerings and those of third parties, we provide digital access control
  services for interactive services produced by us and others, including using
  a telephone return path to carry out transactions between suppliers and viewers.
  These broadcast conditional access and access control services are regulated
  by Ofcom. See Government regulation  Broadcasting and telecommunications
  regulation  European Union  Electronic Communications Directives. SatellitesWe contract with SES
Astra for the majority of capacity on the satellite transponders that we use
for digital transmissions for reception by both DTH viewers and cable operators.
SES Astra is 100% owned by SES, a Luxembourg company listed on the Luxembourg
stock exchange and Euronext Paris. We have also contracted, via an


agreement with BT, for capacity on four transponders on the Eurobird satellite,
  which is owned and operated by Eutelsat. For the transmission of our DTH service, we have contracted for capacity on
  31 transponders from SES Astra on SES satellites Astra 2A, 2B and 2D. Those
  transponder agreements have varying end dates between 2009 and 2020. The term
  of the agreement on the Eurobird satellite expires in 2013. In addition to using some of the transponder capacity that we have contracted
  to broadcast Sky Channels, some of our transponder capacity (and in some cases
  all of the capacity on a particular transponder) is sub-contracted to third
  parties for the transmission of other channels or services, including certain
  of the Sky Distributed Channels. We have been designated a non pre-emptible customer under
  each of our transponder agreements. This means that, in the event of satellite
  or transponder malfunction, our use of these transponders cannot be suspended
  or terminated by SES Astra or Eutelsat in favour of another broadcaster with
  pre-emption rights in preference to us. In addition, in the event of satellite
  or transponder malfunction, we have arrangements in place with SES Astra pursuant
  to which back-up capacity may be available for some of our transponder capacity
  based on an agreed satellite
back-up plan. We have also put in place disaster recovery plans in the event that we experience
  any significant disruption of our transponder capacity. To date, we have not
  experienced any such significant disruption. However, the operation of both
  the Astra and Eutelsat satellites is outside our control and a disruption of
  transmissions could have a material adverse effect on our business, depending
  on the number of transponders affected and the
duration of the disruption. On 1 September 2007 SES Astra brought into service an additional satellite,
  Astra 2C, at the same orbital position as Astra 2A, 2B and 2D (and Eutelsats
  Eurobird). This will provide additional transponder capacity for back-up purposes
  as well as up to twelve additional transponders for new services, which may
  be further expanded in
the future up to a maximum of 16. Our transponder agreements with SES Astra provide that our rights are subject
  to termination by SES Astra in the event that SES Astras franchise is
  withdrawn by the Luxembourg
government. Capital expenditure programmeWe continue to invest
consistently in capital expenditure required to support our growth strategies.
Total capital expenditure for the Group was £333 million in 2008. This included £211
million invested in information systems infrastructure; broadcast infrastructure;
new product development; and investments relating to customer service improvements.
In addition, £46 million was invested in new property and property improvements.
The remaining £76 million relates to the roll-out of our broadband network
services; being the second year of the two year, £250 million investment
in broadband capital expenditure announced in July 2006. In November 2007, the Group began construction work on a building to house
  studios, production and technical facilities as well as office space in Osterley,
  Middlesex. This will consolidate and replace a number of existing properties
  which are reaching the end of their operational lives. Given the current conditions
  in the credit markets and the relative strength of our cash flow, the project
  will be financed internally for the time
being although the Groups intention is to sell and leaseback the property
and its freehold when market conditions improve. During the period to 30 June
2008, total expenditure on this project was £34 million which is included
within the
total estimated construction cost of around £156 million. The Group currently
expects separate expenditure of around £77 million in respect of the technical
fit out which will allow the Group to benefit from efficiencies by moving to
a wholly digital production environment. The facility is due to enter service
in 2011. As is common with capital expenditure projects of this scale, there are risks
  that they may not be implemented as envisaged; or that they may not be completed
  either within the proposed timescale or budget; or that the anticipated business
  benefits of the projects may not be fully achieved.




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The customer management centres and Sky In-Home Service LimitedOur
    customer management centres are based in Scotland. The centres functions
    include the handling of orders from subscribers, the establishing and maintaining
    of customer accounts,
      invoicing and revenue collection, telemarketing and customer service. These
      functions permit the centres to play a key role in both customer acquisition
      and customer retention. We provide customer management services for the Sky
      Channels and the Sky Distributed Channels. We also deliver customer services
      for both our own, and certain third party, interactive
  television services, our telephony services and our video-streaming services. The customer management centres also provide the distribution of ordered customer
    installations into Sky In-Home Service Limited which then provides nationwide
    installation and servicing of digital satellite reception equipment directly
    in customer homes. Sky In-Home Service Limited also provides an aftercare
    service to the DTH subscriber base in relation to digital satellite reception
    equipment which is both in, and out of,
warranty. During the course of the
    last 8 fiscal years, we have invested more than £280 million in our customer management centres and systems. This expenditure has been focused principally on
completely replacing the centres existing customer management and billing
systems with new applications and also on improving the existing physical infrastructure
of the centres. The replacement customer management and billing systems are now
functioning in line with expectations. Playout and uplink facilitiesOur
uplinking facilities, located at Chilworth in southern England, provide uplinking
capacity for
    our digital services to the Astra 2A, 2B and 2D satellites as
    well as Eutelsats
Eurobird 1 satellite. Our television channels are distributed from our Osterley and Chilworth sites
    with each of the sites providing backup service for the other. The Osterley-sourced
    channels are fed to the uplink sites using a fibre link, which is backed
    up by a diversely routed secondary link in the case of any malfunction in
    the primary fibre route. This route passes through the other facility so
    that, in the case of Chilworth being unavailable, the
services can be uplinked directly from the other facility. For those third parties to whom we sub-contract transponder capacity, we usually
have agreements in place to provide uplinking facilities as well. Minority equity investmentsITV On 17 November 2006, the Group acquired 696 million shares in ITV
    plc (ITV) representing 17.9% of the issued share capital
    of ITV, at a price of 135 pence per share. The total consideration paid amounted
    to £946 million, and was funded at the time from the Groups existing
    cash balances and its previously undrawn revolving credit facility. This investment
    has been subject to an in-depth review by the CC (see Government
    Regulation  Mergers below). The Groups investment in ITV is carried at fair value. The fair value of ITV is determined with reference to its equity share price at the balance sheet date. An impairment was first
    recorded following a review of the carrying value of the investment in ITV at 31 December 2007, due to the significant and prolonged decline in the equity share price. In accordance with International Financial Reporting Standards, the Group has
    continued to review that carrying value throughout fiscal 2008 and has recognised a cumulative impairment loss of £616 million in the current year. The impairment loss for the year was determined with reference to ITVs closing equity
  share price of 47.5 pence at 27 June 2008, the last trading day of the Groups
financial year. NGC Network International LLC and NGC Network Latin America LLCOn
  12 December 2007, the Group sold its 100% stake in BSkyB Nature Limited, the
  investment holding company for the Groups 50% interest in the NGC-UK Partnership. As consideration for
  the disposal, the Group received 21% interests in both NGC Network International LLC and NGC Network Latin America LLC (in effect, 21% of National Geographics Channels
television operations outside the US).


Significant agreementsThe Companies Act 2006 requires us to disclose the following significant agreements that take effect, alter or terminate on a change of control of the Company: FAPLIn
  August 2006, British Sky Broadcasting Limited entered into an agreement (the FAPL Licence) with The Football Association Premier League Limited (the
FAPL), pursuant to which the Group was awarded four of six available packages of live audio-visual rights for F.A. Premier League football (the six packages are together the Live Packages). The FAPL will not award
    all of the Live Packages to a single licensee (either on its own or as part
    of a consortium or through one or more of its related
        parties) (the Single
Buyer Rule). Pursuant to the FAPL Licence, the FAPL can suspend and/or terminate all of
        the rights which are included in, or exercisable as part of, one of the
        six available Live Packages in the event that a change of control of
        the Company occurs at any time prior to the expiry of the FAPL Licence
        which, if it had occurred prior to the award of the Live Packages to
the Group, would have resulted in a breach of the Single Buyer Rule. RCFOn
  3 November 2004, the Company, British Sky Broadcasting Limited and Sky Subscribers
  Services Limited entered into a revolving credit facility agreement with Barclays
  Capital, Citigroup Global Markets Limited, Deutsche Bank AG London, JP Morgan
  plc and the Royal Bank of Scotland plc (as mandated lead arrangers) and certain
  other financial institutions (as Lenders) pursuant to which the Lenders agreed to make
available to the Company £1 billion to refinance existing facilities and for general corporate purposes (the RCF). Pursuant to the RCF, the Lenders can require all amounts outstanding under
        the RCF to be repaid in the event of a change of control of the Company
        (other than where News Corporation or any subsidiary or holding company
thereof acquires such control). News Corporation voting agreementOn
  21 September 2005, the Company, BSkyB Holdco Inc., News UK Nominees Limited
  and News Corporation entered into a voting agreement which became unconditional
  on
  4 November 2005, pursuant to which News UK Nominees Limiteds voting rights at any general meeting are capped at 37.19% (the Voting Agreement).
  The provisions of the Voting Agreement cease to apply inter alia, on a change
  of control of the
Company. EMTN bond issueOn
  3 April 2007, the Group established a Euro medium term note programme (the EMTN Programme) which provides the Group with a standardised documentation platform to
  allow for senior debt issuance in the Eurobond markets. The maximum potential issuance under the EMTN Programme is £1
billion. On 14 May 2007, the Company
    issued Eurobonds consisting of £300 million guaranteed notes paying 6.000% interest and maturing on 14 May 2027 (the Notes). The Notes
were issued under the Groups EMTN Programme. Pursuant to the final
    terms attaching to the Notes, a holder of the Notes has the option to require
    the
    Company to redeem or (at the Companys
        option) purchase its Notes at its principal amount plus interest for
        the relevant period if there is a change of control of the Company (i)
        which, if the Notes carry an investment grade credit rating, results
        in a downgrade to a non-investment grade rating or a withdrawal of that
        rating; or
    (ii) where, if the Notes carry a non-investment grade rating, results in
        a downgrade by one or more notches or a withdrawal of that non-investment
        grade rating; or (iii) where, if the Notes do not carry a credit rating,
        the Company does not seek such a rating or is unable to achieve such
a rating. UK broadcasting licencesThe Group is party to a number of Ofcom broadcasting licences for the broadcast of the Sky Channels.




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The business,
    its objectives and its strategycontinued The Broadcasting Act 1990 (as amended by the Broadcasting Act 1996 and the Communications Act) lays down a number of restrictions on the parties who are permitted to hold Ofcom broadcasting
  licences. Among those restricted from holding Ofcom broadcasting licences or from controlling a licensed company are (a) local authorities, (b) political bodies, (c) religious bodies, (d) any company controlled by any of the previous categories or
  by their officers or associates, (e) advertising agencies or any company controlled by such an agency or in which it holds more than a 5% interest. Licensees are obliged to comply with these ownership restrictions. Failure by
a licensee to do so (either by the licensee becoming a disqualified
person or any change affecting the nature, characteristics or control
of the licensee which would have precluded the original grant of the licence)
may constitute a breach of the licence and, if not rectified, could result in
revocation of the licence. 2008 bond issueIn February 2008 the
Group entered into an indenture in respect of US$750 million 6.10% senior
unsecured notes due 2018. Pursuant to the final terms attaching to the securities, a holder of the securities
has the option to require the Company to redeem or purchase its securities at
a price equal to 101% of their principal amount plus accrued and unpaid interest
up to the date of repurchase, if there is a change of control of the Company
(i) which, if the securities carry an investment grade credit rating, results
in a downgrade to a non-investment grade rating or a withdrawal of that rating;
or (ii) which, if the securities carry a non-investment grade rating, results
in a downgrade by one or more notches or a withdrawal of that non-investment
grade rating; or (iii) where if the securities do not carry a credit rating,
the Company does not seek such a rating or is unable to achieve such a rating. Material agreementsThe following agreement
has been entered into outside the ordinary course of business during the two
years immediately preceding the date of this filing: Bond issueIn February 2008 the
Group entered into an indenture in respect of US$750 million 6.10% senior
unsecured notes due 2018 (see Significant agreements above). Corporate responsibilityAt
a board and executive level, the Corporate Responsibility Steering Group (CRSG)
provides leadership and drives corporate responsibility practices. The CRSG comprises
Senior Executives and two non-executive Board Directors and meets twice a year
and updates the Board. The management of environmental issues is overseen by a number of working groups
responsible for energy and waste management, which report to the CRSG. Other
groups are in place to oversee health and safety and human resources policy,
and Skys employees can communicate their views on corporate responsibility
via the Sky Forum of elected Sky employees. The Group runs an annual risk workshop on corporate responsibility issues and
maintains a corporate responsibility risk register. The Group also undertakes
consultation with stakeholders that assists in corporate responsibility risk
identification. The Group is a member of the FTSE4Good Index and the Dow Jones
Sustainability Index and is the only broadcaster included in the Global 100 Most
Sustainable Companies index. The Group publishes an annual Corporate Responsibility Review which provides
full details of corporate responsibility activities. This information can also
be found on the web at
www.sky.com/responsibilities.


CustomersOffering the best
choice in entertainment and communication to our customers entertainment
and communication that is great quality, great value, flexible and simple to
use  is
central to the Groups customer offering. The Group provides customers with
parental control features and other mechanisms by which they can control access
to content. The Group has also implemented its Code of Practice for Interactive
Gambling, developed with GamCare, an organisation that promotes responsible gambling.
Accessibility to programming is provided through on-screen subtitling, signing
and audio description and a dedicated accessibility services team provides dedicated
customer care. EnvironmentThe group has maintained
its status (achieved in 2006) as a Carbon Neutral media
company  the first in the world, and one of the first FTSE 100 companies
to achieve this goal. The Group continues to set targets for reducing its energy
consumption,carbon dioxide (CO2)
emissions and waste.
Progress against these targets is documented
in the Groups annual Corporate Responsibility Review (now called The Bigger
Picture Review). In March 2007, the company launched a new feature for Sky+ and Sky+ HD set-top
boxes which switches them into a power saving standby mode when not in use. By
June 2008 over 4 million set-top boxes had received this download, saving an
estimated 52,000 tonnes of carbon dioxide each year. In line with legislation
in place since 1 July 2007, Sky has the collection processes and other requirements
in place to facilitate the recycling and/or reuse of all Sky electronic equipment
including set-top boxes. Arts and SportsOur position as the
provider of the UKs leading Arts and Sports channels provides us with an
opportunity to make a positive impact on the life of families across the UK.
The Group aligns its contributions to these areas by focusing on making the arts
accessible and maximising participation in sports. PeopleOrganisationAt Sky we aim to
  be an employer of choice and our environment supports people to do their best
  work and rewards people in line with their talents and contribution to the
  business and its values. We continue to develop a workforce and organisational
  structure that is ready to deliver todays business plan and is ready
  to innovate and change with the organisation as it develops. We are dedicated to ensuring that no one is subjected to less favourable treatment.
    We value the same diversity within our business as we do in our content and
    services, and provide a culture of enterprise and opportunity for all. All
    applicants are asked if they require adjustments to their working environment
    during the selection processes. Applications for employment by disabled persons
    are always fully considered, bearing in mind the
aptitudes of the applicant concerned. The average number of full-time equivalent persons employed by the Group during
  the year was 14,145 an increase of 1,058 from the previous year. Talent managementTo ensure we keep delivering for our customers we need to attract and retain the very best talent, and help them to deliver to their full potential in an environment which is challenging,
  innovative and fun. We aim to recruit the highest calibre individuals, to address business targets and shape our future. We aim to provide great career opportunities for our people within the Group and development which is aligned to business
performance. We constantly review our skills and capability requirements and align this with our talent and succession planning. We are now in our second cycle of the Sky Leadership Development Programme
    for senior managers. In early 2009 we will launch a third cycle and will
    expand the number of places, increasing leadership skills and capability.
    We also offer an International Development programme, which provides opportunities
    for development through visits to other organisations, and to share ideas
  and best practice.




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Our mentoring scheme, which is open to all, continues to grow and provides internal development for all levels of Sky people. EffectivenessThrough the year, a number of
restructuring projects, process and effectiveness reviews have ensured that our
organisation remains appropriately shaped and skilled to drive growth in the
future. Health, Safety and WellbeingOur long-term Health,
Safety and Wellbeing plan is integrated into all areas of our business. Our occupational
health system allows a robust approach to health surveillance planning, and provides
accurate and comprehensive health data, meaning our resources are best directed. Our employee wellbeing strategy also provides opportunities for active involvement
by our employees. The Sky health and wellbeing initiative Keeping
Karma is now embedded as a recognised programme that gives our people
the tools, information and understanding to lead a healthy lifestyle and utilise
our health services appropriately and efficiently. Additionally, we offer employees a comprehensive support system to ensure they
are equipped to best fulfil their potential. Reward and benefitsThe Group offers an attractive
and competitive reward and benefits package. This includes the BSkyB Pension
Plan, life cover and disability benefits, the Sharesave scheme, a healthcare
plan and complimentary Sky+ for all employees. Awards under the Management Long
Term Incentive Plan share scheme are made to selected employees, and the Sharesave
scheme is open to all permanent employees. Our Sky Choices programme allows employees to make tax
and National Insurance savings in areas such as childcare payments and mobile
phones. It also supports the environment, by providing savings for a bicycle
for travel to work, travel season ticket loans and the costs of personal carbon
offsetting. The Sky Benefits Extra programme offers negotiated
discounts on a variety of products
and services for our employees. Involvement and CommunicationWe encourage the involvement
of our people in discussions on both current business initiatives and future
plans. Our Sky Forum (an elected group of 71 employees)
continues to play a key role in communication, representing the views and ideas
of our employees, as well as consulting on health and safety. Forum members allow
us to hear the views of our people through involvement in various interest groups.
Senior management play an active role in responding to the topics raised through
the Forum, and the Chief Executive Officer (CEO), other
Senior Executives and relevant managers regularly attend Forum meetings to talk
about
Skys strategic priorities. Each year the Sky People Survey collects the views and
opinions of all our people. This year 10,894 people took part. Senior Executives
and management teams look at the results and feedback from this, and develop
action plans. We have developed new performance appraisals, recognition programmes,
training, communications, and improved the working space in many areas. Individual
departments have also taken action to address specific issues to make the business
more productive. RecognitionRecognising and applauding
the achievements of our people is an important part of how we
work. Our annual Team Sky awards allow employees to nominate
colleagues who
have demonstrated Skys values, with the winners receiving significant prizes.
Additionally each business area looks at how they can best engage and recognise
their people in a way that supports their business plans and we operate a number
of
divisional recognition plans to support this. Risk factorsThis section describes
the significant risk factors affecting our business. These should be read in
conjunction with our long-term operating targets, which are
set out in Financial Review  Introduction  Overview and
Recent Developments. These risks could have a material adverse effect
on any or all of our business,
financial condition,


prospects, liquidity or results
    of operations. Additional risks and uncertainties of which we are not aware
    or which we currently believe are immaterial may also adversely affect our
  business, financial condition, prospects, liquidity or results of operations. The Groups business
        is heavily regulated and changes in regulations, changes in interpretation
        of existing regulations or failure to obtain required regulatory approvals
        or licences
could adversely affect the Groups ability to operate or compete effectively. The Group is subject to regulation
    primarily under UK and European Union legislation and it is currently and
    may be in the future subject to proceedings, and/or investigation and enquiries
    from regulatory authorities, from time to time. The regimes which affect
    the Groups business include broadcasting, telecommunications, competition
    (antitrust), gambling and taxation laws and regulations. Relevant authorities
    may introduce
additional or new regulations applicable to the Groups business. The Groups
business and business prospects could be adversely affected by the introduction
of new laws, policies or regulations or changes in the interpretation or application
of existing laws, policies and regulations. Changes in regulations relating to
one or more of licensing requirements, access requirements, programming transmission
and spectrum specifications, consumer protection, taxation, or other aspects
of the Groups business, or that of any of the Groups competitors,
could have a material adverse effect on the Groups business and/or the
results of its operations. The Group cannot be certain
    that it will succeed in obtaining all requisite approvals and licences in
    the future for its operations without the imposition of restrictions which
    may have an adverse consequence to the Group, or that compliance issues will
    not be raised in respect of the Groups operations, including those
  conducted prior to the date of this filing. On 18 December 2007, Ofcom
    published a consultation document in relation to its ongoing investigation
    into the UK pay TV industry. The consultation document outlined Ofcoms
    preliminary understanding of the operation of the pay TV industry in the
    UK. Interested parties, including the Group, were invited to respond to the
    consultation document by providing views on Ofcoms initial assessment
    of the operation of the pay TV industry, with a view to enabling it to examine
    whether there are competition issues that merit further action (which could
    include a market reference to the CC). This consultation is now closed and
    on 13 May 2008 Ofcom published copies of all of the non-confidential responses
    it had received on the consultation document including that of the Group.
    Ofcom has announced that it will publish a further consultation document
  by the end of summer 2008. On 17 November 2006, the
    Group acquired 696 million shares in ITV amounting to 17.9% of its issued
    share capital. The Group paid 135 pence per share, totalling £946 million.
    The
investment in ITV has been subject to an in-depth review by the CC. In December 2007 the CC completed
    its review and delivered the final report of its findings to the Secretary
    of State for Business, Enterprise and Regulatory Reform
(SoS), for him to decide what action to take. The CC
concluded that a relevant merger situation had been created, granting it jurisdiction,
and that the creation of that situation may be expected to result in substantial
lessening of competition arising from the loss of rivalry in an all-TV market
between ITV and the Group which may be expected to operate against the public
interest. The CC recommended, by way of remedy, that the Group be required to
divest part of
its stake such that it holds less than 7.5% of ITVs issued share capital.
The SoS announced on 29 January 2008 his decision to make an adverse public interest
finding taking account of the CCs decision that the transaction results
in a substantial lessening of competition in the UK market for all-TV. The SoS
also decided to impose on the Group the remedies recommended by the CC to address
the substantial lessening of competition identified in the CCs report:
divestment of
the Groups shares in ITV down to a level below 7.5% within a specified
period (which has not been publicly disclosed), and behavioural undertakings
from the Group requiring the Group not to dispose of the shares to an associated
person, not to seek or accept representation to the Board of ITV and not to reacquire
shares in ITV. The Group has sought judicial
    review of the decisions of the SoS and CC before the Competition Appeal Tribunal
    (CAT). Virgin Media (VM)
    has also sought judicial review of the findings of the CC and SoS in relation
    to media plurality and the remedies imposed. The Group was granted permission
  to intervene in the review


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Risk factorscontinued proceedings of VM and VM was granted permission to intervene in the review proceedings brought by the Group. A tribunal hearing took place in early June 2008. The Group is awaiting the
judgment of the CAT. The Group is not yet able to assess whether, or the extent to which, these matters
will have a material effect on the Group. The Group operates in a highly competitive environment that is subject to rapid change and it must continue to invest and adapt to remain competitive. The Group faces competition
    from a broad range of companies engaged in communications and entertainment
    services, including cable operators, DSL providers, other DTH providers,
    digital and analogue terrestrial television providers, telecommunications
    providers, internet service providers, home entertainment products companies,
    betting and gaming companies, companies developing new technologies, and
    other suppliers of news, information, sports and entertainment, as well as
    other providers of interactive services. The Groups competitors increasingly
    include communication and entertainment providers that are offering services
    beyond those with which they have traditionally been associated, either through
    engaging in new areas or by reason of the convergence of the means of delivery
    of communication and entertainment services. The Groups competitors
    include organisations which are publicly funded, in whole or in part, and
    which fulfil a public service broadcasting mandate. A change to such mandate
    could lead to an increase in the strength of competition from these organisations.
    Although the Group has continued to develop its services through technological
    innovation and by licensing, acquiring and producing a broad range of content,
    the Group cannot predict with certainty the changes that may occur in the
    future which may affect the competitiveness of its businesses. In particular,
    the
means of delivering various of the Groups (and/or competing) services may
be subject to rapid technological change. The Groups competitors positions
may be strengthened by an increase in the capacity of, or developments in, the
means of delivery which they use to provide their services. The Groups advertising
    revenue depends on certain external factors which include the overall value
    of advertising placed with broadcasters by third party advertisers as well
    as the amount of such advertising that is placed with the Group and the channels
    on whose behalf the Group sells advertising space. The Groups advertising
    revenue is also impacted by the audience viewing share of the Sky Channels
    and the other channels on whose behalf the Group sells advertising and, accordingly,
    such revenue is affected by the distribution of such channels. The Group
    cannot be certain that these factors will always be favourable to the Group
    and therefore that any related developments or changes will not have a negative
    impact on the Groups advertising revenue. Advertising revenue may also
    be dependent on the viewing behaviour of the television audience. For example,
    viewers of on-demand programming may choose not to view that programming
    on Sky Channels and other channels on whose behalf the Group sells advertising.
    The Group cannot be certain that its advertising revenue will not be impacted
    negatively by this behaviour or that advertising revenue for Sky Channels
    currently offered on other platforms will not be impacted negatively in the
  future by the offering of video-on-demand services by other operators. The Groups ability
    to compete successfully will depend on its ability to continue to acquire,
    commission and produce programme content that is attractive to its subscribers.
    The programme content and third party programme services the Group has licensed
    from others are subject to fixed term contracts which will expire or may
    terminate early. The Group cannot be certain that programme content or third
    party programme services (whether on a renewal or otherwise) will be available
    to it at all or on acceptable financial or other terms (including in relation
    to technical matters such as encryption, territorial limitation and copy
    protection). Similarly, the Group cannot be certain that such programme content
  or programme services will be attractive to its customers, even if so available. The future demand and speed
    of take up of the Groups DTH service, and the Groups broadband
    and telephony services will depend upon the Groups ability to offer
    such services to its customers at competitive prices, pressures from competing
    services (which include both paid-for and free-to-air offerings), and its
  ability to create demand


for its products and to attract
    and retain customers through a wide range of marketing activities. The future
    demand and speed of take up of the Groups services will also depend
    upon the Groups ability to package its content attractively. In addition,
    the Group operates in a geographic region which has experienced sustained
    economic growth for a number of years. The effect of a possible slowdown
    in the rate of economic growth and/or a decline in consumer confidence on
    the Groups ability to continue to attract and retain subscribers is
    uncertain. Therefore, the Group cannot be certain that the current or future
    marketing and other activities it undertakes will succeed in generating sufficient
    demand to achieve its operating targets. The Groups business
        is reliant on technology which is subject to the risk of failure, change
  and development. The Group is dependent upon
    satellites which are subject to significant risks that may prevent or impair
    their commercial operations, including defects, destruction or damage, and
    incorrect orbital placement. If the Group, or other broadcasters who broadcast
    channels on the Groups DTH platform, were unable to obtain sufficient
    satellite transponder capacity in the future, or the Groups contracts
    with satellite providers were terminated, this would have a material adverse
    effect on the Groups business and results of operations. Similarly,
    loss of the transmissions from satellites that are already operational, or
    failure of the Groups transmission systems or up linking facilities,
  could have a material adverse effect on its business and operations. The Group is dependent on
    complex technologies in other parts of its business, including its customer
    relationship management systems, broadcast and conditional access systems,
    advertising sales, supply chain management systems and its telecommunications
    network infrastructure, including WAN, LLU, CISCO core IP network, Marconi/Alcatel
  optical network and complex application servers. In terms of the delivery
    of the Groups broadcast services, the Group is reliant on a third party
    telecommunications infrastructure to distribute the content between its head
    offices at Isleworth and its primary and secondary uplink sites at Chilworth
  and Fair Oak. In addition, the Groups
    network and other operational systems are subject to several risks that are
    outside the Groups control, such as the risk of damage to software
    and hardware resulting from fire and flood, power loss, natural disasters,
  and general transmission failures caused by a number of additional factors. Any failure of the Groups
    technologies, network or other operational systems or hardware or software
    that results in significant interruptions to the Groups operations
    could have
a material adverse effect on its business. There is a large existing
    population of digital satellite reception equipment used to receive the Groups
    services, including set-top boxes and ancillary equipment, in which the Group
    has made a significant investment and which is owned by its customers (other
    than the smart cards, the hard disk capacity in excess of personal storage
    capacity and the software in the set-top boxes, to which the Group retains
    title). Were a significant proportion of this equipment to suffer failure,
    or were the equipment to be rendered either redundant or obsolete by other
    technology or other requirements or by the mandatory imposition of incompatible
    technology, or should the Group need to or wish to upgrade significantly
    the existing population of set-top boxes and/or ancillary equipment with
    replacement equipment, this could have a material adverse effect on the Groups
  business. The deployed set-top boxes
    contain finite memory resources that are used by the operating system and
    other software components such as the conditional access system, EPG, and
    interactive applications. The Group estimates that around two million deployed
    set-top boxes have significant memory constraints and as such it has been
    necessary to close the EPG launch queue. To date, the Group has been able
    to carry out software downloads from time to time to reconfigure the memory
    utilisation in set-top boxes and to accommodate additional and increasingly
    complex services. In the event that the Group wishes to carry out such software
    downloads in order to accommodate additional and increasingly complex services
    and this course of action is no longer available to the Group, it may be
    limited in its ability to upgrade the services available via the set-top
  boxes currently installed in subscribers premises.




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Failure of key suppliers
      could affect the Groups ability to operate its business. The Group relies on a consistent and effective supply chain to meet its business
plan commitments and to continue to maintain its network and protect its services.
A failure to meet the
Groups requirements or delays in the development, manufacture or delivery
of products from suppliers, the discontinuance of products or services, or a
deterioration in support quality, could adversely affect the Groups ability
to deliver its products and services. No assurance can be given that a broad
economic failure or decline in quality of equipment suppliers in the industry
in which the Group operates will not occur. Any such occurrence could have a
material adverse effect on
the Groups business. Sky Talk relies on telecommunications services from network operator BT and failure
on the part of BT to meet the Groups requirements for whatever reason may
affect the Groups ability to deliver its telephony services to Sky Talk
subscribers. The Group uses a series of products from Openreach (a BT group business) within
its LLU operations. These are the colocation space and associated facilities
to house the central office equipment (co-mingling), backhaul circuits to connect
that equipment to the Groups network (backhaul extension services or BES)
and finally individual copper lines that go between the central office equipment
and the
end users house (primarily SMPF lines). Outside of the Groups LLU
areas the Group uses BTWholesales
IP stream bitstream product to provide broadband connectivity
to end users. The Group purchases these products from Openreach under terms and
conditions outlined in legally binding undertakings given by BT and accepted
by Ofcom in lieu of a market investigation reference to the CC following Ofcoms
Strategic Review of Telecommunications (the BT Undertakings).
These stipulate that the Group buys these products on a fully equivalent basis
when compared to other operators (including other parts of BT) who supply broadband,
telephony and network products and services. Ofcom has set up an Equality
of Access Board whose role is to monitor and ensure that all Equivalence
of Input requirements agreed in the BT Undertakings are being enacted. Ofcom
also monitors the implementation of the BT Undertakings. Failure by either Openreach
or BT Wholesale in fact to provide its products to the Group on a fully equivalent
basis could have a material adverse effect on the Groups
business. The Group is reliant on encryption and other technologies to restrict unauthorised
access to its services. Direct DTH access to the Groups services is restricted through a combination
of physical and logical access controls, including smart cards which the Group
provides to its individual DTH subscribers. Unauthorised viewing and use of content
may be accomplished by counterfeiting the smart cards or otherwise overcoming
their security features. A significant increase in the incidence of signal piracy
could require the replacement of smart cards sooner than otherwise planned. Although
the Group works with its technology suppliers to ensure that its encryption and
other protection technology is as resilient to hacking as possible, there can
be no assurance that it will not be compromised in the future. The Group also
relies upon the encryption or equivalent technologies employed by the cable and
other platform operators for the protection of access to the services which the
Group makes available to them. Failure of encryption and other protection technology
could impact the Groups revenue from those operators and from its own customers. The Groups network and other operational systems rely on the operation
and efficiency of its computer systems. Although the Groups systems are
protected by firewalls, there is a risk that its business could be disrupted
by hackers or viruses gaining access to its systems. Any such disruption, and
any resulting liability to the Groups customers, could have a material
adverse effect on the Groups
business. The Group undertakes significant capital expenditure projects. The Group is currently involved in capital expenditure projects including infrastructure
projects. As is common with such projects, there is a risk that the Groups
capital expenditure projects may not be completed as envisaged, either within
the proposed timescales or budgets, or that the anticipated business benefits
of the projects may not be fully achieved.


The Groups investment in ITV could be subject to future events outside
of the Groups control which could result in a loss in value of the Groups
investment. On 17 November 2006 the Group acquired 696 million shares in ITV representing
17.9% of the issued share capital of ITV, at a price of 135 pence per share.
The Groups investment in ITV is carried at fair value. The fair value of
ITV is determined with reference to its equity share price at the balance sheet
date. An impairment was first recorded following a review of the carrying value
of the investment in ITV at 31 December 2007, due to the significant and prolonged
decline in the equity share price. In accordance with International Financial
Reporting Standards, the Group has continued to review that carrying value throughout
fiscal 2008 and has recognised a cumulative
impairment loss of £616 million in the current year. The impairment loss
for the year was determined with reference to ITVs closing equity share
price of 47.5 pence at 27 June 2008, the last trading day of the Groups
financial year. Following this impairment the Group is required to recognise
the effect of further decline in the value of the equity share price of ITV in
the income statement. If the Group were to dispose of all or part of its stake
in ITV at a price lower than the equity market price on the date of disposal
and lower than a price consistent with the impairment through the income statement
on the date of disposal, the Group would be required to recognise a loss on disposal. The Group, in common with other service providers that include third party
services which the Group retails, relies on intellectual property and proprietary
rights, including in respect of programming content, which may not be adequately
protected under current laws or which may be subject to unauthorised use. The Groups services largely comprise content in which it owns, or has licensed,
the intellectual property rights, delivered through a variety of media, including
broadcast programming, interactive television services, and the internet. The
Group relies on trademark, copyright and other intellectual property laws to
establish and protect its rights over this content. However, the Group cannot
be certain that its rights will not be challenged, invalidated or circumvented
or that it will successfully renew its rights. Third parties may be able to copy,
infringe or otherwise profit from the Groups rights or content which it
owns or licenses, without the Groups, or
the rights holders, authorisation. These unauthorised activities may be
more easily facilitated by the internet. In addition, the lack of internet-specific
legislation relating to trademark and copyright protection creates an additional
challenge for the Group in protecting its rights relating to its online businesses
and other digital technology rights. The Group generates wholesale revenue from a limited number of customers. The Groups wholesale customers, to whom it offers certain of the Sky Channels
and from whom it derives its wholesale revenue, have comprised principally ntl
and Telewest which merged in 2006 and have been rebranded as Virgin Media. Since
28 February 2007, Virgin Media has not carried the Sky Basic Channels but continues
to carry versions of all of the Sky Premium Channels on its digital networks
(and offers Sky Sports 1, Sky Sports 2 and Sky Sports 3 to its remaining analogue
cable subscribers). Economic or market factors, regulatory intervention, or a
change in strategy relating to the distribution of the Groups channels,
may adversely influence the Groups wholesale revenue and other revenue
which the Group receives from Virgin Media in connection with supply of the Sky
Premium Channels which may negatively affect the Groups business. The Group is subject to a number of medium and long-term obligations. The Group is party to a number of medium and long-term agreements and other arrangements
(including in respect of programming and transmission, for example, its transponder
agreements) which impose financial and other obligations upon the Group. If the
Group is unable to perform any of its obligations under these agreements and/or
arrangements, it could have a material adverse effect on the Groups business. Government regulationThe sectors in
which we operate are subject to both sector-specific regulation, in particular
regulation relating to the electronic communications and broadcasting sectors,
and general
competition (anti-trust) law.




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Government regulationcontinued The regulatory regime applicable to the electronic communications and broadcasting sectors is, to a large extent, based on European Community (EC) law comprised in
various EC Directives. A Directive is an instrument of EC law which is addressed to Member States of the European Union, and requires them to adopt national legislation to give effect to its objectives, whilst leaving the precise manner and form of
the national legislation to the discretion of the Member State. Electronic Communications RegulationEC lawThe Electronic Communications DirectivesThe regulation of electronic communications networks and services and associated
facilities is governed by a series of EC Directives, including the Framework
Directive, the Access Directive, the Authorisation Directive and the Universal
Services Directive (together, the Electronic Communications Directives).
The Electronic Communications Directives, which came into force in July 2003,
are designed to create a harmonised system of regulation across the European
Union (EU). The Electronic Communications Directives regulate the provision of communications
services including telephony and broadband services; they do not regulate the
editorial control or content of television broadcasting services but do cover,
inter alia, the networks and transmission services which are involved in the
broadcasting of such television services as well as the provisions of various
services and facilities associated with the operation of digital television platforms,
including our digital satellite platform. The Electronic Communications Directives replace an earlier set of instruments
which provided for a regime for the licensing of persons engaged in the provision
of relevant telecommunications activities. Under the Electronic Communications
Directives, Member States are required to abandon such licensing regimes, and
to adopt a system whereby any person is generally authorised to provide electronic
communications networks and/or services
without prior approval. Such persons may provide electronic communications networks and services without
being subject to detailed regulatory rules. Member States national regulatory
authorities
(NRAs) may apply, as conditions of the general authorisation,
only minimal general conditions necessary to achieve certain key objectives of
the Electronic Communications Directives (e.g. the availability of adequate directory
inquiries services; the ability for consumers to maintain an existing telephone
number, even if they switch from one provider to another; and fair treatment
of consumers). Beyond such minimal general conditions, NRAs may impose additional obligations
on persons providing specific kinds of electronic communications networks, services,
or facilities only where such obligations are specifically envisaged by the Electronic
Communications Directives, and are justified and appropriate to allow third party
access to particular network infrastructure, services, or facilities or where
the NRA has determined that one or more persons active in a particular market
enjoy significant market power (SMP) and that the imposition
of additional obligations on such persons is justified and appropriate to avoid
adverse outcomes. The Electronic Communications Directives envisage that such ex ante rules
(i.e. rules imposed in anticipation of an adverse outcome, rather than by way
of ex post remedy) should be limited to what is necessary,
and used only where an NRA has determined them to be appropriate to restrain
the conduct of persons enjoying SMP (which is equivalent to the competition law
concept of dominance) or where the Directives otherwise specifically mandate
the imposition of ex ante rules. Accordingly, the Electronic Communications Directives require NRAs in each of
the EU Member States to carry out periodic reviews of competition in relevant
electronic communications markets and, where a communications provider is found
to have significant market power in a relevant market, to impose appropriate
regulatory obligations. The European Commission also plays a formal role in the
market review process undertaken by
NRAs. In November 2005, the European Commission commenced a review of the functioning
of the Electronic Communications Directives. The European Commission published
draft


legislative proposals for modifying the existing framework in November 2007,
with a view to the implementation of a revised framework within the Member States
in 2011. The main areas where the European Commission has indicated that changes
are needed to the existing regulatory framework are: •
      putting
        in place an effective market-oriented strategy for spectrum management
        in Europes internal market;•
      regulating
        less, but more effectively, by phasing out ex-ante regulation in a number
        of markets currently regulated;•
      streamlining
        the market review procedure to make it faster, less burdensome and better
        focused on real bottlenecks;•
      consolidating
        the single market, by ensuring that EU rules and remedies are applied
        consistently across all EU Member States;•
      preserving
        and enhancing consumer protection and user rights; and•
      enhancing
        the security and reliability of European communications networks. UK lawThe Electronic Communications
Directives have primarily been implemented in the UK by the Communications Act
2003 (Communications Act). The Communications Act is
enforced by the UKs NRA, Ofcom. General Conditions of EntitlementAs noted above, the EC
Electronic Communications Directives provide that anyone wishing to provide an
electronic communications network or service should be generally authorised to
do so, without requiring any licence or other prior approval. This general authorisation
is subject in the UK to the General Conditions of Entitlement (General
Conditions). The General Conditions were adopted under Section 45
of the Communications Act and apply to anyone who is providing an electronic
communications network or
service. The Group is subject to the General Conditions in relation to its broadband internet
access and public telephony services, including: •
    a
      requirement to ensure that any end-user can access the emergency services;•
    a requirement to support
            number portability for customers wishing to switch to or from another
      network provider;•
    a requirement that customers
      are offered contracts that satisfy certain minimum standards;•
    a requirement to ensure
            that any end-user can access directory enquiry and operator assistance
      services;•
    a requirement to facilitate
      the migration by customers between broadband service providers;•
    a requirement to publish
      up-to-date price and tariff information;•
    a requirement to provide
      accurate billing, including itemisation on request; and•
    a requirement to publish
            codes of practice concerning, among other things, the services provided,
      the handling of customer complaints and sales and marketing. As a network operator, Easynet is also subject to requirements to negotiate network
interconnection, to comply with relevant compulsory standards and to take all
reasonable steps to maintain (to the greatest possible extent) the proper and
effective functioning of its public telephone network. The Group has published a Code of Practice dealing with Sky Talk products, services
and customer care procedures; a Code of Practice concerning the sales and marketing
practices for the Sky Talk telephony service; a Code of Practice for Premium
Rate and Number Translation Services; a Code of Practice on dealing with customer
complaints; and a Code of Practice relating to the provision of Sky Broadband. Access-related conditionsOfcom also has the
power under Section 45 of the Communications Act to impose so-called access-related
conditions, including conditions relating to conditional access services.




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Conditional Access Services ConditionsAccess-related
  conditions have been imposed on Sky Subscribers Services Limited (SSSL)
  in relation to the provision of conditional access services. These conditions
  include: •
    a
          requirement to provide conditional access services upon request, on fair
    and reasonable terms;•
    where a broadcaster
          in receipt of conditional access services from SSSL also provides programme
          services to providers of other electronic communications networks (e.g.
          cable operators), a requirement to cooperate with providers of such other
          electronic communications networks so that such providers are able to
          transcontrol (the process of changing a conditional access system) and
    re-transmit the programme services;•
    an obligation to keep
          separate financial accounts regarding activities as provider of conditional
    access services;•
    where conditional access
          products and systems are the subject of intellectual property rights,
          a requirement to make such products and systems available upon reasonable
    terms and at reasonable charges; and•
    a requirement not to
          discriminate unduly against particular persons or against a particular
    description of persons. Currently, only SSSL is subject
    to access-related conditions imposed by Ofcom relating to conditional access
    services. However, Ofcom has proposed applying identical conditions to Top
    Up TV Limited in respect of conditional access services provided via the
  DTT platform, on which it commenced a public consultation in early 2007. Continued licence conditions relating to EPGs and access control servicesPrior to the entry
into force of the new regulatory regime instituted by the Electronic Communications
Directives, and implemented in the UK by the Communications Act, the Group operated
under a number of class licences issued under the Telecommunications Act 1984.
These class licences have largely been revoked. However, certain provisions in
these class licences have continued in force as Continuation
Notices issued under Paragraph 18 of Schedule 9 of the Communications
Act, including in particular conditions relating to the provision of electronic
programme guides (EPGs) and access control services for
digital
transmissions. We are required under a continuation notice to provide EPG services to other
broadcasters on fair, reasonable and non-discriminatory terms and not to favour
related companies. Ofcom has consulted on replacing this continuation notice
with authorisation conditions under the Communications Act. The deadline for
comments on the consultation document having been in March 2004. Ofcom has yet
to replace this continuation notice following this consultation and therefore
the continuation notice still applies. It is not, however, envisaged that the
manner of regulation of EPGs will change significantly. Our subsidiary, SSSL, is currently designated a regulated supplier in respect
of its activities in providing access control services to third parties on our
DTH platform and it is, among other things, subject to the obligation to provide
such access control services on fair, reasonable and non-discriminatory terms
and not to favour related companies. This designation, set out in a continuation
notice, will remain in place for as long as SSSL is considered to have SMP. In
November 2003, Oftel commenced a review under the Communications Act to determine
whether any provider of access control services has (or, in the case of SSSL,
continues to have) SMP. The deadline for comments on the consultation document
was in January 2004. Ofcom has yet to publish its conclusions to this consultation;
in the meantime, SSSL continues to be subject to the regulatory regime under
this continuation notice. Ofcoms Guidelines and Explanatory Statement for the Provision of Technical
Platform ServicesIn September 2006,
Ofcom published revised guidelines on how, in the event of a dispute or complaint,
it would normally interpret the requirement on Sky to ensure that its terms,
conditions
and charges for the provision of technical platform services are
fair, reasonable and non-discriminatory (TPS Guidelines).
(The term technical platform services is used to refer
collectively to conditional access, electronic programme guide listings services,
and access control services). The TPS Guidelines took effect from 1 January 2007
and replace the previous guidelines dating from 2002.


The TPS Guidelines set out
    general principles that Ofcom indicates it would apply in assessing whether
    the Group has complied with the relevant regulatory conditions requiring
    it to provide technical platform services on fair,
    reasonable and non-discriminatory terms. These general principles can be
  summarised as follows: •
    the
          costs that Sky should be entitled to recover from TPS Customers should
          be restricted to costs which it reasonably, necessarily and efficiently
          incurs in the provision of TPS to those customers or in order to develop
    and operate the digital satellite platform;•
    Sky should be entitled to recover its allowable costs and make a risk
    adjusted return on its investment;•
    costs should only be recovered from those customers that directly cause
          the costs to be incurred, or that benefit from the costs being incurred;
    and•
    where
          costs incurred are of benefit to more than one TPS Customer then they
          should be recovered from each TPS Customer in a way that takes due
          account of the benefits derived by TPS Customers from those costs being
    incurred. The TPS Guidelines also contain
    guidance on how the incremental benefits that a TPS
    Customer receives from the provision of its chosen mix of technical
    platform services can be measured. Ofcom notes, however, that
    the Group may choose to adopt different methods for assessing such incremental
    benefits and characterisation of the costs of various technical
    platform
services, which Ofcom acknowledges it may also consider to be consistent
with the relevant regulatory conditions. The TPS Guidelines also state that an existing or prospective TPS Customer should
be provided with sufficient information to allow it to determine the TPS charges
that it would expect to pay without having to enter into a commercial negotiation
with Sky. Since December 2006, the Group has therefore published a rate card
setting out the charges payable for technical platform services. Ofcom Review of Wholesale Digital Television Broadcasting PlatformsIn October
2006, Ofcom published a document setting out the scope and timetable for a review
of wholesale digital television broadcasting platforms. Ofcom indicated that
it intends to undertake an analysis of relevant markets and to assess market
power in such markets, to be used to inform regulation of conditional access,
access control and EPG listing, and to review the competition conditions in the
DTT multiplex licences. In its consultation document in relation to its pay TV
market investigation (see below), Ofcom stated that the more strategic issues
which might be considered in this platform review overlap with issues raised
in the market investigation, and that the latter may be a better vehicle for
consideration of such issues. Ofcom also stated that it has therefore given priority
to the market investigation and expects to restart the platform review once there
is greater clarity as to the likely range of outcomes of the market investigation.
At this stage, the Group is unable to determine
whether Ofcoms platform review will have a material effect on the Group. SMP ConditionsIn common with all
other operators of fixed public electronic communications networks in the UK,
Easynet has been determined to have SMP in the market for fixed geographic call
termination services on its own network (i.e. services allowing calls originating
on another network to be terminated on Easynets fixed network). A specific
condition has been imposed on Easynet pursuant to Section 45 of the Communications
Act requiring it to provide call termination to all public communications providers
who reasonably request it on fair and reasonable terms, conditions and charges. The Group benefits from SMP conditions imposed on British Telecommunications
plc (BT) in other relevant markets. These include conditions
requiring BT to provide wholesale local access (LLU) services and wholesale broadband
access services, which the Group uses to provide broadband services to its customers,
as well as wholesale line rental, which the Group uses to provide line rental
services to its customers. The conditions imposed on BT in these markets include
a requirement to provide Network Access on reasonable request, a requirement
not to discriminate unduly and a requirement to publish information about its
prices, terms and
conditions. In May 2008, Ofcom published the final statement in its review of the wholesale
broadband access markets. In this statement Ofcom announced the removal of regulation
of wholesale broadband
access in certain areas of the UK, areas which




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Government regulationcontinued Ofcom believes are now served by effective competition. Regulation will be lifted
in those parts of the country in which four or more wholesale broadband providers
operate and where no single
company has SMP. Ofcom is also planning to carry out a review of fixed narrowband services (including
wholesale line rental) in 2008/2009. The Group also benefits from SMP conditions imposed on National Grid Wireless
(formerly Crown Castle) and Arqiva (formerly ntl:Broadcast) in relation to the
provision of wholesale broadcasting transmission services, which the Group (via
the provision by NGW of a managed transmission service) uses to broadcast its
services on the DTT platform. The conditions imposed include a requirement to
provide Network Access to masts and sites on reasonable request, a requirement
not to unduly discriminate and a requirement to provide Network Access on cost
oriented terms. NGW was recently acquired by Macquarie UK Broadcast Ventures
Limited (which also owns Arqiva). On 19 June 2007, Ofcom published the conclusions of its review of the pricing
of spectrum for terrestrial broadcasting. To date, transmission service providers
who use spectrum for the purposes of DTT have only had to pay administrative
cost-based fees for their use of the spectrum. Ofcom has decided that, from 2014,
a system of Administrative Incentive Pricing will be introduced, which will involve
charging annual fees for the holding of a spectrum that reflects the opportunity
cost of the holding of that spectrum. The effect of this new system may be that
transmission service providers become liable to pay more than they currently
do for their use of the spectrum, which could have an impact on the amount the
Group pays for broadcasting transmission services. Enforcement of General Conditions, SMP Conditions, Access-related Conditions and Continued Licence ConditionsAny breach
of the General Conditions, SMP Conditions or Access-related conditions could
result in Ofcom issuing a direction against us to rectify the breach and a failure
to comply with such direction could result in the imposition of a fine or, ultimately,
the suspension of the
Groups right to provide the relevant network, services or facilities. Decisions
by Ofcom to impose new obligations on the Group, or any remedial direction or
fine would usually be amenable to appeal to the Competition Appeal Tribunal or,
if no appeal is available, may be capable of challenge by way of judicial review
before the courts. The continued licence conditions relating to EPG services and access control
services are enforceable by Ofcom using enforcement powers under the Telecommunications
Act 1984. Dispute resolutionIn addition to providing
for the imposition by Ofcom of specific regulatory obligations, the Communications
Act also imposes a duty on Ofcom to resolve certain disputes relating to the
provision of Network Access (as defined by Section 151(3) of the Communications
Act). In resolving such disputes, Ofcom has the power to do one or more of the
following: •
    to
        make a declaration setting out the rights and obligations of the parties
        to the
dispute;•
    to give a direction
        fixing the terms and conditions of transactions between the parties to
    the dispute;•
    to give a direction
        imposing an obligation, enforceable by the parties to the dispute, to
        enter into a transaction between themselves on the terms and conditions
    fixed by Ofcom; and•
    to
        give a direction, enforceable by the party to whom the sums are to be
        paid, requiring the payment of sums by way of adjustment of an underpayment
    or overpayment. Transmission standardsThe use of standards
for the transmission of television signals is governed by the Electronic Communications
Directives (notably the Access and Universal Services Directives), which require
EU Member States to impose transmission standards on


broadcasters of television services. These requirements on technical standards
have been implemented in the UK by The Advanced Television Services Regulations
2003 and are administered by
Ofcom. Recognised Spectrum AccessOfcom has
introduced a system for the management of spectrum under the Communications Act,
which is intended to enhance the efficiency of spectrum use through liberalisation
of use and trading in spectrum, whilst protecting the quality of spectrum. This
regime may include a voluntary
system of Recognised Spectrum Access (RSA), which would
afford some protection from interference for satellite downlinks and would include
a charging mechanism for the use of relevant spectrum. Ofcom has announced that
it intends to consult the public on the application of RSA to satellite downlinks,
for which no date is currently set. Irish lawWe are currently not
regulated by the Irish national communications regulatory authority, ComReg.
In June 2003, ComReg clarified that it would not, for the time being, seek to
regulate the provision of access to broadcasting networks (or the delivery of
content services to end users) in Ireland under the Electronic Communications
Directives. Broadcasting RegulationEC lawThe Television
  Without Frontiers Directive and the Audiovisual Media Services DirectiveThe EC Television
  Without Frontiers Directive 1989 (TWF Directive), as
  revised in 1997, sets out certain basic principles for the regulation of television
  broadcasting
activity in the EU. The TWF Directive includes, amongst other things: •
    a country
        of origin principle to ensure that broadcasters are not required
        to comply with different rules in different EU Member States. Instead,
        each broadcaster is subject to the primary jurisdiction only of its home Member
    State, determined in accordance with criteria laid down in the TWF;•
    rules
        governing the proportion of transmission time that must be reserved for
        European works and for European works created by producers who are
    independent of broadcasters;•
    qualitative rules
        governing the substance of advertising and the standards that must be
        complied with and quantitative rules regulating the insertion
        of advertising between or during programmes and/or specifying the maximum
    duration of advertising;•
    rules
        to ensure that broadcasters do not broadcast on an exclusive basis events
        which are seen as being of major importance for society, including
        sporting events, in such a way as to deprive a substantial proportion
        of the public of the possibility of following such events via live coverage
    or deferred coverage on free television; and•
    rules
        to ensure the protection of minors and the prevention of incitement to
        hatred on grounds of
race, sex,
religion or
nationality. The UK has adopted a variety of measures to give effect to the requirements of
the TWF Directive, including conditions in broadcasting licences. Further details
on the broadcasting licensing
regime in the UK are set out below. On 24 May 2007, political agreement was reached on a new Audiovisual Media Services
Directive (AVMS Directive), which will replace the existing
TWF Directive. The AVMS Directive entered into force in December 2007. The EU
Member States have been given 24 months in which to transpose the new provisions
into national law. The AVMS Directive covers all audiovisual media services, irrespective of the
technology used to deliver the service, including both linear and on-demand services.
However, the rules relating
to on demand content are limited to safeguarding essential public
interests such as protecting minors, encouraging cultural diversity, preventing
incitement to hatred and basic consumer protection rules. The AVMS Directive
relaxes rules on the amount and timing of television advertising. It also allows
individual member states to derogate from the prohibition on product placement,
in certain genres (including films and television series, sports programmes and
light entertainment programmes). This derogation does not apply to news, current
affairs and childrens programmes. The UK government will consult on whether
the UK




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should allow product placement where permitted by the Directive, as well as on proposals for the regulation of on-demand services and on new jurisdiction rules. Broadcasting
  Act licencesIn the UK, the provisions
  of the TWF Directive are implemented, to a large extent, via the Broadcasting
  Acts 1990 and 1996. The Broadcasting Acts also contain additional provisions
  of national law, beyond the matters required to be covered by the TWF Directive. The Group is required to hold licences issued under the Broadcasting Act 1990 and the Broadcasting Act 1996 (together, the Broadcasting Acts) in relation to its
provision of broadcasting services. Compliance with the conditions attaching to these licences is enforced by Ofcom. We and our broadcasting joint ventures each currently hold a Television Licensable Content Services (TLCS) licence for each of our respective channels and for a number
of other broadcasting services, including our EPG on digital satellite. A TLCS licence permits a channel to be broadcast on cable, DSL and satellite, but does not confer on a TLCS licensee the right to use any specific satellite, transponder or
frequency to deliver the service. TLCS licences are granted for an indefinite duration (for so long as the licence remains in force) and new licences are issued by Ofcom if certain minimum objective criteria are met. We also hold a Digital Television Programme Services (DPS) licence, which is required for the distribution of our channels via DTT, and a Digital Television Additional
Services (DAS) licence for the distribution of other services (including Sky Text) on DTT. In February 2007, the Group announced that it is developing plans for the launch of a subscription television service on DTT. This
service is to be retailed under the Picnic brand. An application to amend the Groups Digital Television Programme Services licence was submitted to Ofcom in April 2007. In May 2008 Ofcom announced that it would publish a consultation document
on the pay TV industry (see below) and its assessment of the Groups pay DTT proposal by the end of summer 2008. In common with all television
  broadcasting licences issued by Ofcom, our licences require us to comply with
  any relevant codes and directions issued by Ofcom from time to time. Ofcom (or
  its predecessors) has published codes and guidance including the following codes: •
    Broadcasting Code:
      this includes requirements relating to, among other things, the impartiality
      and accuracy of news programming, the protection from harm and offence and
      the portrayal of sex and violence;•
    Rules on the amount
      and distribution of advertising (to be replaced on 1 September with
      the Code on the Scheduling of Television Advertising);•
    Cross Promotions Code:this is designed to ensure that cross-promotions on television are distinct
      from advertising and are limited to informing viewers of services likely
      to be of interest to them as viewers. The Code allows broadcasters to promote
      broadcasting-related services in promotional airtime
      subject to the requirement that the promotion is provided for no consideration.
      No consideration will be presumed to have passed where the promoting channel
      has a shareholding of 30% or more in the promoted channel (or vice versa).
      The Code also contains additional rules, applicable only to ITV1, Channel
      4 and five, requiring all references to digital retail television services
      or digital television broadcasting platforms to be on an equal and impartial
      basis;•
    Code on Sports and other
      Listed Events: the Broadcasting Act 1996 (as amended by the Communications
      Act) provides that no UK broadcaster may undertake the exclusive live broadcast
      of certain sporting or other events of national interest designated by the
      Secretary of State from time to time (Listed Events),
      whether on a free-to-air basis or subscription basis, without the prior
      consent of Ofcom. The effect of these rules is that many leading sports
      events cannot be shown exclusively live on pay television in the UK. The
      Code on Sports and other Listed Events was drafted by the Independent Television
      Commission (ITC), Ofcoms predecessor, and
      sets out how the ITC (and now Ofcom) will apply the rules on Listed Events.
      In September 2005, the Secretary of State for Culture, Media and Sport indicated
      that a review of listed events is likely to take place around 2008/09;•
    Code on Television Access
      Services: the Communications Act prescribes certain annual targets for
      television access services (subtitling, audio description and signing) that


broadcasters licensed
      channels must meet. The Code on Television Access Services sets out Ofcoms
      guidance on ensuring compliance with these requirements. The Code requires
      broadcasters to provide quarterly returns on their compliance. In 2007,
      all of Skys channels, except Sky Sports 1 exceeded their relevant
      target. Sky is taking measures to address the shortfall on Sky Sports 1
      in 2008, in agreement with Ofcom. In December 2007, following a consultation
      reviewing the provision of signing services by low-audience
      channels, Ofcom published new arrangements for signing on low audience channels.
      With effect from 1 January 2009, all channels with an audience share of
      between 0.05% and 1% other than public service channels will be excluded
      from obligations to meet the signing targets set out in the Code on Television
      Access Services. Excluded channels will be required instead to transmit
      a minimum of 30 minutes of sign presented programming each month between
      7am and 11pm. Ofcom has stated that it will keep the amount of sign presented
      content under review and will apply the exclusion flexibly. Ofcom has also
      stated that for excluded channels it will accept, as an alternative to the
      requirement to transmit a minimum of 30 minutes of sign presented programming
      each month, alternative arrangements which would be likely to provide better
      assistance for deaf people using sign language; and•
    Code on Electronic Programme
      Guides: this requires all providers of EPGs licensed under the Broadcasting
      Acts to give public service channels (which currently comprise all BBC television
      channels, ITV1, Channel 4, five, and S4C Digital and the digital public
      teletext service) such degree of prominence as Ofcom considers appropriate.The Code also requires
      that undue prominence is not given on an EPG to channels connected to the
      EPG operator, that an objective policy for allocating listings on the EPG
      is maintained and published; and that there is no requirement for exclusivity
      on an EPG for any service. As noted above, the TWF Directive
  includes rules governing, amongst other things, the proportion of transmission
  time that must be reserved for European works and for European works created
  by producers who are independent of broadcasters. Specifically, the TWF Directive
  requires each EU Member State to ensure where practicable and by
  appropriate means that broadcasters falling under its jurisdiction
  reserve (a) a majority of their transmission time for European works and (b)
  at least 10% of their transmission time or, at the discretion of the Member
  State, at least 10% of their programming budget for European works created by
  producers who are independent of broadcasters (in relation to (b), an adequate
  proportion of such works should be produced within the five years preceding
  the transmission). The term where practicable and by appropriate
  means is not defined in the TWF Directive and is left for the interpretation
  of each Member State. In applying these requirements, broadcast time covering
  news, games, advertisements, sports events, teletext and teleshopping services
  is excluded. A condition requiring licensees to comply with these requirements, where practicable, and having regard to any guidance issued by Ofcom, is contained in all Broadcasting Act licences. On 10
February 2005, Ofcom published guidance in relation to compliance with the requirements in the TWF Directive. Ofcoms guidance requires television broadcasters, who consider that it would not be practicable to meet one or more of the quota
requirements, to explain why to Ofcom, which will advise whether any remedial measures are necessary. A number of our channels currently meet the relevant quota requirements for both European works and European independent productions. Some of our channels only meet one of the relevant quotas
and some do not meet either quota. For those channels that do not currently reserve the relevant proportion of relevant transmission time to European works or to European independent productions, it may not be practicable to do so, in which case
those channels would still comply with the condition in their Broadcasting Act licences. Ofcom has not advised that any remedial measures are necessary in respect of those channels, nor has it advised that it does not accept that it is not
practicable for any of these channels to meet the relevant quota requirements. Enforcement
  of Broadcasting Act licencesIf a licensee is found
  to be in breach of a condition of its Broadcasting Act licence, Ofcom may issue
  a direction requiring compliance with the relevant licence condition and may
  impose a fine. Ofcom also has the ultimate power to revoke a broadcasters
  Broadcasting Act licence where it is found to be in breach of its licence (if
  no other remedies are considered appropriate). Any decision by Ofcom finding
  a licensee to be




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Government
  regulationcontinued in breach of a condition of a Broadcasting Act licence, including a decision to impose a fine or revoke the licence, could be challenged by way of judicial review before the courts. Media ownership
  rulesThere are various
  rules in the Broadcasting Act 1990 (as amended) and the Communications Act governing
  media ownership. These rules currently preclude us (for as long as the Group
  is ultimately owned as to over 20% by News Corporation or another member of
  the same group) from acquiring more than a 20% interest in any Channel 3 licence
  (which covers the 15 regional ITV1 licences and GMTV). In addition to the media ownership rules governing who can hold a Broadcasting Act licence, Ofcom is also required under the Communications Act to carry out a review whenever a change of
control takes place in relation to the holder of certain Broadcasting Act licences, including the Channel 3 licences and the licence for five. Ofcom will review the likely effects of such a change of control on the licensed services, for example in
relation to the time available for and scheduling of original productions and news and current affairs programmes. Ofcom has the power to vary the licence holders licence to address any concerns that it may have following such a review. In
November 2006, Ofcom announced that it would consider whether Skys acquisition of a 17.9% stake in ITV represented a change in control of one or more of the licences in ITV. Ofcom has yet to reach a decision on this review. In April 2006, Ofcom published guidance on the definition of control of media companies". This guidance sets out the matters which Ofcom will take into consideration when
assessing control in this context, and the procedure it will follow when investigating whether control exists. Public Service
  BroadcastingIn April 2008 Ofcom
    published a consultation document, commencing the first phase of its second
    public service broadcasting review. The consultation document asserts that
    further intervention in the market will be required to prevent the amount
    of public service content declining in future. By 2012 Ofcom estimates that
    the value of implicit funding for ITV, Channel 4 and five will have fallen
    by around £335 million since 2003. While acknowledging the role of the
    BBC, the consultation document states that further intervention is required
    to ensure plurality of public service broadcasting. In particular, the consultation
    document identifies specific areas such as childrens and regional news
    programming that require intervention. Ofcom has proposed four models which
    will be evaluated in more detail in the second phase of the review, which
    is planned for the latter part of 2008. Various mechanisms are proposed to
    fund each of these models, including direct government funding, distribution
    of the BBC licence fee (top slicing), other regulatory benefits such as subsidised
    spectrum or an increase in advertising minutage for commercial public service
    broadcasters, and industry funding through levies on broadcasters, equipment
    sales, internet service subscriptions or UK online content providers. Most
    of the forms of new funding under consideration will require additional legislation
    to be implemented by 2011. The consultation in this first phase of Ofcoms second review into public service broadcasting closed in June 2008. The results of the consultation have not yet been published. Co-regulation/self-regulationOfcom has contracted out
  responsibility for the regulation of the content of television advertising to
  the Advertising Standards Authority (ASA), a co-regulatory
  body. The Television Advertising Standards Code, which sets out the rules governing
  the content of television advertising, applies to all Broadcasting Act licensees
  and is enforced by the ASA. Ofcom retains a backstop power to enforce compliance
  with the standards in the Code. Similar arrangements exist in relation to training
  regulatory obligations where the Broadcast Training and Skills Regulator acts
  as the co-regulatory body. The Sky Talk and Sky Broadband services are also registered with the telecommunications ombudsman service Otelo, with the consequence that Skys customers may complain to Otelo about the
services they are receiving and Otelo will


investigate and decide what action should be taken. As a member of the Ombudsman scheme, Sky has agreed to honour Otelos decisions. The Group is a member of the Internet Watch Foundation, which provides a UK hotline for users to report potentially illegal content, specifically child abuse images hosted anywhere in the
world or content hosted in the UK which is either criminally obscene or could incite racial hatred. Irish lawEven though our channels
  are broadcast in the Republic of Ireland we do not hold any Irish broadcasting
  licences, as a result of the operation of the country of origin
  principle contained in the TWF (and AVMS) Directive. A list of designated events in Ireland has been defined under the Irish Broadcasting (Major Events Television Coverage) Act 1999 (Designation of Major Events) Order 2003. The effect of these
rules is that many leading sports events cannot be shown exclusively live on pay television in Ireland. Betting
  and gamingWe carry out our betting
  and gaming activities through two Group companies, Hestview Limited (Hestview)
  and Bonne Terre Limited (Bonne Terre). Hestview currently carries out its betting activities under a remote betting licence issued by the Gambling Commission in accordance with the Gambling Act 2005. Bonne Terre, a company registered in Alderney, carries out its gambling activities (casino, bingo and poker) under a licence granted by the Alderney Gambling Control Commission under the
terms of the Gambling Ordinance 2007 and is regulated by that body. Competition
  (anti-trust) lawWe are subject to
  the EC competition law regime and to the national competition law regimes in
  the countries in which we operate. EC competition
    rulesAnti-competitive agreementsArticle 81(1) of
    the EC Treaty prohibits agreements and concerted practices between undertakings
    which may affect trade between EU Member States and which have as their object
    or effect the prevention, restriction or distortion of competition within
    the EU. An agreement may infringe Article 81(1) only if it is likely to have
    an appreciable effect on competition. Agreements which fall within the scope
    of Article 81(1) will not be prohibited where they meet the criteria set out
    in Article 81(3), that is, where they improve the production or distribution
    of goods or promote technical or economic progress, provided that consumers
    receive a fair share of the resulting benefit, competition is not substantially
    eliminated and the agreement does not contain unnecessary restrictions. Abuse of
  a dominant positionArticle 82 of the
  EC Treaty prohibits the abuse by one or more undertakings of a dominant position
  in the EU or a substantial part of it, insofar as the abuse may affect trade
  between EU Member States. Enforcement
  of Articles 81 and 82Articles 81 and 82
  may be enforced by the European Commission, designated national competition
  authorities in each of the EU Member States and/or by the national courts in
  each of the EU Member States. Infringement of Articles 81 or 82 may result in significant consequences including fines, voidness or unenforceability of infringing agreements, prohibition of infringing conduct, potential
liability to third parties (notably for damages) and/or the potential for involved directors to be disqualified. Investigation of Football
  Association Premier League agreementsThe European Commissions
  investigation into the FAPLs joint selling of exclusive broadcast rights
  to football matches concluded with the European Commissions adoption,
  in March 2006, of a decision making commitments offered by the FAPL legally
  enforceable. These commitments (a non-confidential version of which has been




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made available to third parties) are to remain in force until June 2013 and thus applied to the FAPLs auction of media rights for the 2007/08 to 2009/10 seasons and will apply to
subsequent auctions of rights until June 2013. Amongst other things, the commitments provide for the FAPL to sell six balanced packages of live audio visual rights (including rights via the internet and via mobile), each of which showcase the League
as a whole throughout each season. No single bidder is allowed to buy all six packages and packages are sold to the highest standalone bidder. The Group has been awarded four of the six packages of rights to show live audiovisual coverage of FAPL football matches in the UK for the 2007/08 to 2009/10 seasons. The decision is binding on the FAPL for the duration of the commitments, but does not bind national competition authorities or national courts. The Commissions decision does not address
competition issues which may arise from contracts for rights in relation to FAPL matches from the 2007/08 season onwards; any such issues could be assessed separately under the competition rules at either European or national level. MergersThe European Commission
  regulates mergers, full function joint ventures (i.e. ones which perform on
  a lasting basis all the functions of an autonomous economic entity) and the
  acquisition of holdings which confer decisive influence over an undertaking
  and which meet certain turnover thresholds specified in the EC Merger Regulation.
  Such transactions may not be carried out without prior approval of the European
  Commission. Where the European Commission has jurisdiction to review a transaction
  under the EC Merger Regulation, national authorities in the EU Member States
  do not normally have jurisdiction to apply their own competition laws to the
  same transaction. However, Member States may continue to apply their national
  laws to mergers, where such laws are directed at securing other public interest
  objectives (for example, the plurality of the media) and are compatible with
  EC law. Sector inquiriesThe European Commission
  also carries out sector inquiries into sectors of the economy where it considers
  that a market does not seem to be working as well as it should. Sector inquiries
  may lead the European Commission to open specific investigations under Article
  81 or Article 82. UK competition
  rulesAnti-competitive
  agreementsSection 2(1) of the
  Competition Act 1998 (the Chapter I prohibition) prohibits
  agreements or concerted practices which may affect trade within the UK and which
  have the object or effect of preventing, restricting or distorting competition
  within the UK. An agreement will only infringe the Chapter I prohibition if
  it is likely to have an appreciable effect on competition. Agreements which
  fall within the scope of the Chapter I prohibition will not be prohibited where
  they meet specific statutory criteria, that is, where they improve the production
  or distribution of goods or promote technical or economic progress, provided
  that consumers receive a fair share of the resulting benefit, competition is
  not substantially eliminated and the agreement does not contain unnecessary
  restrictions. Abuse of
  a dominant positionSection 18(1) of the
  Competition Act 1998 (the Chapter II prohibition) prohibits
  the abuse by one or more undertakings of a dominant position in the UK or a
  substantial part of it, insofar as the abuse may affect trade within the UK. Enforcement
  of the Chapter I and II prohibitionsThe Chapter I and
  II prohibitions may be enforced by the OFT, one of the sector regulators (in
  the case of the communications sector, Ofcom) or the UK courts. The Chapter I and II prohibitions must be interpreted in a manner that is consistent with Articles 81 and 82 of the EC Treaty. Infringement of the Chapter I or II prohibitions may result in significant consequences including fines, voidness or unenforceability of infringing agreements, prohibition of infringing
conduct, potential liability to third parties (notably for damages) and/or the potential for involved directors to be disqualified.


Legal proceedings initiated
  by Virgin Media groupIn April 2007, Virgin
  Media Communications Limited, Virgin Media Television Limited and Virgin Media
  Limited issued proceedings in the High Court in England and Wales against British
  Sky Broadcasting Group plc and British Sky Broadcasting Limited, alleging that
  the Group has infringed Article 82 EC and the Chapter II prohibition by pursuing
  an anti-competitive strategy designed to weaken Virgin Media group, which allegedly
  entailed (i) a constructive refusal to supply the Groups basic pay television
  channels to Virgin Media group for supply via Virgin Media groups cable
  network in the UK; (ii) a refusal to pay fair prices for the right to carry
  Virgin Media groups television channels as part of the Groups retail
  channel offering; and (iii) the Groups purchase of a significant shareholding
  in ITV (which purchase, it is alleged, was designed principally to damage Virgin
  Media groups ability to compete in the supply of pay television services,
  by preventing Virgin Media group from obtaining access to attractive programming
  content). Virgin Media group seeks from the Court a declaration that the Group occupies a dominant market position in specified pay TV retail and purchasing markets in the UK and that the Group has, by
its conduct as alleged, abused its dominant position(s) contrary to Article 82 EC and the Chapter II prohibition on these relevant markets. Virgin Media group also seeks mandatory injunctions requiring the Group to transact with Virgin Media group
on fair and/or non-discriminatory terms for the supply of the Groups basic pay television channels to Virgin Media and for the licensing of Virgin Media groups television channels, for on-supply to the Groups subscribers. Virgin
Media group also seeks damages to compensate it for its alleged losses arising from the Groups alleged conduct. The Group intends to defend the proceedings vigorously and submitted its defence to the High Court on 2 July 2007 denying Virgin Media groups allegations that it had infringed Article
82 EC or the Chapter II prohibition. A start date for trial has been provisionally set for February 2009. It is, at this stage, too early to estimate the likely outcome of the proceedings. MergersThe framework for
  the assessment of mergers under UK law is set out in Part 3 of the Enterprise
  Act. A relevant merger situation (i.e. a transaction which involves a change
  of control between previously distinct enterprises) qualifies for investigation
  by the OFT where it satisfies either a share of supply test or a turnover test.
  There is no requirement to notify mergers to the OFT nor to obtain prior regulatory
  clearance, although the OFT has the power to investigate mergers on its own
  initiative. Where the OFT reasonably believes that a relevant merger situation has or may have been created, or may be created in future, and has resulted or may be expected to result in a substantial
lessening of competition, it has a duty to refer the merger to the CC for further investigation. The OFT may accept remedies offered by the parties instead of making a reference to the CC. If a reference is made, the CC will decide whether a relevant merger situation has arisen and, if so, whether the relevant merger situation would substantially lessen competition and, if so,
will either prohibit the merger or impose appropriate remedies. In relation to media mergers
  (i.e. mergers involving newspaper and/or broadcasting enterprises), the Secretary
  of State also has the power to intervene on the basis of specified public interest
  grounds including relating to media plurality. Where the Secretary of State
  issues an intervention notice, the OFT will investigate the competition/ jurisdictional
  issues and Ofcom will investigate the public interest issues relating to the
  merger. The Secretary of State will then decide whether to refer the transaction
  to the CC. The Secretary of State is required to follow the OFTs findings
  on competition/ jurisdiction. In cases where a reference is made, the CC will
  investigate both the competition and relevant public interest aspects of the
  merger and will report its findings to the Secretary of State. Ofcom may also
  give further advice to the Secretary of State. The Secretary of State will then
  decide whether the merger operates, or may be expected to operate, against the
  public interest and, if so, will decide on appropriate remedies. The Secretary
  of State must accept the CCs findings on competition/ jurisdiction, where
  relevant.




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Government regulationcontinued Merger investigation of the Groups
acquisition of a shareholding in ITVOn 17 November 2006,
the Group acquired 696 million shares in ITV amounting to 17.9% of its issued
share capital. The Group paid 135 pence per share, totalling £946 million.
The investment in ITV has been subject to an in depth review by the
CC. In December 2007 the CC completed its review and delivered the final report of
its findings to the Secretary of State for Business, Enterprise and Regulatory
Reform
(SoS), for him to decide what action to take. The CC
concluded that a relevant merger situation had been created, granting it jurisdiction,
and that the creation of that situation may be expected to result in substantial
lessening of competition arising from the loss of rivalry in an all-TV market
between ITV and the Group which may be expected to operate against the public
interest. The CC recommended, by way of remedy, that the Group be required to
divest part of
its stake such that it holds less than 7.5% of ITVs issued share capital.
The SoS announced on 29 January 2008 his decision to make an adverse public interest
finding taking account of the CCs decision that the transaction results
in a substantial lessening of competition in the UK market for all-TV. The SoS
also decided to impose on the Group the remedies recommended by the CC to address
the substantial lessening of competition identified in the CCs report:
divestment of
the Groups shares in ITV down to a level below 7.5% within a specified
period (which has not been publicly disclosed), and behavioural undertakings
from the Group requiring the Group not to dispose of the shares to an associated
person, not to seek or accept representation to the Board of ITV and not to reacquire
shares in ITV. The Group has sought judicial review of the decisions of the SoS and CC before
the Competition Appeal Tribunal (CAT). Virgin Media (VM)
has also sought judicial review of the findings of the CC and SoS in relation
to media plurality and the remedies imposed. The Group was granted permission
to intervene in the review proceedings of VM and VM was granted permission to
intervene in the review proceedings brought by the Group. A hearing took place
in early June 2008. The Group is awaiting the judgment of the CAT. Market investigationsPart 4 of
the Enterprise Act makes provision for a system of market investigations by the
CC. The OFT (or in relation to the communications sector, Ofcom) may make a market
investigation reference to the CC where it has reasonable grounds for suspecting
that any feature, or combination of features, of a market in the UK for goods
or services prevents, restricts, or distorts competition in connection with the
supply or acquisition of any goods or services in the UK or part of the UK. Instead
of making a reference to the CC, the OFT or Ofcom may accept remedial undertakings
from the companies concerned. Where the OFT (or, in relation to the communications sector, Ofcom) makes a market
investigation reference to the CC, the CC will conduct a detailed investigation.
The CC may decide that remedial action is required if it finds that there is
an adverse effect on competition in a market under investigation. Ultimately,
the CC has extensive powers to impose remedial action, including requiring divestments,
requiring the licensing of know-how or intellectual property, requiring firms
to discontinue/adopt


certain practices or restraining the way firms would otherwise behave (e.g. imposing
price caps). Ofcom market investigation of pay TV industryOn 18 December 2007,
Ofcom published a consultation document in relation to its ongoing investigation
into the UK pay TV industry. The consultation document
outlined Ofcoms preliminary understanding of the operation of the pay TV
industry in the UK. Interested parties, including the Group, were invited to
respond to the consultation document by providing views on Ofcoms initial
assessment of the operation of the pay TV industry, with a view to enabling it
to examine whether there are competition issues that merit further action (which
could include a market reference to the CC). This consultation is now closed
and on 13 May 2008 Ofcom published copies of all of the non-confidential responses
it had received on the consultation document including that of the Group. Ofcom
has announced that it will publish a further consultation document by the end
of summer 2008. Irish competition rulesOur operations
in Ireland are subject to the Irish competition law regime which regulates anti-competitive
agreements, abuses of a dominant position and mergers. Environmental regulationWe are subject to
environmental regulations that require our compliance. Failure to meet the requirements
of such regulations may lead to fines being incurred or damage to our brand
image. Regulations based on EU Directives, notably the Waste Electrical and ElectronicEquipment
Directive (WEEE Directive), the Restriction on the use
of certain Hazardous Substances in electrical and electronic equipment Directive
(RoHS
Directive) and the Producer Responsibility (Packaging Waste) Regulations
(The Packaging Waste Regulations) have placed various obligations upon us. The
WEEE Directive and the implementing regulations require producers and distributors
of electrical and electronic equipment to finance and enable the recycling and/or
disposal of these items in an environmentally sound manner. The RoHS Directive
and the implementing regulations necessitate the removal of stipulated hazardous
substances from products placed on the market after mid 2005 within set timeframes
and the recovery and recycling of electrical products to specified levels. The
Packaging Waste Regulations require companies that handle packaging to finance
the recovery and recycling of packaging equivalent to the type and volume of
packaging that they have handled each year. These three sets of Regulations apply
to our purchase and supply of set-top boxes, routers and other related equipment
and require
registrations
to be completed by us, our suppliers and retailers. Other changes in the categorisation, segregation, storage and removal of certain
hazardous wastes require us to register sites that produce such wastes. Without
registration, hazardous wastes are not able to be removed from site for disposal.
Incorrect disposal may lead to regulatory action. We track draft environmental directives and regulations to establish their applicability
to the business and enable an appropriate response to be planned and implemented.
Of note are the forthcoming regulations concerning the safe handling and disposal
of batteries as well as the Carbon Reduction Commitment (formerly the Energy
Performance Commitment), which was proposed in the Climate Change Bill.




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IntroductionThe following discussion and analysis is based on, and should be read in conjunction with, the consolidated financial statements, including the related notes, included within this Annual
Report. The consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board and as adopted by the European Union. Overview and recent developmentsThe year ended 30
June 2008 (the current year) has been a year of significant
achievement, particularly against the backdrop of a more challenging consumer
environment. We have grown our subscriber base in line with our targets, customers
are taking more products from us and they are staying
with us for longer. Consequently, we enter the 2009 financial year in a good position and while there
is short-term uncertainty around the consumer environment, there remains significant
headroom for profitable
growth in our core sectors. During the current year, total revenue increased by 9% to £4,952 million,
compared to the year ended 30 June 2007 (the prior year).
Operating profit for the
current year was £724 million, resulting in an operating profit margin of
15%, compared to 18% in the prior year. Loss for the year was £127 million,
generating a basic loss per share of 7.3 pence, compared to a profit of £499
million
and earnings per share of 28.4 pence in the prior year. At 30 June 2008, the total number of DTH subscribers in the UK and Ireland was
8,980,000, representing a net increase of 398,000 subscribers in the current
year. At 30 June 2008, the total number of Sky+ subscribers was 3,714,000, representing
41% of total DTH subscribers. This represents growth in Sky+ subscribers of 1,340,000
in the current year. The number of Multiroom subscribers also continued to grow
strongly, increasing by 261,000 in the current year to 1,604,000; 18% penetration
of total DTH subscribers. The Group launched HD on 22 May 2006, and in the current
year the total number of Sky HD subscribers grew by 206,000 to 498,000, representing
6% of total DTH
subscribers. DTH churn for the current year was 10.4% (2007: 12.4%) . We define DTH churn
as the number of DTH subscribers over a given period that terminate their subscription
in its entirety, net of former subscribers who reinstate their subscription in
that period (where such reinstatement is within a twelve month period of the
termination of their original subscription). The decrease on the prior year reflected
the benefit of additional product penetration and the decision made during the
prior year not to renew viewing package discounts and to improve price transparency. Cable subscribers to the Groups channels decreased to 1,248,000 compared
to 1,259,000 in the prior year. This reflects both a further reduction in the
number of cable television
subscribers to Skys Premium Channels and the continued effect of Virgin
Media, the cable retailer, not carrying Skys basic channels on its platform,
following the expiry of an agreement at the end of February 2007. On 17 July 2006, the Group launched a broadband service for its DTH subscribers.
Sky Broadband continues to grow strongly, increasing by 912,000 customers in
the current year to 1,628,000. By the end of the current year, we had unbundled
1,189 telephone exchanges (representing 72% network coverage). The number of
Sky Talk subscribers reached 1,241,000, representing an increase of 715,000 in
the current year. On 17 November 2006, the Group acquired 696 million shares in ITV, representing
17.9% of the issued capital of ITV at a price of 135 pence per share. The total
consideration paid amounted to £946 million including fees and taxes and
was funded from the Groups existing cash balances and previously undrawn
revolving credit facility. The investment in ITV is carried at fair value. The
fair value is determined with reference to its equity share price at the balance
sheet date. An impairment was first recorded following a review of the carrying
value of the investment in ITV at 31 December 2007, due to the significant and
prolonged decline in the equity share price. In accordance with International
Financial Reporting Standards, the Group has continued to review that carrying
value throughout fiscal 2008 and has recognised a cumulative impairment loss
of £616 million in the current year. The impairment loss for the year was
determined with reference to ITVs closing equity share price of 47.5 pence
at 27 June 2008, the last trading day of the Groups financial year. This
investment has been the subject of an inquiry by the CC and the SoS
which is


currently the subject of a judicial review (see Directors report  review
of the business  Government regulation  UK competition rules for
further details). On 5 September 2007, we announced that all the conditions of our offer for the
entire issued share capital of Amstrad had been satisfied or waived, and accordingly
the offer was declared unconditional in all respects. The total consideration
paid amounted to approximately £127 million resulting in provisional goodwill
of £104 million, and was principally funded from our existing cash balances
and a loan note alternative. The acquisition of Amstrad is intended to provide
the Group with an in-house product design and development capability, an ability
to accelerate the development of new and more innovative products for customers,
greater control over product design and technical specification and a reduction
in supply chain procurement costs. Major non-cash transactionsOn 12 December 2007,
the Group sold its 100% stake in BSkyB Nature Limited, the investment holding
company for the Groups 50% interest in the NGC-UK Partnership. As consideration
for the disposal, the Group received 21% interests in both NGC Network International
LLC and NGC Network Latin America LLC (in effect, 21% of National Geographic
Channels television operations outside the US). This realised a profit
on disposal of £67 million. CorporateThe Board of Directors
is proposing a final dividend of 9.625 pence per ordinary share, resulting in
a total dividend for the year of 16.75 pence, representing growth of 8% over
the prior year full year dividend. The ex-dividend date will be 22 October 2008
and, subject to shareholder approval at the Companys Annual General Meeting
(AGM), the dividend will be paid on 14 November 2008
to shareholders of record on 24
October 2008. On 6 December 2007, Rupert Murdoch resigned as Non-Executive Chairman of the
Company and James Murdoch was appointed in his place with effect from 7 December
2007. On 6 December 2007, James Murdoch relinquished his position of CEO and
Jeremy Darroch, previously Chief Financial Officer (CFO),
was appointed in his place with effect from 7 December 2007. On 15 February 2008, the Group issued US$750 million Guaranteed Notes paying
6.100% interest and maturing on 15 February 2018. The net proceeds of the offering
were used to refinance
maturing bond debt and for general corporate purposes. On 7 April 2008, Andrew Griffith was appointed to the role of CFO of the Company
and appointed to the Board. On the same day, Daniel Rimer was appointed to the
Board as an Independent
Non-Executive Director. Operating results RevenueOur revenue is principally
derived from retail subscription, wholesale subscription, advertising on our
wholly-owned channels, the provision of interactive betting and gaming, and installation,
hardware and servicing. Our retail subscription revenue is a function of the number of DTH subscribers,
the mix of services provided and the rates charged. Revenue from the provision
of pay-per-view services, which include Sky Box Office, is included within retail
subscription or wholesale subscription revenue, as appropriate. Retail subscription
revenue also includes retail broadband subscription and Sky Talk revenue. Our wholesale subscription revenue, which is revenue derived from the supply
of Sky Channels to cable and IPTV platforms, is a function of the number of subscribers
on cable operators platforms, the mix of services taken by those subscribers
and the rates charged to those cable operators. We are currently a leading supplier
of premium pay television programming to cable operators in the UK and Ireland
for re-transmission to cable subscribers, although cable operators do not carry
all Sky Channels. Our advertising revenue is mainly a function of the number of commercial impacts,
defined as individuals watching one thirty-second commercial on our wholly owned
channels, together with the quality of impacts delivered and overall advertising
market conditions. Advertising revenue also includes net commissions earned by
us from the




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Introductioncontinued sale of advertising on those third-party channels for which we act as sales representative. Sky Bet revenue represents our income in the period for betting and gaming activities,
defined as amounts staked by customers less winnings paid out. Installation, hardware and service revenue includes income from set-top box sales
and installation (including the sale of Sky+ HD, Sky+ and Multiroom set-top boxes,
and broadband), service
calls and warranties. Other revenue principally includes income from online advertising, telephony
income from the use of interactive services (e.g. voting and games), text services,
conditional access and access control income from customers on the Sky digital
platform, electronic programme guide fees, the provision of business broadband,
network services and customer management service fees. Operating expenseOur operating expense
arises from programming, transmission and related functions, marketing, subscriber
management and administration costs. Programming costs include payment for: (i) licences of television rights from
certain US and European film licensors including the results of foreign exchange
programme hedges; (ii) the rights to televise certain sporting events; (iii)
other programming acquired from third party licensors; (iv) the production and
commissioning of original programming; and (v) the rights to retail the Sky Distributed
Channels to DTH subscribers. The methods used to amortise programming inventories
are described in the Critical Accounting Policies section
below. Under our pay television agreements with the US major movie studios, we generally
pay a US dollar-denominated licence fee per movie calculated on a per movie subscriber
basis, subject to minimum guarantees, which were exceeded some time ago. During
the year, we managed our US dollar/pound sterling exchange risk primarily by
the purchase of forward foreign exchange contracts and currency options (collars)
for up to five years ahead
(see note 23 to the consolidated financial statements). Under the DTH distribution agreements for the Sky Distributed Channels, we generally
pay a monthly fee per subscriber for each channel, the fee in some cases being
subject to periodic increases, or we pay a fixed fee or no such fee at all. A
number of our distribution agreements are subject to minimum guarantees, which
are linked to the proportion of the total number of subscribers receiving specific
packages. Our costs for carriage of the Sky Distributed Channels will (where
a monthly per subscriber fee is payable) continue to be dependent on changes
in the subscriber base, contractual rates and/or the number of channels distributed. Transmission and related functions costs are dependent upon the number and annual
cost of the satellite transponders that we use. Our transponder capacity is primarily
acquired from the SES Astra and Eutelsat Eurobird satellites. Transmission and
related functions costs also include the costs associated with transmission,
uplink and telemetry facilities and the costs of operating the Groups broadband
network and Sky Talk
product. Marketing costs include: (i) above-the-line spend (which promotes our brand and
range of products and services generally); (ii) below-the-line spend (which relates
to the growth and maintenance of the subscriber base, including commissions payable
to retailers and other agents for the sale of subscriptions and the costs of
our own direct marketing to our existing and potential subscribers); and (iii)
the cost of providing and installing digital satellite reception equipment to
customers in excess of the relevant amount actually received from customers for
such equipment and installation. Subscriber management costs include customer management costs, supply chain costs
and associated depreciation. Customer management costs are those associated with
managing new and existing subscribers, including subscriber handling and subscriber
bad debt costs. Supply chain costs relate to systems and infrastructure and the


installation costs of satellite reception equipment and installation costs of
new products purchased by subscribers such as Sky+ HD, Sky+ and Multiroom set-top
boxes, including smartcard costs. Customer management costs and supply chain
costs are largely dependent on DTH subscriber levels and additions to subscribers
in the year. Administration costs include depreciation, channel management, facilities, other
central operational overheads and the expense recognised for awards granted under
our employee share option
schemes. For certain trend information related to our revenue and operating expense, see
the Trends and other information section below. Financial and operating review 2008 fiscal year compared
to 2007 fiscal year RevenueThe
Groups revenue can be analysed as follows: 2008
	
	
	
	2007For the year to 30 June
	
	£m
	
	%
	
	£m
	
	%Retail subscription
	
	3,769
	
	76
	
	3,406
	
	75Wholesale subscription
	
	181
	
	4
	
	208
	
	4Advertising
	
	328
	
	7
	
	352
	
	8Sky Bet
	
	44
	
	1
	
	47
	
	1Installation, hardware and service
	
	276
	
	5
	
	212
	
	5Other
	
	354
	
	7
	
	326
	
	74,952
	
	100
	
	4,551
	
	100 The increase of £363 million in retail subscription revenue in the current
year was driven by a 5% increase in the average number of DTH subscribers and
a 6% increase in average retail
revenue per subscriber, reflecting the Groups decision made during the
prior year not to renew viewing package discounts, the September 2007 price increase,
and increasing additional product penetration in both broadband and
telephony. The total number of UK and Ireland DTH subscribers increased by 398,000 in the
current year, to 8,980,000. This was as a result of gross subscriber additions
of 1,311,000 in the current year and a decrease in DTH churn from 12.4% to 10.4%
.. Wholesale subscription revenue decreased
by £27 million in the current year. This reflects both a further reduction
in the number of cable television subscribers to Skys premium channels
and the continued effect of Virgin Media not carrying Skys basic channels
on its platform, following the expiry (and non-renewal) of an agreement at the
end of February 2007. At 30 June 2008, there were 1,248,000 (30 June 2007: 1,259,000)
UK and Ireland cable subscribers to Sky channels. Advertising revenue decreased by £24 million in the current year, reflecting
the non-renewal of the contract to supply Skys basic channels to Virgin
Media at the end of February
2007. Sky Bet revenue decreased by £3 million in the current year. An underlying
fall in revenue offset the benefit of the first full year of consolidation of
365 Media and reflected the continued shift from interactive TV betting towards
the internet. Installation, hardware and service revenue
increased by £64 million in the current year due to higher volumes of new
and upgrading customers choosing premium-priced hardware, including Sky+ and
Sky+ HD set-top boxes, and the reintroduction of an installation fee across all
products. Other revenue of £354 million increased by £28 million in the current
year. This increase mainly reflects additional revenue generated from Easynet,
growth in website revenues and set-top box sales from Amstrad (acquired in September
2007).


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|30                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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Operating expenseThe
  Groups operating expense can be analysed as follows: 2008
	
	
	
	2007For the year to 30 June
	£m
	
	%
	
	£m
	
	%Programming
	1,713
	
	40
	
	1,539
	
	41Transmission and related functions
	542
	
	13
	
	402
	
	11Marketing
	743
	
	18
	
	734
	
	20Subscriber management
	700
	
	17
	
	618
	
	16Administration
	530
	
	12
	
	443
	
	124,228
	
	100
	
	3,736
	
	100 Within programming expense, Sky Sports channels programming costs increased by 10% to £929 million in the current year. This was principally a result of the new FAPL agreement for
the 2007/08 to 2009/10 seasons. The annual cost of the FAPL rights is fixed over the three year period of the contract. Sky Movies channels programming costs of £281 million decreased by £4 million on the prior year due mainly to
foreign exchange benefits on US dollar purchases. News and entertainment programming costs increased by 11% to £205 million in the current year, primarily due to continued investment in programming for Sky One. Included within programming expense for the current year are third party channel costs, which include our costs in relation to the distribution agreements for the Sky Distributed Channels.
Third party channel costs increased by £70 million to £298 million in the current year. This increase was a result of a non-recurring £65 million receipt in the prior year, arising from certain contractual rights under one of the
Groups channel distribution agreements, additional current year costs including an increase in payments made to Setanta Sports Sarl to include their Premier League games and other content in commercial subscriptions and a 5% increase in the
average number of DTH subscribers. The increase in costs during the current year was partially offset by savings generated from the renewal of some of our channel distribution contracts on improved terms. Transmission and related function costs increased by £140 million in the current year, of which £124 million related to incremental retail broadband and telephony network costs and
£13 million of additional Easynet costs. Marketing costs increased by £9 million in the current year. This increase was driven by an increased number of customers taking discounted premium products, and the costs of the Sky
magazine relaunch, partly offset by supply chain savings following the acquisition of Amstrad, the reintroduction of a standard installation fee across all products and reduced broadband marketing costs reflecting higher launch costs in the prior
year. Above the line costs remained flat on the prior year. Subscriber management costs increased by £82 million in the current year
primarily due to increased retail broadband and Sky Talk costs reflecting the
growth in our broadband and telephony customer base and higher volumes of new
and upgrading customers choosing premium priced hardware, including Sky+ and
Sky+ HD set-top boxes. The increased costs associated with the higher weighting
of premium priced hardware were partially offset by the reintroduction of a standard
installation charge and supply chain savings delivered through the first time
consolidation of Amstrad (acquired in September 2007). Administration costs increased by £87 million in the current year, mainly
due to increased depreciation following further investment in infrastructure
and systems across the business and the impact of new business streams in 365
Media and Amstrad, increased legal costs as a result of ongoing regulatory reviews
and litigation. Included within administration
    expense for the year ended 30 June 2008 is £21 million (2007: £16
    million) of expense relating to the legal costs incurred to date on the Groups
    claim against EDS (an information and technology solutions provider), which
    provided services to the Group as part of the Groups investment in
    customer management systems software and infrastructure. Administration costs
    for the current year
also include £7 million relating to a restructuring exercise undertaken
following a review of operating costs.


Operating profit and operating marginOperating profit decreased by
11% to £724 million in the current year. This decrease was driven by the
increase in operating expense described above, partly offset by the increase
in retail subscriptions. As a result, operating margin (calculated as total revenue
less all operating expense as a percentage of total revenue) for the current
year was 15%, compared to 18% in the prior year. Joint ventures and associatesJoint ventures are entities
in which we hold a long-term interest and share control under a contractual arrangement
with other parties. Our equity share of the net operating results from joint
ventures and associates increased by £3 million to £15 million in the
current period. Investment income and finance costsInvestment income increased
by £1 million to £47 million in the current year. The net increase
was primarily due to increased cash balances as a result of the issuance of US$750
million Guaranteed Notes in February 2008 and an increase of £9 million
in the dividend receivable from our investment in ITV, partly offset by lower
levels of cash on deposit in the first half of the year, subsequent to the investment
in ITV
and Amstrad. Finance costs increased by £28 million to £177 million in the current
year. This increase was primarily as a result of an increase in the Groups
total borrowings, following the issue of Guaranteed Notes in May 2007 and February
2008, and a £3 million decrease in the gain on remeasurement of the value
of derivative financial instruments not qualifying for hedge accounting. Profit on disposal of joint ventureIn December 2007, the Group
sold its 100% stake in BSkyB Nature Limited, the investment holding company for
the Groups 50% interest in the NGC-UK Partnership. As consideration for
the disposal, the Group received 21% interests in both NGC Network International
LLC and NGC Network Latin America LLC (in effect, 21% of National Geographic
Channels television operations outside of the US). The fair value of consideration
received was £82 million, realising a profit on disposal of £67 million. Impairment of available-for-sale investmentAt 30 June 2008, the Group recorded
an impairment loss of £616 million in the carrying value of its available-for-sale
investment in ITV. The fair value of ITV at the balance sheet date was determined
with reference to its closing equity share price on 27 June 2008, the last trading
day of the Groups
fiscal year. TaxationThe total tax charge for the
current year of £187 million (2007: £225 million) comprises a current
tax charge of £179 million (2007: £189 million) and a deferred tax
charge of £8 million (2007: £36 million). The decrease in the tax charge
was due to lower profits in the year, partially offset by an increase in non
deductible expense as a result of the impairment loss in the carrying value of
the
available-for-sale investment in ITV. Loss for the year and loss per shareLoss
for the year was £127 million compared with a profit of £499 million
in the prior year, mainly as a result of a decrease in operating profit of £91
million and the
impairment of the available-for-sale asset of £616 million, partially offset
by a profit on disposal of a joint venture of £67 million and a decrease
in taxation of £38
million.




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        Group plc |  | 31
|Annual Report 2008                        

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|Directors report  financial
    review
|----------------------------------------
|continued                               
|                                        
|                                        

Financial and operating reviewcontinued The Groups (loss) earnings per share are as follows: 2008
      
      2007pence
      
      pence(Loss)
        earnings per share from (loss) profit for the yearBasic
      (7.3
      )
      28.4Diluted
      (7.3
      )
      28.2Adjusted
        earnings per share from adjusted profit for the yearBasic
      25.1
      
      26.3Diluted
      25.0
      
      26.1 In order to provide a measure of underlying performance, management have chosen to present an adjusted profit for the year which excludes items that may distort comparability. See note 10 of
the consolidated financial statements for a detailed reconciliation from loss to adjusted profit for the year. Earnings per share decreased from 28.4 pence in the prior year to a loss per share of 7.3 pence in the current year. This movement was primarily a result of the impairment loss in the
available-for-sale investment in ITV recorded in the current year. Adjusted earnings per share decreased as a result of a lower adjusted profit for the year, partly offset by the effect of our share buy-back programmes. During the prior year, a
total of 38 million shares were repurchased for cancellation. Balance sheetGoodwill
    increased by £111 million to £852 million at 30 June 2008, primarily
due to the completion of the Amstrad acquisition during the year. Property, plant and equipment and intangible assets increased by £94 million to £1,025 million at 30 June 2008, due to £333 million of additions in the year, partly offset by
depreciation and amortisation of £246 million. Available-for-sale investments decreased by £459 million to £338 million at 30 June 2008, primarily due to the effect of the decrease in the equity share price of ITV. The
cumulative unrealised losses recorded in the current and prior year by the Group in the available-for-sale reserve were transferred to the Groups income statement in the current year. Investments in joint ventures and associates increased by £80 million to £114 million at 30 June 2008, primarily due to the sale of the Groups 100% stake in BSkyB Nature
Limited. As consideration for the disposal, the Group received 21% interests in both NGC Network International LLC and NGC Network Latin America LLC. Current assets increased by £335 million to £1,698 million at 30 June 2008, primarily as a result of increased cash and short-term deposits arising from the issuance of US$750
million Guaranteed Notes in February 2008. Current liabilities increased by £394 million to £1,893 million at 30 June 2008, predominantly due to a £322 million increase in current borrowings. Current borrowings
increased following the reclassification of £301 million from non-current borrowings in respect of US$600 million Guaranteed Notes (repayable February 2009) and the issuance of £37 million of Loan Notes in relation to the purchase of
Amstrad. This increase was partially offset by the repayment of £16 million of Loan Notes issued in relation to the purchase of 365 Media. Non-current liabilities decreased by £17 million to £2,357 million at 30 June 2008, primarily due to the reclassification of US$600 million Guaranteed Notes to current payables
and mark to market movement on the derivative instruments used for hedging certain programming payments and borrowings, partially offset by the issuance of US$750 million Guaranteed Notes in February 2008.


Foreign exchangeFor details of the impact of foreign currency fluctuations on our financial position and performance, see note 23 to the consolidated financial statements. Contingent assets and liabilitiesThe
    Group has served a claim for a material amount against EDS (an information
    and technology solutions provider) which provided services to the Group as
    part of the Groups investment
in customer management systems software and infrastructure. The amount which
    may be recovered by the Group will not be finally determined until resolution
of the claim. In April 2007, Virgin Media Communications Limited, Virgin Media Television Limited and Virgin Media Limited issued proceedings in the High Court in England and Wales against British Sky
Broadcasting Group plc and British Sky Broadcasting Limited, alleging that the Group has infringed Article 82 EC and the Chapter II prohibition by pursuing an anticompetitive strategy designed to weaken Virgin Media group, which allegedly entailed
(i) a constructive refusal to supply the Groups basic pay television channels to Virgin Media group for supply via Virgin Media groups cable network in the UK; (ii) a refusal to pay fair prices for the right to carry Virgin Media
groups television channels as part of the Groups retail channel offering; and (iii) the Groups purchase of a significant shareholding in ITV (which purchase was, it is alleged, designed principally to damage Virgin Media
groups ability to compete in the supply of pay television services, by preventing Virgin Media group from obtaining access to attractive programming content). Virgin Media group seeks from the Court a declaration that the Group occupies a
dominant market position in specified pay TV retail and purchasing markets in the UK and that the Group has, by its conduct as alleged, abused its dominant position(s) contrary to Article 82 EC and the Chapter II prohibition on these relevant
markets. Virgin Media group also seeks mandatory injunctions requiring the Group to transact with Virgin Media group on fair and/or non-discriminatory terms for the supply of the Groups basic pay television channels to Virgin Media and for the
licensing of Virgin Media groups television channels, for on-supply to the Groups subscribers. Virgin Media group also seeks damages to compensate it for its alleged losses arising from the Groups alleged conduct. The Group intends to defend the proceedings vigorously and submitted its defence to the High Court on 2 July 2007 denying Virgin Media groups allegations that it had infringed Article
82 EC or Chapter II prohibition. It is, at this stage, too early to estimate the likely outcome of the proceedings. On 7 May 2008 the Nomenclature Committee of the European Commission issued an Explanatory Note EN (0590/2007) to the Combined Nomenclature setting out their view that
set-top boxes with a hard drive should be classified under Customs Tariff heading 8521 90 00 and so subject to a 13.9% ad valorem duty on importation to the European Union. As a consequence the Group is exposed to potential retrospective Customs
Duty liability in respect of such set-top boxes imported by Amstrad Plc (acquired in September 2007) and for the reimbursement of certain suppliers in line with the terms of contractual supply agreements. Managements opinion is that the retrospective application of the Explanatory Note would be wrong as a matter of law. In addition management considers that the adoption of the EN puts
the EU in breach of the Information Technology Agreement of 1996, a view which is shared by the US and Japan who have instigated WTO proceedings against the EU on this matter. The Group therefore intends, in common with other affected importers, to
appeal any retrospective assessment made and to defend its position on this matter. As a result of the potential remedies available under the Community Customs Code, the Group considers that in the event that an assessment is made for import duty relating to imports prior to
7 May 2008, it is probable that no outflow of economic benefit would be required to discharge this obligation, and that as such at 30 June 2008 any liability should be considered contingent.




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|32                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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Liquidity and capital resourcesAn analysis of the movement in our net debt (including related fees) is as follows: As at 1 July
	
	Cash
	
	Non-cash
	
	As at 30 June2007
	
	movements
	
	movements
	
	2008£m
	
	£m
	
	£m
	
	£mCurrent borrowings
	16
	
	(16
	)
	338
	
	338Non-current borrowings
	2,014
	
	383
	
	(289
	)
	2,108Debt
	2,030
	
	367
	
	49
	
	2,446Borrowings-related derivativefinancial instruments
	258
	
	
	
	(44
	)
	214Cash and cash equivalents
	(435
	)
	(197
	)
	
	
	(632
	)Short-term deposits
	(15
	)
	(170
	)
	
	
	(185
	)Net debt
	1,838
	
	
	
	5
	
	1,843 The Group refers to net debt in discussing its indebtedness and liquidity position. Net debt is a non-GAAP measure that management uses to provide an assessment of the overall indebtedness of
the Group. The most similar IFRS GAAP measures are current and non-current borrowings. Management uses net debt to calculate and track adherence to the Groups borrowing covenants as disclosed in note 22 Borrowings and non-current other payables.
Management monitors the Groups net debt position because net debt is a commonly used measure in the investment analyst community and net debt is a key metric used by Moodys and Standard & Poors in their assessment of the
Groups credit rating. As such, management makes decisions about the appropriate investing and borrowing activities of the Group by reference to, amongst other things, net debt. Our long-term funding comes primarily from our issued equity and US dollar and sterling-denominated public debt raised in 1999, 2005, 2007 and 2008. As at 30 June 2008, the Groups net
debt was £1,843 million. The public bond debt issued in 1999 is repayable in fiscal years 2009 and 2010, and we currently believe that our existing cash resources, combined with RCF availability, will enable us to meet the repayment
requirements. The bond debt issued in 2005 (which is repayable in 2015, 2017 and 2035), the public bond debt issued in 2007 (which is repayable in 2027) and the bond debt issued in 2008 (which is repayable in 2018) has been, and will continue to be,
used for general corporate purposes, including the refinancing of maturing debt and extending the maturity profile of our debt. In addition, we may use proceeds of the offerings for acquisitions of businesses and assets in support of our Group
strategy. For details of the Groups facilities and long-term funding see note 22 of the consolidated financial statements. For details of the Groups treasury activities see note 23 of the
consolidated financial statements. Our principal source of liquidity is cash generated from operations combined with access to the £1 billion RCF, which we entered into in November 2004. At 30 June 2008, this facility was
undrawn (30 June 2007: undrawn). Furthermore, on 3 April 2007, the Group established an Euro Medium Term Note Programme (the Programme). The Programme provides the Group with a standardised documentation platform to allow for
senior debt issuance in the Eurobond markets. The maximum potential issuance under the EMTN Programme is £1 billion, of which £300 million was utilised for the May 2007 Bond issue. Cash flowsDuring
the current year, cash generated from operations was £997 million, compared with an inflow of £1,007 million in the prior year. The decrease in operating profit of £91
million was partly offset by working capital savings and higher depreciation
and amortisation expense. Net cash generated from operating activities was further
impacted by a decrease in interest received and an increase in taxation paid. During the current year, payments for property, plant and equipment and intangible assets were £339 million, compared with £356 million in the prior year, following further progress
on a number of capital expenditure and infrastructure projects. A total of £78 million has been invested in the broadband network, and £46 million was invested to progress the Groups property and infrastructure projects. We also made
payments totalling £16 million in the year to a third party for development of


encryption technology, which have been capitalised as an intangible asset. A further £41 million has been invested in data centres and other technology infrastructure and £22
million in set top box development. The remaining £136 million was spent on a number of projects including the development of new products and services. Payments for the purchase of subsidiaries, amounting to £72 million in the current year, were primarily due to the acquisition of Amstrad (for further details of the acquisition in the
current year see note 29 of the Consolidated financial statements). In the prior year, purchases of subsidiaries of £104 million primarily comprised the purchase of 365 Media. Purchases of available-for-sale investments
of £947 million in the prior year principally comprised the acquisition of shares in ITV on 17 November 2006 for a total consideration of £946 million. On 15 February 2008, the Group issued Guaranteed Notes consisting of US$750 million aggregate principal amount of notes paying 6.100% interest, resulting in a net cash inflow of £383
million. In the prior year, the Group issued Guaranteed Notes consisting of £300 million aggregate principal amount of notes paying 6.000% interest, resulting in a net cash inflow of £295 million and repaid US$300 million of 7.300%
Guaranteed Notes, resulting in a cash outflow of £189 million, net of related derivative financial instruments. During the current year, interest payments were £165 million, compared to£154
million in the prior year. This increase in payments reflects the increased level
of indebtedness following the issue of new Guaranteed Notes in May 2007 and February
2008. During the current year, equity dividend payments were £280 million, compared to £233 million in the prior year. We expect that future payments will increase in line with the
Boards expected dividend policy described in the Trends and other information section below. The above cash flows, in addition to other net movements of £20 million, and non-cash movements of £5 million resulted in an increase in net debt of £5 million to £1,843
million. 2007 fiscal year compared to 2006 fiscal year RevenueThe
Groups revenue can be analysed as follows: 2007
	
	
	
	2006For the year to 30 June
	£m
	
	%
	
	£m
	
	%Retail subscription
	3,406
	
	75
	
	3,157
	
	76Wholesale subscription
	208
	
	4
	
	224
	
	6Advertising
	352
	
	8
	
	342
	
	8Sky Bet
	47
	
	1
	
	37
	
	1Installation, hardware and service
	212
	
	5
	
	131
	
	3Other
	326
	
	7
	
	257
	
	64,551
	
	100
	
	4,148
	
	100 The increase of £249 million in retail subscription revenue in the 2007 fiscal year was driven by a 5% increase in the average number of DTH subscribers and a 3% increase in average
retail revenue per subscriber, reflecting the decision made during the 2007 fiscal year not to renew viewing package discounts and increasing additional product penetration. Included within retail subscription revenue is £66 million of
incremental retail broadband revenue and £4 million of Easynet revenue. The total number of UK and Ireland DTH subscribers increased by 406,000 in the 2007 fiscal year, to 8,582,000. This was as a result of increasing gross subscriber additions from 1,275,000 to
1,446,000 in the 2007 fiscal year, partly offset by DTH churn in the 2007 fiscal year of 12.4% (2006: 11.1%) . Wholesale subscription revenue decreased by £16 million in the 2007 fiscal year. This reflects a further reduction in the number of cable television subscribers to Skys premium
channels and Virgin Media ceasing to carry Skys basic channels on its platform, following the expiry (and non-renewal) of an agreement at the end of




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        Group plc |  | 33
|Annual Report 2008                        

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|Directors
      report  financial review
|------------------------------------------
|continued                                 
|                                          
|                                          

Financial and
  operating reviewcontinued February 2007. At 30 June 2007, there were 1,259,000 (30 June 2006: 3,898,000) UK and Ireland cable subscribers to Sky channels. Advertising revenue increased by £10 million in the 2007 fiscal year, despite continued contraction of the television advertising sector and the expiry of the contract to supply
Skys basic channels to Virgin Media at the end of February 2007. Our performance was driven by a higher share of commercial viewing for those channels on which we sell advertising, up from 13% for the year ended 30 June 2006 to 14% for the
year ended 30 June 2007. Sky Bet revenue increased by £10 million in the 2007 fiscal year as a result of strong growth in internet sports betting and television games. This increase reflected the inclusion of an
additional £4 million of revenue generated by 365 Media (which was acquired in January 2007). Installation, hardware and service revenue increased by £81 million in the 2007 fiscal year due to increased gross customer additions and customer upgrades, and a higher volume of
premium-priced hardware sales, including Sky+ HD set-top boxes. Included within installation, hardware and service revenue is £7 million of incremental retail broadband revenue. Other revenue of £326 million increased by £69 million in the 2007 fiscal year. This increase reflected the inclusion of an additional £76 million of revenue generated by the
Easynet business (which was acquired in January 2006), growth in website revenues (including a contribution from 365 Media), partly offset by lower Sky Active revenue. Included within other revenue is £1 million of incremental retail broadband
revenue. Operating
  expenseThe Groups operating
  expense can be analysed as follows: 2007
    
    
    
    2006For
      the year to 30 June
    
    £m
    
    %
    
    £m
    
    %Programming
    
    1,539
    
    41
    
    1,599
    
    49Transmission
      and relatedfunctions
    
    402
    
    11
    
    234
    
    7Marketing
    
    734
    
    20
    
    622
    
    19Subscriber
      management
    
    618
    
    16
    
    468
    
    14Administration
    
    443
    
    12
    
    348
    
    113,736
    
    100
    
    3,271
    
    100 Within programming expense, Sky Sports channels programming costs increased by 10% to £842 million in the 2007 fiscal year. This was a result of an increased level of live
coverage, the occurrence of the biennial Ryder Cup and the Cricket World Cup in the 2007 fiscal year and a wider coverage of county and international cricket following the addition of the new England Cricket Board contract. Sky Movies channels
programming costs decreased by 8% to £285 million in the 2007 fiscal year reflecting savings generated from contract renewals and a £10 million foreign exchange benefit resulting from a more favourable average exchange rate at which US
dollars were purchased. News and entertainment programming costs decreased by 8% to £184 million in the 2007 fiscal year, primarily due to a play out of older stock in the 2006 fiscal year. Included within programming expense for the 2007 fiscal year are third party channel costs, which include our costs in relation to the distribution agreements for the Sky Distributed
Channels. Third party channel costs decreased by 29% to £228 million in the 2007 fiscal year. The cost increase resulting from the 5% increase in the average number of DTH subscribers was more than offset by savings generated from the renewal
of some of our channel distribution contracts on improved terms during the 2007 fiscal period.


Included within third party channel costs for the 2007 fiscal year is a £65 million credit received by the Group, arising from certain contractual rights under one of the Groups
channel distribution agreements. This item was previously disclosed as a contingent asset in the 2006 financial statements. Transmission and related function costs increased by £168 million in the 2007 fiscal year, of which £101 million related to incremental retail broadband network costs and £60
million related to the consolidation of a full year of Easynet costs (Easynet was acquired in January 2006). Marketing costs increased by £112 million in the 2007 fiscal year. This increase was driven by additional above the line spend following the launch of Sky+ HD and the See,
Speak, Surf campaign; an increased number of gross subscriber additions during the period and an increased number of existing customers taking product upgrades, partly offset by some supply chain savings and sales of premium priced Sky+
HD set-top boxes. We also increased our expenditure on retention and other marketing, predominantly due to further investment in our customer segmentation database and an increase in online marketing costs. Included within the increase for the 2007
fiscal year are incremental retail broadband costs of £49 million and £2 million of Easynet costs. Subscriber management costs increased by £150 million in the 2007 fiscal year. This increase reflects higher hardware, installation and service costs, a direct result of increased gross
additions, expenditure on customer services operations, and depreciation relating to the implementation of new CRM systems. Also included within the increase in subscriber management expenses for the 2007 fiscal year are incremental retail broadband
costs of £60 million and £8 million of Easynet costs. Administration costs increased by £95 million in the 2007 fiscal year, of which £16 million related to incremental retail broadband expenses, £22 million related to Easynet
costs, and £15 million related to higher depreciation charges from information systems investment. Included within administration expense for the 2007 fiscal year is £16 million of expense relating to the legal costs incurred to date on the Groups claim against EDS (an
information and technology solutions provider), which provided services to the Group as part of the Groups investment in customer management systems software and infrastructure. Operating
  profit and operating marginOperating profit decreased
  by 7% to £815 million in the 2007 fiscal year. This decrease was driven
  by the increase in operating expense described above, partly offset by the increase
  in retail subscription and other revenue. As a result, operating margin (calculated
  as total revenue less all operating expense as a percentage of total revenue)
  for the 2007 fiscal year was 18%, compared to 21% in the 2006 fiscal year. Joint ventures
  and associatesJoint ventures are
  entities in which we hold a long-term interest and share control under a contractual
  arrangement with other parties. Our equity share of the net operating results
  from joint ventures and associates of £12 million was in line with the
  2006 fiscal year. Investment
  income and finance costsInvestment income
  decreased by 12% to £46 million in the 2007 fiscal year. The decrease was
  primarily due to lower levels of cash on deposit, subsequent to the investment
  in ITV, offset by a £13 million dividend receivable from our investment
  in ITV. Finance costs increased by
  4% to £149 million in the 2007 fiscal year. This increase was primarily
  as a result of an increase in the Groups total borrowings, following the
  issue of Guaranteed Notes in May 2007, and interest payments on the Groups
  revolving credit facility which was drawn down in November 2006. These increases
  were partly offset by a £6 million favourable movement on the remeasurement
  of the value of derivative financial instruments not qualifying for hedge accounting.




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TaxationThe total tax charge
  for the 2007 fiscal year of £225 million (2006: £247 million) comprises
  a current tax charge of £189 million (2006: £141 million) and a deferred
  tax charge of £36 million (2006: £106 million). The deferred tax charge
  decreased by £70 million principally as a result of a net reduction in
  the unwind of the deferred tax asset in relation to accelerated capital allowances.
  This resulted in an effective tax rate for the 2007 fiscal year of 31%, in line
  with the 2006 fiscal year. Profit for
  the year and earnings per shareProfit for the year
  was £499 million compared with £551 million in the 2006 fiscal year,
  mainly as a result of a decrease in operating profit of £62 million and
  an increase in finance costs of £6 million, partially offset by a decrease
  in taxation of £22 million. The Groups earnings per
  share are as follows: 2007
    
    2006pence
    
    penceEarnings
      per share from profit for the yearBasic
    
      28.4
    
      30.2Diluted
    
    28.2
    
    30.1Adjusted
      earnings per share from profit for the yearBasic
    
    26.3
    
    30.7Diluted
    
    26.1
    
    30.6 In order to provide a measure of underlying performance, management have chosen to present an adjusted profit for the year which excludes items that may distort comparability. See note 10 of
the consolidated financial statements for a detailed reconciliation between profit for the year and adjusted profit for the year. Earnings per share of 28.4 pence were 1.8 pence lower than in the 2006 fiscal year. Earnings per share decreased as a result of a lower profit for the year, partly offset by the effect of our
share buy-back programmes. During the 2007 fiscal year, a total of 38 million shares were repurchased for cancellation, and during the 2006 fiscal year 76 million shares were repurchased. Tabular
  disclosure of contractual obligationsA summary of our contractual
  obligations and commercial commitments due by period at 30 June 2008 is shown
  below: Less
      than
    
    Between
    
      Between
    
      More
        thanTotal
    
    1
      year
    
    1-3
      years
    
    3-5
      years
    
    5
      years£m
    
    £m
    
    £m
    
    £m
    
    £mObligation
      or commitmentPurchase obligations Programme
        rights(1)
    
    2,356
    
      870
    
      1,166
    
      280
    
      40 Set-top
      boxes
    
    201
    
    194
    
    7
    
    
    
     Third
        party payments(2)
    
    115
    
    50
    
    59
    
    6
    
     Transponder
        capacity(3)
    
    294
    
    67
    
    78
    
    68
    
    81 Property,
      plant andequipment(4)
    
    145
    
    122
    
    23
    
    
    
     Intangible
      asset
    
    13
    
    10
    
    3
    
    
    
     Other
    
    70
    
    43
    
    23
    
    4
    
    Borrowings(5)
    
    2,630
    
    367
    
    512
    
    
    
    1,751Interest costs
    
    1,462
    
      177
    
      239
    
      215
    
    831Operating leases(6)
    
    233
    
    45
    
    77
    
    52
    
    59Finance leases(7)
    
    67
    
    1
    
    2
    
    2
    
    627,586
    
      1,946
    
      2,189
    
      627
    
    2,824 For the avoidance of doubt, this table does not include obligations or commitments relating to employee costs.


(1)
    At 30 June 2008, the Group
      had minimum television programming rights commitments of £2,356 million
      (2007: £2,638 million), of which £367 million (2007: £527
      million) related to commitments payable in US dollars for periods of up
      to eight years (2007: six years).Assuming that movie subscriber
      numbers remain unchanged from current levels, an additional £296 million
      (US$590 million) of commitments (2007: £284 million (US$569
      million)) would also be payable in US dollars, relating to price escalator
      clauses. The pound sterling television programme rights commitments include
      similar price escalation clauses that would result in additional commitments
      of £3 million (2007: £10 million) if subscriber numbers were to
      remain at current levels.(2)
    The third party payment
      commitments are in respect of distribution agreements for the television
      channels owned and broadcast by third parties, retailed by the Group to
      retail and commercial subscribers (Sky Distributed Channels)
      and are for periods of up to six years (2007: seven years). The extent of
      the commitment is largely dependent upon the number of retail subscribers
      to the relevant Sky Distributed Channels, and in certain cases, upon inflationary
      increases. If both the retail subscriber levels to these channels and the
      rate payable for each Sky Distributed Channel were to remain at current
      levels subject to inflationary increases, the additional commitment would
      be £636 million (2007: £968 million).(3)
    Transponder capacity commitments
      are in respect of the Astra and Eurobird satellites that the Group uses
      for digital transmissions to both retail subscribers and cable operators.
      The commitments are for periods of up to twelve years (2007: thirteen years).(4)
    On 21 December 2007, the
      Group entered into a property development agreement to construct a new production
      and broadcast centre.(5)
    Further information concerning
      borrowings is given in note 22 of the consolidated financial statements.(6)
    At 30 June 2008, our operating
      lease obligations totalled £233 million (2007: £206 million),
      the majority of which related to property leases.(7)
    At 30 June 2008, our obligations
      under finance leases were £67 million (2007: £66 million). This
      primarily represents financing arrangements in connection with the customer
      management centre in Dunfermline, Scotland (which expires in September 2020)
      and the broadband network infrastructure (which expires in March 2040).
      For further details see note 22 of the consolidated financial statements. Trends and
  other informationThe significant trends
  which have a material effect on our financial performance are outlined below. The number of DTH homes increased by 398,000 in the current year to 8,980,000, compared to growth of 406,000 in the prior year. We expect growth in subscriber numbers to continue as a result
of the implementation of our current marketing strategy, with the aim of achieving our target of 10 million DTH subscribers in 2010. Sky+ and Multiroom subscribers both increased substantially in the current year  by 56% and 19% respectively
 representing a penetration of total DTH subscribers of 41% and 18% respectively. We reached our target of 25% Sky+ penetration in the third quarter of fiscal 2007, three years earlier than we targeted. On 22 May 2006, we launched our HD
service, and at 30 June 2008 there were 498,000 subscribers, representing a 6% penetration of total DTH subscribers, an increase of 206,000 in the current year. Going forward, Sky HD will be a key area of focus and alongside the launch of our new
electronic programming guide for Sky+ HD boxes, we aim to increase the strength of our high definition content and channel line up by the end of calendar 2008. In July 2008, we also reduced the price of the Sky+ HD box. DTH churn for the current
year was 10.4%, compared to 12.4% in the prior year, reflecting increased product penetration and the decision made during the prior year to reduce viewing package discounts and improve price transparency. Over the medium term we expect our DTH
churn to remain broadly in line with the current year. We launched our retail broadband service on 18 July 2006, and at 30 June 2008 there were 1,628,000 broadband subscribers. We expect continued growth in the number of retail broadband connections
activated in future years. The number of Sky Talk subscribers increased by 715,000 in the current year to 1,241,000. We expect growth in Sky Talk subscribers to continue. Price increases, the increased number of subscribers to our Multiroom, Sky+
and Sky HD products and the launch of new services are expected to generate increased retail revenue on a per subscriber basis. The operating margin for the
  current year was 15%, down from 18% in the prior year. This represents continued
  development and investment in our broadband services and sports rights. In the
  short term, we expect our operating margin to continue to be




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      Sky Broadcasting Group plc |  | 35
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      Report 2008                

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|Directors
      report  financial review
|------------------------------------------
|continued                                 
|                                          
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Financial and
  operating reviewcontinued impacted by the ongoing investment in broadband services and the non-carriage of our basic channels on cable. During the current year, the number of cable homes receiving Sky Channels in the UK and Ireland decreased by 11,000 to 1,248,000. Following the expiry of an agreement at the end of February
2007, Skys basic channels ceased to be carried on Virgin Medias platform. We currently expect cable subscriber numbers to remain stable in the foreseeable future, although this is dependent on the strategies of the relevant cable
companies, as they relate to the distribution of our channels (for further details see Directors report  review of the business  Risk factors). Advertising revenue decreased by 7% in the current year. If Skys basic channels remain off Virgin Medias platform, we expect that in the short term our share of UK television
advertising revenue will decline. The UK television advertising sector is expected to remain challenging in future periods reflecting the continued wider economic uncertainty. Sky Bet revenue decreased by 6% in the current year as we managed the migration of interactive TV revenues to online revenues. The business is anticipated to return to growth as this online
business matures along with the addition of new revenue streams from poker and bingo. As a result of the Gambling Act of 2005, regulation in the UK passed to the Gambling Commission from 1 September 2007. From this date, Sky Bet operated an on-shore
sportsbook, regulated by the Gambling Commission, and operated gaming products off-shore, regulated by the Alderney Gambling Control Commission. Sky Bet continues to operate measures to prevent US residents using our services. The Groups programming costs have increased in the current year as a result of a non-recurring £65 million receipt arising in fiscal 2007 from certain contractual rights under one
of the Groups channel distribution agreements and increased investment in sports rights. In the short term we expect that programming costs will increase due to the anticipated intensifying competition for programming, and as a result of
contracts secured during the year which include the extension of our exclusive live coverage of the USGA US Open from 2009 to 2014 and our successful bids for live coverage of the UEFA Champions League for three seasons from the 2009/10 season and
for three years of live Rugby League and Football League rights from 2009. However, over the long term the Group expects programming costs to increase at a slower rate than the increase in revenues. We do expect fluctuations in programming expense on an absolute
basis as the relative timing of licence period commencement dates for our programming portfolio may differ year on year. Transmission and related functions costs increased during the current year and are expected to continue to increase in future years at a higher rate than the growth in subscribers, resulting
in an increased cost per subscriber, reflecting the costs of operating our Sky Talk service, the launch of retail broadband services and increased depreciation charges. Marketing costs increased in the current and prior years. We expect marketing costs to increase in the short term, principally due to costs associated with the promotion of our retail
subscription services. Subscriber management costs increased during the current year. We expect that subscriber management costs will increase in future periods due to a greater proportion of Sky+ and Sky HD
customers, whose installations carry higher hardware costs than the standard installations, and increased costs associated with our retail broadband services, partly offset by a reduction in the cost of set-top boxes following the acquisition of
Amstrad. Administration costs increased
  in the current and prior years, and are expected to continue increasing in the
  foreseeable future due to the growth in our overall business and higher depreciation
  charges relating to investment in our properties, including expenditure on broadcasting
  infrastructure.


The 2009 financial year sees the start of full roll-out of Digital Switchover, supported by committed marketing spend from Digital UK and the Switchover Help Scheme. By final analogue
switch-off in 2012, all 26 million households in the UK must select a digital TV solution for their home. Sky believes it is well positioned ahead of this opportunity and during the year the Switchover Help Scheme confirmed that it will put forward
Sky as its standard offer to the estimated 80,000 eligible households in the ITV Border region, which is the first major region in the UK to start to switch to digital TV, from 6 November 2008. The Board of Directors is proposing a final dividend of 9.625 pence per share, which, combined with the interim dividend of 7.125 pence per share, will result in total dividend growth of 8%
on the prior year total dividend. The Group continues to be cash generative despite the short term ongoing investment in broadband. It is, therefore, the Boards aim to maintain a progressive dividend policy through the broadband investment
phase, resulting in continued real growth in dividend per share. We currently believe that our existing external financing, together with internally generated cash inflows, will continue to be sufficient sources of liquidity to fund our current operations,
including our contractual obligations and commercial commitments described above, our approved capital expenditure requirements and any dividends proposed. Off-balance
  sheet arrangementsAt 30 June 2008, the
  Company did not have any undisclosed off-balance sheet arrangements that require
  disclosure as defined under the applicable rules of the Securities and Exchange
  Commission. Research
  and developmentDuring the current
  year, the Group made payments totalling £16 million to a third party for
  development of encryption technology (2007: £15 million; 2006: £15
  million). The Group did not incur any other significant research and development
  expenditure in the current or prior years. Related
  party transactionsThe Group conducts
  any business transactions with companies which are part of the News Corporation
  group (News Corporation), a major shareholder, on an
  arms length basis. During the year the Group made purchases of goods and
  services from News Corporation totalling £202 million (2007: £195
  million; 2006: £175 million) and supplied services to News Corporation
  totalling £36 million (2007: £18 million; 2006: £21 million). During the year the Group made purchases of goods and services from joint ventures and associates totalling £53 million (2007: £49 million; 2006: £46 million) and supplied
services to joint ventures and associates totalling £16 million (2007: £15 million; 2005: £14 million). On 12 December 2007 the Group completed the sale of 100% of the entire issued share capital of BSkyB Nature Limited, the investment holding company for the Groups 50% interest in the
NGC-UK Partnership for consideration of 21% interests in both NGC Network International LLC and NGC Network Latin America LLC. On consolidation the Group recognised a gain of £67 million which has been disclosed separately within the
Groups income statement. For further details of transactions with related parties, see note 30 of the consolidated financial statements. Critical
  accounting policiesThe application of
  IFRS requires our judgement when we formulate our accounting policies and when
  presenting our financial performance and position in the consolidated financial
  statements. Judgement is often required in respect of items where the choice
  of specific policy to be followed can materially affect our reported results
  or net asset position, in particular through estimating the recoverable lives
  of particular assets, or in the timing of transaction recognition. A description
  of our significant accounting policies is disclosed in note 1 of the consolidated
  financial statements. We consider that our accounting policies in respect of
  the following are critical:




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|36                 |  | British Sky Broadcasting
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Goodwill–
Judgement is required in determining the fair value of identifiable assets, liabilities and contingent assets assumed in a
business combination. Calculating the fair values involves the use of significant estimates and assumptions, including expectations about future cash flows, discount rates and the lives of assets following purchase.–
Judgement is also required in evaluating whether any impairment loss has arisen against the carrying amount of goodwill. This
may require calculation of the recoverable amount of cash generating units to which the goodwill is associated. Such a calculation may involve estimates of the net present value of future forecast cash flows and selecting an appropriate
discount rate. Alternatively, it may involve a calculation of the fair value less costs to sell of the applicable cash generating unit. Revenue–
Selecting the appropriate timing for, and amount of, revenue to be recognised requires judgement. This may involve estimating
the fair value of consideration before it is received. When the Group sells a set-top box, installation or service and
a subscription in one bundled transaction, the total consideration from the arrangement is allocated to each element based on their relative fair values. The fair value of each individual element is determined using vendor specific or third party evidence on a periodic basis. The amount of
revenue the Group recognises for delivered elements is limited to the cash received.–
Judgement is also required in evaluating the likelihood of collection of customer debt after revenue has been recognised. This
evaluation requires estimates to be made, including the level of provision to be made for amounts with uncertain recovery profiles. Provisions are based on historical trends in the percentage of debts which are not recovered, or on more detailed
reviews of individually significant balances. Intangible assets and property,
    plant and equipment–
The assessment of the useful economic lives of these assets requires judgement. Depreciation and amortisation is charged to
the income statement based on the useful economic life selected. This assessment requires estimation of the period over
which the Group will benefit from the assets.–
Determining whether the carrying amount of these assets has any indication of impairment also requires judgement. If an
indication of impairment is identified, further judgement is required to assess whether the carrying amount can be supported by the net present value of future cash flows forecast to be derived from the asset. This forecast involves cash flow projections
and selecting the appropriate discount rate.–
Assessing whether assets meet the required criteria for initial capitalisation requires judgement. This requires a
determination of whether the assets will result in future benefits to the Group. In particular, internally generated intangible assets must be assessed during the development phase to identify whether the Group has the ability and intention to complete the
development successfully. Programming inventory–
The key area of accounting for programming inventory requiring judgement is the assessment of the appropriate profile over
which to recognise amortisation in the income statement. This assessment requires the Group to form an expectation of the number of times a programme will be broadcast and the value associated with each broadcast.–
For general entertainment programming, in order to perform this assessment of amortisation profile, we consider the expected
number of viewers a programme is likely to achieve on repeat broadcast, the alternative programming available to the programming scheduler, the potential marketing benefits relating to the scheduling
of certain programmes and the Groups assessment of
its competitors scheduling intentions when determining the amount of programme expense to recognise for each
broadcast. Acquired movie rights are amortised on a straightline basis over the period of the transmission rights. Where contracts for sports rights provide for multiple seasons or competitions, they are amortised on a straight-line basis across the season or competition as
our estimate of the benefits received from these rights is determined to be most appropriately aligned with a
straight-line amortisation profile.


Deferred tax–
The key area of judgement in respect of deferred tax accounting is the assessment of the expected timing and manner of
realisation or settlement of the carrying amounts of assets and liabilities held at the balance sheet date. In particular, assessment is required of whether it is probable that there will be suitable future taxable profits against which any deferred
tax assets can be utilised. Available-for-sale investments–
The key areas of judgement in respect of available-for-sale investments are the assessment of whether there is objective
evidence that a loss event has occurred after initial recognition of an available-for-sale investment, and whether such a loss event has a reliably measurable impact on the estimated future cash flows of the investment. At each balance sheet date, management
consider whether there is objective evidence that a loss event has occurred and whether it has had an impact on the
estimated future cash flows of the available-for-sale investment. If a loss event has occurred, management would then consider whether an impairment loss has occurred and the quantum of that loss. As at 30 June 2008, the
Groups available-for-sale investments included a
material investment in ITV which has been impaired in the year. The factors management considered in determining
whether an impairment loss in ITV had occurred included observable data
about the estimated future cash flows of ITV based on ITVs publicly available financial reporting and announcements, publicly available information from financial commentators about ITV and the market in which it
operates, the historical performance
of ITVs share price, and the regulatory environment affecting ITV and the
Group. The impairment losses accounted for have been determined with reference to closing market share prices at the balance sheet date. Taxation–
Tax laws that apply to the Groups
businesses may be amended by the relevant authorities, for example as a result of
changes in fiscal circumstances or priorities.Such potential amendments and their application to the Group are regularly monitored and the requirement for recognition of
any liabilities assessed where necessary.–
The Group is subject to income taxes and judgement is required in determining the appropriate provision for transactions where
the ultimate tax determination is uncertain. In such circumstances, the Group recognises liabilities for anticipated taxes due based on best information available and where the anticipated liability is probable and estimable. Where the final outcome of
such matters differs from the amounts initially recorded, any differences will impact the income tax and deferred tax
provisions in the period to which such determination is made. Where the potential liabilities are not considered probable, the amount at risk is disclosed unless an adverse outcome is considered remote.




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      Group plc |  | 37
|Annual Report 2008                      

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|Directors report  financial
    review
|----------------------------------------
|continued                               
|                                        
|                                        

PropertyOur headquarters are located at leasehold and freehold premises in Isleworth, England. We own or lease approximately 170 properties, the majority of which are located in the UK. The principal
properties of the Group we own and lease are as follows:

| |                                                                 |                 |  |                        |  |              | 
| | --------------------------------------------------------------- | --------------- |  | ---------------------- |  | ------------ | 
| |                                                                 |                 |  |                        |  | Approximate  | 
| |                                                                 |                 |  |                        |  | square foot  | 
| |                                                                 |                 |  |                        |  | net internal | 
| | Location                                                        | Tenure          |  | Use                    |  | area         | 
| |                                                                 |                 |  |                        |  |              | 
| | 1 to 8 Grant Way, Isleworth, England                            | Freehold        |  | Offices, studios,      |  | 313,085      | 
| |                                                                 |                 |  | technology and storage |  |              | 
| |                                                                 |                 |  |                        |  |              | 
| | New Horizons Court, Brentford, England                          | Leasehold       |  | Offices                |  | 159,632      | 
| |                                                                 |                 |  |                        |  |              | 
| | 1, 2, 4 and 5 Macintosh Road, Livingston, Scotland              | Freehold        |  | Contact centres        |  | 146,713      | 
| |                                                                 |                 |  |                        |  |              | 
| | Carnegie Campus, Dunfermline, Scotland                          | Freehold        |  | Contact centre         |  | 95,852       | 
| |                                                                 |                 |  |                        |  |              | 
| | Marcopolo House and Arches, Queenstown Road, London, England    | Leasehold       |  | Sub-let offices        |  | 85,509       | 
| |                                                                 |                 |  |                        |  |              | 
| | 1 Brick Lane, London England                                    | Leasehold       |  | Office & technical     |  | 77,000       | 
| |                                                                 |                 |  |                        |  |              | 
| | West Cross House, Brentford, England                            | Leasehold       |  | Offices                |  | 72,194       | 
| |                                                                 |                 |  |                        |  |              | 
| | The Chilworth Research Centre, Southampton, England             | Leasehold       |  | Satellite uplink       |  | 61,937       | 
| |                                                                 |                 |  |                        |  |              | 
| | Athena Court, Isleworth, England                                | Leasehold       |  | Offices                |  | 53,583       | 
| |                                                                 |                 |  |                        |  |              | 
| | Chancellor House, 19 Thomas More Square, London, England        | Leasehold       |  | Offices                |  | 53,293       | 
| |                                                                 |                 |  |                        |  |              | 
| | Great West House (floors 4-9, 13), Brentford, England           | Leasehold       |  | Offices                |  | 36,749       | 
| |                                                                 |                 |  |                        |  |              | 
| | 123 Buckingham Place Road, London, England                      | Leasehold       |  | Offices                |  | 36,686       | 
| |                                                                 |                 |  |                        |  |              | 
| | 26 Boulevard Royal, 2449 Luxembourg, Grande duche du Luxembourg | Leased serviced |  | Offices                |  | 2,500        | 
| |                                                                 | office space    |  |                        |  |              | 
| |                                                                 |                 |  |                        |  |              | 



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|38                 |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|Directors report  governance
|------------------------------
|                              
|                              
|                              

Board of Directors and senior managementOur Directors are as follows: Name
	Age
	
	Position
    with the CompanyChase Carey
	54
	*
	DirectorJeremy Darroch
	46
	
	Director(Chief Executive
      Officer)David F. DeVoe
	61
	*
	DirectorDavid Evans
	68
	**
	DirectorNicholas Ferguson
	59
	**
	Director
(Senior Independent Non-Executive
Director& Remuneration
Committee Chairman)Andrew Griffith
	37
	
	Director(Chief Financial
      Officer)Andrew Higginson
	51
	**
	DirectorAllan Leighton
	55
	**
	Director
(Audit Committee Chairman)James Murdoch
	35
	*
	Director
(Chairman)Jacques Nasser
	60
	**
	DirectorDaniel Rimer
	37
	**
	DirectorGail Rebuck
	56
	**
	DirectorLord Rothschild
	72
	**
	Director
(Deputy Chairman)Arthur Siskind
	69
	*
	DirectorLord Wilson of Dinton
	65
	**
	Director
(Corporate Governance and Nominations  Committee
Chairman) *
    Non-Executive**
    Independent Non-Executive A number of Board changes occurred during the year. On 6 December 2007, Rupert Murdoch resigned as Non-Executive Chairman of the Company and James Murdoch was appointed in his place with
effect from 7 December 2007. On 6 December 2007, James Murdoch relinquished his position of CEO and Jeremy Darroch, previously CFO, was appointed in his place with effect from 7 December 2007. On 7 April 2008, Andrew Griffith was appointed as a Director of the Company and
CFO. Daniel Rimer was appointed as a Non-Executive Director also on that date. Our senior management who are not members of the Board of Directors (Senior
Executives) are as follows: Name
	Age
	
	Position with the CompanyDeborah Baker
	49
	
	Director for PeopleJames Conyers
	43
	
	General CounselRobin Crossley
	49
	
	Strategic Adviser, TechnologyMike Darcey
	43
	
	Chief Operating OfficerDave Gormley
	45
	
	Group Company SecretaryJeff Hughes
	38
	
	Executive Vice PresidentDidier Lebrat
	48
	
	Chief Technology OfficerGraham McWilliam
	36
	
	Group Director of Corporate AffairsDavid Rowe
	49
	
	Managing Director, EnterpriseBrian Sullivan
	46
	
	Managing Director, Customer GroupSophie Turner Laing
	47
	
	Managing Director, EntertainmentVic Wakeling
	65
	
	Managing Director, Sky Sports and Sky NewsAlun Webber
	42
	
	Group Director of Strategic Project Delivery and
Managing Director of Amstrad plc None of the Senior Executives listed above holds directly more than 1% of the issued share capital in the Company. Further information with respect to the Directors and Senior Executives is set
forth below. Board of DirectorsChase Careywas
appointed as a Director of the Company on 13 February 2003. Mr Carey is President
and CEO of The DIRECTV
Group, Inc. (DIRECTV). Mr Carey was a Non-Executive Director of News Corporation from 2002 until December 2007 and was an Executive Director from 1996 until 2002. Mr Carey previously served as Co-Chief Operating Officer
(COO) of News Corporation and as a Director and COO of Fox Entertainment Group (FEG).
Mr Carey has also held the positions of Chairman and


CEO of Fox Television, Director of Star Group Limited (Star),
Director of NDS Group plc (NDS) and Director of Gemstar-TV
Guide International,
Inc. Jeremy Darrochwas appointed as CFO and a Director of the Company on 16 August 2004. On 7 December 2007, Mr Darroch was
appointed CEO of the Company and relinquished the role of CFO. Mr Darroch joined DSG International plc (DSG), formerly Dixons Group plc, in January 2000 as Retail Finance Director, rising to the position of Group Finance
Director in February 2002. Prior to DSG, Mr Darroch spent 12 years at Procter & Gamble in a variety of roles in the UK and Europe, latterly as European Finance Director for its Health Care businesses. Mr Darroch is a Non-Executive Director and
the Chairman of the Audit Committee of Marks & Spencer Group plc. David F. DeVoewas appointed as a Director of the Company on 15 December 1994. Mr DeVoe has been a Director of News
Corporation and its CFO since October 1990. Mr DeVoe has served as Senior Executive Vice President of News Corporation since January 1996. Mr DeVoe has been a Director of NDS since October 1996. David Evanswas appointed as a Director of the Company on 21 September 2001. Since October 2007, Mr Evans has been Chairman of
Tucker Box Entertainment Pty Limited, a television and feature film production company. Mr Evans was previously President and CEO of Crown Media Holdings, Inc. and its predecessor company, Hallmark Entertainment Networks, from 1 March 1999. Prior to
that, Mr Evans was President and CEO of Tele-Communications International, Inc. (TINTA) from January 1998. Mr Evans joined TINTA in September 1997 as its President and COO, overseeing the day-to-day operations of the company.
Prior to joining TINTA, from July 1996, Mr Evans was Executive Vice President of News Corporation, President and CEO of Sky Entertainment Services Latin America, LLC, and President and COO of The Fox Television Network. Nicholas Fergusonwas appointed as a Director of the Company on 15 June 2004 and Senior Independent Non-Executive Director on
12 June 2007. Mr Ferguson is Chairman of SVG Capital plc, a publicly-quoted private equity group, and was formerly Chairman of Schroder Ventures. He is also Chairman of the Courtauld Institute of Art and the Institute of Philanthropy. Andrew Griffithwas appointed as CFO and a Director of the Company on 7 April 2008. Mr Griffith joined Sky in October 1999 and
has held a number of finance roles, most recently Director of Group Finance, M & A and Investor Relations. Mr Griffith previously worked at the investment bank Rothschild, where he advised a range of clients in the technology, media and
telecommunications sectors. He qualified as a Chartered Accountant with Coopers & Lybrand Deloitte and holds a degree in Law from Nottingham University. Mr Griffith is a member of the 100 Group of Finance Directors. Andrew Higginsonwas appointed as a Director of the Company on 1 September 2004. Mr Higginson is Finance and Strategy Director
of Tesco plc (Tesco). Mr Higginson was appointed to the Board of Tesco in 1997, having previously been the Group Finance Director of the Burton Group plc. Mr Higginson is a member of the 100 Group of Finance Directors and
Chairman of Tesco Personal Finance. Allan Leightonwas appointed as a Director of the Company on 15 October 1999. Mr Leighton joined ASDA Stores Limited as Group
Marketing Director in March 1992 and was appointed CEO in September 1996. In November 1999 he was appointed President and CEO of Wal-Mart Europe. Mr Leighton resigned from all of these positions in September 2000. Mr Leighton is currently Chairman
of The Royal Mail Group and Deputy Chairman of Selfridges & Co, George Weston Ltd and Loblaws Ltd. Until January 2008, Mr Leighton was Chairman of Bhs Ltd. James Murdochwas appointed as a Director of the Company on 13 February 2003 and as CEO with effect from 4 November 2003. On 7
December 2007, he was appointed Non-Executive Chairman of the Company having relinquished the role of CEO. Mr Murdoch is Executive Chairman and CEO, Europe and Asia, at News Corporation and is a member of News Corporations Board of Directors
and Executive Committee. Between May 2000 and November 2003, he was Chairman and CEO of Star. Mr Murdoch serves on the Board of YankeeNets and the Board of Trustees of the Harvard Lampoon. Mr Murdoch attended Harvard University.




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Board of Directors and senior managementcontinued Jacques Nasser was appointed
  as a Director of the Company on 8 November 2002. Mr Nasser served as a Member
  of
  the Board of Directors, and
  as President and CEO of Ford Motor Company from 1998 to 2001. Mr Nasser is
  currently a Partner of One Equity Partners and serves on the Board of BHP Billiton
  and the International Advisory Board of Allianz A.G.. Until January 2008, Mr
  Nasser served on the Board of Brambles Limited and Quintiles Transnational
  Corporation. Mr Nasser has received an honorary Doctorate of Technology and
  graduated in Business from the RMIT University of Melbourne, Australia. Because
  of Mr
Nassers significant contributions to the wellbeing of humanity and to the country of Lebanon, he has received the Order of the Cedar. In recognition of Mr Nassers
work for Australian industry, as an adviser to government, and for education
in the area of technology, he has been awarded an Order of Australia and a Centenary
Medal. Gail Rebuck was appointed
    as a Director of the Company on 8 November 2002. Ms Rebuck is Chairman and
    CEO of The Random House
Group Limited (Random House), one of the UKs leading trade publishing companies. In 1982, Ms Rebuck became a founder Director of Century Publishing (Century). Century merged with Hutchinson in
1985 and in 1989 Century Hutchinson was acquired by Random House Inc.. In 1991, Ms Rebuck was appointed Chairman and CEO of Random House. Ms Rebuck was a Trustee of the Institute for Public Policy Research from 1993 to 2003, a Trustee of the Work
Foundation from 2001 to 2008, and was for three years a member of the Governments Creative Industries Task Force. Ms Rebuck is a member of the Court of the University of Sussex, a Trustee of the National Literacy Trust, and sits on the Council
of the Royal College of Art. Ms Rebuck was awarded a CBE in the 2000 New Years
Honours List. Daniel Rimer was appointed
    as a Director of the Company on 7 April 2008. Mr Rimer is a General Partner
    of the venture capital firm Index Ventures
  Management Limited (Index Ventures) and established the firms London office. He currently serves on a number of boards including Joost N.V., Oanda Corporation, Spot Runner Inc., FON Wireless Limited,
Stardoll Inc. and Viagogo Limited. Prior to joining Index Ventures, Mr Rimer was a General Partner of The Barksdale Group and, previously, Managing Director of Hambrecht & Quists
(now JP Morgan) Equity Research Group. Lord Rothschild was appointed
    as a Director, Deputy Chairman and Senior Independent Non-Executive Director
    of the Company on 17 November 2003.
  Lord Rothschild relinquished the position of Senior Independent Non-Executive
  Director on 12 June 2007. Lord Rothschild is Chairman of RIT Capital Partners
  plc and Five Arrows Limited. He co-founded Global Asset Management and J
Rothschild Assurance, the life assurance company now part of the St Jamess
Place Group. In addition to his career in the world of finance, he has been involved
in philanthropy and public service. Arthur Siskind was appointed as a Director of the Company on 19
  November 1991. Mr Siskind has been the Senior Advisor to the Chairman of News
  Corporation since January 2005. Mr Siskind has been an Executive Director of
  News Corporation since 1991 and was Group General Counsel of News Corporation
  from March 1991 until December 2004. Mr Siskind was Senior Executive Vice
President of News Corporation from January 1996 until December 2004 and an Executive
  Vice President of News Corporation from February 1991 until January 1996. Mr
  Siskind has been a Director of NDS since 1996 and was a Director of NAI from
  1991 until January 2005 and a Director of Star from 1993 until January 2005.
  Mr Siskind was Senior Executive Vice President and General Counsel of FEG from
  August 1998 until January 2005 and a Director from August 1998 to March 2005.
  Mr Siskind was an Adjunct
Professor of Law at the Georgetown Law Center from 2005 to 2007. Mr Siskind has
  been an Adjunct Professor of Law at the Cornell Law School since 2007. Mr Siskind
has been a member of the Bar of the State of New York since 1962. Lord Wilson of Dinton was appointed as a Director of the Company
  on 13 February 2003. Lord Wilson retired from the Civil Service in 2002 after
  serving 36 years in a number of UK Government departments including the Department
  of the Environment (appointed Permanent Secretary in 1992), the Home Office
  (appointed Permanent Under Secretary in 1994), and Secretary of the
Cabinet and Head of the Home Civil Service in January 1998. Since his retirement
  in September 2002, Lord Wilson has been Master of Emmanuel College, Cambridge.
In October 2006, he became Non-


Executive Chairman of C. Hoare and Co, Bankers. From April 2003 until October
      2007, Lord Wilson was a Non-Executive Director of Xansa plc. Lord Wilson
      was made a peer in November
2002. Alternate DirectorsA Director may appoint any other Director or any other person to act as his
      Alternate. An Alternate Director shall be entitled to receive notice of
      and attend meetings of the Directors and Committees of Directors of which
      his appointer is a member and not able to attend. The Alternate Director
      shall be entitled to vote at such meetings and generally perform all the
functions of his appointer as a Director in his absence. On the resignation of the appointer for any reason the Alternate Director shall
      cease to be an Alternate Director. The appointer may also remove his Alternate
      Director by notice to the Company Secretary signed by the appointer making
      or revoking the appointment. An Alternate Director shall not be entitled
to fees for his service as an Alternate Director. James Murdoch, David DeVoe and Arthur Siskind have appointed each of the others
      to act as their Alternate Director. David Evans has appointed Allan Leighton
      as his Alternate
Director. Directors interestsThe
    Directors interests in the ordinary shares and options of the Company are disclosed within the report on Directors remuneration
on pages 46 to 53. Directors powersDetails of the
    powers of the Companys Directors are disclosed in Memorandum
    and Articles of Association  Directors on pages 106 to 107. Senior executives Our Senior Executives are as follows: Deborah
      Bakerjoined us in
      December 2007 as our Director for People. She leads our Human Resources
      team including organisation and people development,
    talent resourcing and management, and Human Resources services such as health
and safety, reward & recognition and wellbeing and delivery.
James Conyers joined us in April 1993 as Assistant Solicitor.
  During 1998 he was appointed as our Deputy Head of Legal and Business Affairs.
  In January 2004, he was appointed as our Head of Legal and Business Affairs,
and in September 2005, he was appointed as our General Counsel.
Robin Crossley joined us in 1988 and was appointed National Operations
  Manager in 1989. He left in 1991 but subsequently rejoined us in June 1995
  as Director of Digital Development. In January 2001, Mr Crossley was appointed
Strategic Adviser, Technology.
Mike Darcey joined us in February 1998 as our Head of Strategic
  Planning and in July 2002 he was appointed as our Group Director of Strategy.
  In February 2006, he was appointed Group Commercial and Strategy Director with
  extended responsibility for a new group that combined our Strategy, Future
  Technology, Research and Development and Business Development teams. Mr
Darcey was appointed Chief Operating Officer in December 2006.
Dave Gormley joined us in March 1995 as Assistant Company Secretary
  and was appointed as Group Company Secretary in November
1997.
Jeff Hughes joined us in May 2005 as our Group Director for IT
  and Strategy. In November 2007, he was appointed Executive Vice-President.
  His role includes overall responsibility for our proposed pay TV offering on
DTT.
Didier Lebrat joined us in December 2006 as Chief Technology Officer.
  This role includes overall responsibility for the Information Technology, Network
  Infrastructure and Broadcast Technology, and Customer and Interactive Technology
teams.
Graham McWilliam joined us in April 2000 as Strategic Planning
  Manager. In 2003, he was appointed Deputy Head of Strategy and in 2006, Director
of Corporate




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Communications and Policy. In March 2008, Mr McWilliam was appointed as our Group Director of Corporate Affairs. This role includes responsibility for our Corporate Communications, Policy and
  Public Affairs, Internal Communications, and Reputation and Responsibility functions. David Rowe joined us in July 2007 as Managing Director, Enterprise Business
and is responsible for our business-to-business services across both television
and telecoms. Mr Rowe was CEO of Easynet Group plc until it became part of Sky
in January 2007. In November 2007, Mr Rowes role was expanded to include
overall responsibility for Sky Bet. Brian Sullivan joined us in February 1996 as Subscriber Marketing Manager
and has held a variety of roles within sales and marketing over the last 10 years.
In November 2007, Mr Sullivan was appointed as Managing Director, Customer Group
with responsibility for marketing strategy, product development and management,
sales, retention, service and field operations, as
well as overall customer growth. Sophie Turner Laing joined us in March 2003 as Director of Film Channels &Acquisitions.
In 2004 she was appointed Deputy Managing Director, Sky Channels and Services.
In March 2008 she was appointed Managing Director, Entertainment with overall
responsibility for
the multi-platform content strategy for Skys wholly-owned entertainment
channels. Vic Wakeling joined us in 1991 as Head of Football, taking over as Head
of Sport in January 1994. In August 1998, he was appointed Managing Director,
Sky Sports and in December 2007 his role was expanded to include overall responsibility
for Sky News. Alun Webber joined us in 1995 and was part of the core team which launched
Sky Digital, and established the Sky Interactive venture. In April 2002, he was
appointed Group Director of Engineering and Platform Technology. In July 2006,
Mr Webber was appointed Group Director of Strategic Project Delivery. Mr Webber
was appointed Managing Director of Amstrad Plc in January
2008. There is no arrangement or understanding between any of the above listed persons
and any other person pursuant to which he or she was elected as a Director or
Senior Executive. EmployeesThe average monthly
number of full-time equivalent persons (including temporary employees) employed
by us during the previous three fiscal years was as follows: 2008
	
	2007
	
	2006number
	
	number
	
	numberChannels and services
	2,624
	
	2,472
	
	2,403Customer service, sales andmarketing
	7,918
	
	7,591
	
	6,486Transmission and technology
	1,943
	
	1,560
	
	1,267Management and administration
	1,660
	
	1,464
	
	1,06014,145
	
	13,087
	
	11,216 Employment policiesDetails of the Groups
    employees, together with statements of policy on equality of opportunity,
    disabled persons, employee involvement and communication, training and development,
    health and safety and financial participation are provided in the people section
    of the review of the business on pages 18 to 19. Corporate governance reportThe
Company is committed to maintaining high standards of corporate governance in
its management of the Group and when accounting to shareholders. The management
of the Company values an effective long-term outlook and sees itself as responsible
to the wider range of stakeholders, whilst being accountable for the pursuit
of its objectives primarily for the benefit of the Companys owners. This section of the Annual Report has been prepared in accordance with the Code
of Best Practice set out in Section 1 of the Combined Code of corporate governance
of 2006
(Combined Code). Throughout the year ended 30 June 2008,
the Company has


been in full compliance with the provisions of Section 1 of the Combined Code
except for the requirements that a CEO should not go on to be the chairman of
the same company and that, on appointment, the chairman should meet the independence
requirements set out in provision A.3.1. of the Combined Code. The Combined Code
states that if exceptionally a board decides that a CEO should become chairman,
the board should consult major shareholders in advance and explain its reasons
to shareholders. On 6 December 2007, James Murdoch relinquished the position
of CEO and was appointed Chairman of the Company, with effect from 7 December
2007, in place of Rupert Murdoch following consultation with major shareholders
in accordance with the requirements of the Combined Code. The Board is aware
of the Combined Codes requirements with respect to independence and considers
that it is strongly represented by Independent Directors. Furthermore, the Board
was unanimous in its decision that the appointment is in the best interests of
the Company and its shareholders given Mr Murdochs deep knowledge and understanding
of the strategic issues facing the Company and the industries in which it operates,
his commitment to the Company, and the continuity it provides. Mr Murdoch is
also Executive Chairman and Chief Executive of News Corporation in Europe and
Asia. The Company, as a foreign issuer with American Depositary Shares listed on the
New York Stock Exchange (NYSE), is obliged to disclose
any significant ways in which its corporate governance practices differ from
the NYSEs corporate governance listing standards. Furthermore, the Company
must comply fully with the provisions of the NYSE listing standards which relate
to the composition, responsibilities and operation of audit committees. These
provisions also incorporate certain rules concerning audit committees implemented
by the SEC and the NYSE under the US Sarbanes-Oxley Act of 2002. The Company has reviewed the NYSEs listing standards and believes that
its corporate governance practices are consistent with the standards, with the
following exception. The standards state that companies must have a nominating/corporate
governance committee composed entirely of independent directors. The Companys
Corporate Governance and Nominations Committee is made up of a majority of Independent
Non-Executive
Directors. Corporate policiesThe policies of the
Group aim to enhance and maintain risk management, and through this, safeguard
the efficiency and effectiveness of the Group. Other policies are committed to
improving equality in the workplace, share dealing, work practices (on and off-site),
and social arrangements. Copies are readily available to all staff on the intranet. Since 2003, the Company has adopted a Code of Ethics which applies to the Companys
CEO and CFO, who also serves as the principal accounting officer. The full text
of the Code of Ethics is incorporated by reference to the Annual
Report on Form 20-F of the Company for the fiscal year ended 30 June 2003 filed
with the SEC on 5 December 2003. The Group continues to contribute more broadly to society and to ensuring it
is addressing social and environmental risks associated with its operations.
Policies on Social, Environmental and Ethical Performance can be found in the
corporate responsibility section of the review of the business on page 18. The BoardThe
Board currently comprises fifteen Directors, made up of two Executive Directors
and thirteen Non-Executive Directors. A majority of nine Non-Executive Directors
are determined to be independent in compliance with the Combined Code. They bring
a wide range of experience and expertise to the Groups affairs, and carry significant weight in the Boards decisions. The Independent Non-Executive Directors provide a strong
independent element and a foundation for good corporate governance. Short biographies of each of the Directors are set out on pages 39 to 40. The table on page 39 identifies those Directors who are, in the view of the Board, independent within the
meaning of the Combined Code. Prior to appointment, and on an annual basis, each board member receives and completes a questionnaire to determine factors that may affect independence according to the Combined Code, NYSE Corporate Governance Rules
and Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act).
The responses to the questionnaire assist the Board in ascertaining whether a
director is independent in character and judgement,
and




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        Sky Broadcasting Group plc |  | 41
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|Directors report  governance
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Corporate governance reportcontinued whether there are relationships or circumstances which are likely to affect, or could appear to affect, the directors judgement. The Company recognises that all Directors are equally and collectively accountable
  under the law for the proper stewardship of the Companys affairs. The
  Company maintains a
directors and officers liability insurance policy which meets defence
costs when the Director is not proved to have acted fraudulently. Executive Directors are not allowed to take on the chairmanship of a FTSE 100
  company, but are allowed to take up one external non-executive FTSE 100 appointment
  and retain any payments in
respect of this appointment. The roles of the Chairman and CEO, are separate and the roles have been since
  the Companys shares were
admitted to listing in 1994. The full schedule of matters reserved for decision making by the Board, can
  be found on the Companys
corporate website at www.sky.com/corporate. The ChairmanThe Chairman is responsible
for leadership of the Board, ensuring its effectiveness on all aspects of its
role and setting its agenda. This includes ensuring, via the Company Secretary,
that the Directors receive accurate, timely and clear information. The duties
of the Chairman include the following: •
    to encourage and ensure
        effective communication with shareholders, and ensure shareholder views
      are communicated to the Board as a whole;•
    to facilitate a structure
        to allow the effective contribution of all Directors, and of non-executive
      Directors in particular;•
    to create an environment
        which engenders constructive relations between executive and non-executive
      Directors;•
    to organise the business
      of the Board so that it can be carried out effectively and efficiently;•
    to lead the Board in
        discussions regarding the Companys strategy and in the achievement
      of its objectives;•
    to ensure Board Committees
      are properly established, composed and operated; and•
    to enhance the Companys
      public standing and image overall. The Chief
      Executive OfficerThe CEO is responsible
for the daily operation of the Company, advancing long-term shareholder value,
supported by the management team. He is accountable and responsible to the Board
for the management and operation of the Company. He is also involved in the management
of the social and environmental responsibilities of the Company. The duties of
the CEO include the following: •
    to be responsible and
      accountable to the Board for the management and operation of the Group;•
    to prepare and implement
        plans and programmes for the attainment of approved objectives and to
      recommend such plans and programmes to the Board as appropriate;•
    to provide leadership
      in the Groups commitment to attaining high business standards generally;•
    to create the conditions
      within the Group for the efficient operation of all business units;•
    to establish and maintain
        relationships with shareholders and potential shareholders, and major
      external bodies;•
    to keep the Board informed
      on all matters of material importance; and•
    to chair meetings of
      the Executive Committee.


Non-Executive DirectorsThe dates on which
the Non-Executive Directors initial service agreements/letters of appointment
commenced
and current expiry dates are as follows: Commencement date
	
	Expiry
      date of current service agreement
      or letter of appointmentChase Carey(v)
	13 February	2003
	
	30 October	2009
	*David DeVoe(iv)
	15 December	1994
	
	26	September	2008David Evans(ii)
	21 September	2001
	
	26	September	2008Nicholas Ferguson(v)
	15 June	2004
	
	30 October	2009
	*Andrew Higginson
	1 September	2004
	
	November	2010
	*Allan Leighton(ii)
	15 October	1999
	
	26	September	2008Jacques Nasser(v)
	8 November	2002
	
	30 October	2009
	*James Murdoch(ii)
	7 December	2007
	
	26	September	2008Gail Rebuck
	8 November	2002
	
	November	2010
	*Daniel Rimer(i)
	7 April	2008
	
	26	September	2008Lord Rothschild(iii)
	17 November	2003
	
	26	September	2008Arthur Siskind(iv)
	19 November	1991
	
	26	September	2008Lord Wilson of Dinton(ii)
	13 February	2003
	
	26	September	2008 *
	These letters of appointment will expire on the day of the Companys
      AGM in either 2009 or 2010. The date of the AGM in 2010 has yet to be agreed. All Directors are subject to retirement by rotation and reappointment by shareholders
  in accordance with the Companys current Articles of Association (see Shareholder
  information). Notes:(i)
	Daniel Rimer retires and offers himself for reappointment by shareholders
    in	  accordance with the Companys Articles of Association at the Companys
      next AGM	  to be held on 26 September 2008.(ii)
      Non-Executive Directors
        retiring by rotation and offering themselves for reappointment by shareholders
        at the Companys next AGM to be held on 26 September 2008.(iii)
      Lord Rothschild will
        retire by rotation at the Companys next AGM, to be held on 26 September
        2008, but will not be seeking reappointment by the shareholders.(iv)
  David DeVoe and Arthur
      Siskind are subject to annual reappointment by shareholders in accordance
      with requirement A.7.2. of the Combined Code as they have served as Non-Executive
      Directors for longer than nine years. Allan Leighton will have served as
      a Non-Executive Director for nine year years in October 2008 and will therefore
      be subject to annual re-appointment with effect from the Companys
      AGM in October 2009.(v)
      Chase Carey, Nicholas
        Ferguson and Jacques Nasser will be subject to retirement by rotation
        and reappointment by shareholders at the Companys AGM in October
        2009. In accordance with the Companys current Articles of Association,
        one-third of the Directors must retire by rotation. Following the retirement
        by rotation of Lord Rothschild at the Company's next AGM, to be held on
        26 September 2008, the Board will comprise of fourteen Directors. Assuming
        that the Board continues to comprise of fourteen Directors, four Directors
        will be required to retire by rotation at the Companys AGM in 2009
        (in addition to those then subject to annual reappointment). Accordingly,
        the remaining Director to retire by rotation in 2009 will be selected
        by drawing lots from those Directors who would otherwise be due to retire
        by rotation at the AGM of the Company to be held in 2010. Non-Executive Directors service
agreements do not contain a notice period. The Company SecretaryThe Company Secretary
is available to advise all Directors and is responsible for ensuring the Board
is supplied with all necessary information in a reliable, timely manner. The
Company Secretary ensures good communication between the Board, Board committees
and senior management.
He facilitates Directors induction and training.




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Board PracticesThe Board is scheduled to meet at least six times a year to review appropriate strategic, operational and financial matters as required. During the financial year, one of these meetings was
  held over two days when the Board met to review the future strategy and direction of the Group. Attendance of the current Directors at Board and Committee meetings during the
year is set out in the table below: CorporateGovernance andBoard
	
	Audit
	
	Remuneration
	
	NominationsNumber
      of meetings held in year
	8
	
	6
	
	3
	
	3DirectorJames Murdoch, Chairman
	8
	
	
	
	
	
	Jeremy Darroch, CEO
	8
	
	
	
	
	
	Andrew Griffith, CFO
	2
	
	
	
	
	
	Chase Carey
	6
	
	
	
	
	
	David DeVoe
	7
	
	
	
	
	
	David Evans(i)
	7
	
	
	
	3
	
	Nick Ferguson(i)(ii)
	7
	
	
	
	3
	
	1Andy Higginson(iii)
	6
	
	5
	
	
	
	Allan Leighton(iii)
	8
	
	6
	
	
	
	Jacques Nasser(i)
	6
	
	
	
	2
	
	Gail Rebuck(iii)
	7
	
	6
	
	
	
	Danny Rimer
	2
	
	
	
	
	
	Lord Rothschild(ii)
	8
	
	
	
	
	
	3Arthur Siskind(ii)
	8
	
	
	
	
	
	2Lord Wilson of Dinton(ii)
	8
	
	
	
	
	
	3Rupert
      Murdoch, Ex-Chairman
	3
	
	
	
	
	
	  (i)
	Remuneration Committee member(ii)
	Corporate Governance and Nominations Committee member(iii)
	Audit Committee member In accordance with good practice, the independent Non-Executive Directors of the Board held separate meetings during the year. Board roleA
schedule of matters reserved for the full Boards determination and/or approval
is in place, which
includes: •
    approval of the annual
        budget and any changes to it;•
    a major change in the
        nature, scope or scale of the business of the Group;•
    approval of the interim
        and final results;•
    approval of any dividend
        policy;•
    changes relating
          to the Groups capital structure, including reductions of capital
          and share
        buy-backs;•
    the entering into by
        the Group of a commitment or arrangement (or any series of related
        commitments or arrangements) which, whether budgeted or unbudgeted, involves
        or could reasonably involve, the payment or receipt by the Group of amounts equal to or in excess of £100 million
        in aggregate value;•
    the entering into by
        the Group of a commitment or arrangement (or any series of related
        commitments or arrangements) with News Corporation, any of its subsidiaries,
        or a related party which involves, or could reasonably involve, the payment
        or receipt by the Group of amounts equal to or in excess of £25
        million in aggregate
        value;•
    approval of resolutions
        to be put forward to shareholders at a general meeting;•
    communication involving
        the general state of the Company;•
    changes to the structure,
        size and composition of the Board, following, if applicable, recommendations
        from any committee to which the Board delegates consideration of such
        issues;•
    appointment and removal
        of the Chairman of the Board and the CEO; and•
    determining the independence
        of Non-Executive Directors.


The Board has also delegated specific responsibilities to Board Committees, notably the Audit, Remuneration and Corporate Governance and Nominations Committees, as set out below. Directors
receive Board and Committee papers several days in advance of Board and Committee meetings. In addition, the Board members have access to external professional advice at the Companys expense. Non-Executive Directors serve for an initial term
of three years, subject to reappointment by shareholders following appointment, subsequent reappointment by shareholders, and Companies Act provisions relating to the removal of Directors. In addition, reappointment for a further term is not
automatic, but may be mutually agreed. All of the Directors are required to retire and offer themselves for reappointment at least once in every three years. Non-Executive Directors who have served for more than nine years on the Board are now
subject to annual reappointment in accordance with the Combined Code. A committee of senior management generally meets on a weekly basis to allow prompt
discussion of relevant business issues. It is chaired by the CEO and comprises
the CFO and other Senior
Executives from within the Group. Following appointment to the Board, all new Directors receive an induction tailored
to their individual requirements. The induction process involves a meeting with
all of the Companys Executive Directors and Senior Executives. This facilitates
their understanding of the Group and the key drivers of the business performance.
The Directors are also provided with copies of the Companys corporate governance
practices and
procedures. Directors regularly receive additional information from the Company between Board
meetings, including a monthly report updating the Directors on the performance
of the Group. Where appropriate, additional training and updates on particular issues are arranged.
For example, during the year the Board received a briefing on Directors Duties
which were codified for the first time by the Companies Act 2006, which is being
introduced on a phased basis. During the year, the Directors carried out a full evaluation of the performance
of the Board, its committees and individual Directors. The evaluation consists
of each Director meeting individually with the Chairman of the Corporate Governance
and Nominations Committee. The evaluation confirmed that the Board was satisfied
with the Boards overall performance. The Non-Executive Directors also meet
separately without the Chairman and Executive Directors present to evaluate the
performance of the Chairman. Following this years review, the Corporate Governance and Nominations Committee
and Board have confirmed that all Directors standing for reappointment at the
forthcoming AGM continue to perform effectively and demonstrate commitment to
their roles. Andrew Griffith and Daniel Rimer retire and offer themselves for reappointment
at the 2008 AGM in accordance with the Companys Articles of Association.
David Evans, Allan Leighton, James Murdoch and Lord Wilson of Dinton retire from
the Board by rotation, and being eligible, offer themselves for reappointment
at this AGM. Lord Rothschild will also retire from the Board by rotation at this
years AGM but will not be seeking reappointment by the shareholders. David
DeVoe and Arthur Siskind are subject to annual reappointment in accordance with
requirement A.7.2 of the Combined Code, as they have served as Non-Executive
Directors for longer than nine
years. Board CommitteesTerms
of reference for the governance of the Board Committees can be found on the Companys
corporate website. Remuneration CommitteeThe members of the Remuneration Committee are Nicholas Ferguson (Chairman), David Evans and Jacques Nasser, all of whom are Independent Non-Executive Directors, in compliance with the
Combined Code. The Remuneration Committee has clearly defined terms of reference, meets at least
twice a year, and takes advice from the CEO and independent consultants as appropriate
in carrying out its
work. Following publication of the annual report,




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Corporate governance reportcontinued meetings and round-table discussions are arranged between the Remuneration Committee and institutional shareholders to discuss remuneration policy and aspects of the Committees Report
on Directors remuneration. The Remuneration Committee Chairman reports regularly to the Board on its activities. James Murdoch and David DeVoe have a standing invitation to attend meetings of
the Remuneration Committee. Their attendance at these meetings is as observers
only and in a non-voting
capacity. The report on Directors remuneration can be found on pages 46 to 53. In
accordance with the Directors Remuneration Report Regulations 2002, the
Report on Directors remuneration will be put forward for an advisory shareholder
vote at the AGM. Corporate
Governance and Nominations CommitteeThe Corporate Governance and Nominations Committee is chaired by Lord Wilson of Dinton and its other members are Nicholas Ferguson, Lord Rothschild and Arthur Siskind. Nicholas Ferguson was
appointed as a member of the Corporate Governance and Nominations Committee on 5 February 2008. The Corporate Governance and Nominations Committee met three times during the year and the Chairman reports regularly to the Board on its activities. Its
main duties include: •
    the identification and
        nomination, for approval by the Board, of candidates to fill Board vacancies
    as they arise;•
    the
        drafting of requirements for a particular appointment to the Board, taking
        into consideration the present balance of skills, knowledge and experience
    on the Board;•
    the regular review of
        the structure, size and composition of the Board and to recommend any
    changes to the Board or succession planning;•
    the provision of a formal
        letter of appointment, setting out clearly what is expected of new appointees
        to the Board, in terms of time commitment, term of office and committee
        service as well as their duties and liabilities as a Director, including
        details of the Companys corporate governance policies and directors & officers liability
    insurance cover; and•
    the monitoring of the
        Companys compliance with applicable Corporate Governance Codes
    and other similar requirements. On 7 December 2007 the Company announced that the then Chairman Rupert Murdoch
would be stepping down from the Board and that he would be replaced by James
Murdoch as Non-Executive Chairman and furthermore that Jeremy Darroch had been
appointed as CEO. These changes were overseen by the Corporate Governance and Nominations Committee
and were unanimously approved by the Board of Directors. The Corporate Governance and Nominations Committee was clear that the appointment
of the Chairman had to be in the best interest of the Company and its shareholders.
The Board was unanimous in its decision that the appointment of James Murdoch
as Chairman met that key test given his deep knowledge and understanding of the
strategic issues facing the Company and the industries in which it operates.
As a result of these factors, the Committee did not use an external search consultancy
nor open advertising to assist with the appointment. In looking to recruit a CEO to replace James Murdoch, the Corporate Governance
and Nominations Committee was assisted by JCA Group Limited (JCA),
Executive Search Consultants. The Committee drew up a list of potential candidates
from both inside and outside the Company which provided the basis for the final
list of candidates prepared by JCA. It was the unanimous decision by the Board, following a recommendation by the
Corporate Governance and Nominations Committee, that Jeremy Darroch be appointed
as the CEO of the
Company. Following the appointment of Jeremy Darroch as CEO, the Company then embarked
on a selection process for a new CFO. The Corporate Governance and Nominations
Committee was again assisted in this search by JCA Group Limited who drew up
a list


of potential candidates drawn from inside and outside the Company. These candidates
were then reduced down to a shortlist of two, both of whom met with the CEO,
the Chairman of the Corporate Governance and Nominations Committee and the Chairman
of the Audit Committee. The Board were unanimous in their decision to appoint Andrew Griffith as CFO. During the board evaluation held in the previous year, the Board had identified
a need for the appointment of a Non-Executive Director with a deep knowledge
and understanding of the rapidly developing internet sector. Daniel Rimer had
come to the Boards attention as somebody with the relevant expertise and,
after meeting with the Chairman of the Corporate Governance and Nominations Committee,
was recommended as a Non-Executive
Director of the Company. The Corporate Governance and Nominations Committee led the evaluation of the
Board that was completed during the year as discussed earlier in this report. The Committee also reviewed the independence of the Non-Executive Directors and
recommended to the Board that there be no changes to the independent status of
the current Non-Executive Directors. The table on page 39 clearly sets out those
Non-Executive Directors who are considered by the Board to be independent. The
Boards criteria for determining whether a Non-Executive Director is independent
are set out in the Memorandum on Corporate Governance which can be found on the
Companys corporate website. The Committees review took into consideration
the fact that Allan Leighton will have served on the Board for nine years in
October 2008. Provision A.3.1. of the Combined Code suggests that serving more
than nine years could be relevant to the determination of a Non-Executive Directors
independence. The Committee concluded that Mr Leighton continued to demonstrate
the essential characteristics of independence expected by the Board and that
there are no relationships or circumstances that are likely to affect, or could
appear to affect, his judgement. In accordance with requirement A.7.2. of the
Combined Code, Mr Leighton will be subject to annual reappointment by shareholders
with effect from the Companys AGM in 2009. Audit CommitteeThe Audit Committee, which consists exclusively of Independent Non-Executive Directors, has clearly defined terms of reference as laid down by the Board. The composition of the Audit
Committee is currently Allan Leighton (Chairman), Gail Rebuck and Andrew Higginson. The CFO and representatives from the external auditor and the internal audit department attend meetings at the request of the Audit Committee. It is also usual
practice for the CEO to attend meetings of the Audit Committee. Other finance and business executives attend meetings from time to time. The Audit Committee Chairman reports regularly to the Board on its activities. David DeVoe and Arthur Siskind have a standing invitation to attend meetings
of the Audit Committee. Their attendance at these meetings is as observers only
and in a non-voting capacity. All three members of the Audit Committee are independent
for the purposes of the Combined Code and Rule 10A-3(b)(1) under the Exchange
Act. The members have wide ranging experience to bring to the work of the Audit
Committee. The Audit Committee met six
times during the year. Its duties include: •
    making
        recommendations to the Board in relation to the appointment, reappointment
        and removal of the external auditors and discussing with the external
    auditors the nature, scope and fees for the external auditors work;•
    reviewing and making recommendations
        to the Board regarding the approval, or any amendment to, the quarterly,
    half year and annual financial statements of the Group;•
    reviewing and approving
    the Groups US Annual Report on Form 20-F prior to its filing;•
    reviewing the Groups
    significant accounting policies;•
    reviewing the Groups
    systems of internal control;•
    reviewing the Groups
    treasury policies;•
    recommending the appointment
    of the Groups Director of Internal Audit;•
    reviewing the audit plan
    and findings of the Groups internal audit function;•
    monitoring and reviewing
    the effectiveness of the Groups internal audit function;•
    monitoring the Groups
    whistle-blowing policy;•
    News UK Nominees Limited,
        a subsidiary of News Corporation, is a major shareholder in the Group.
    The Audit Committee receives, on a quarterly basis, a




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schedule of all transactions
        between companies within the News Corporation Group and the Group, and
        any other related party transactions, showing all transactions which
        have been entered into during the year and which cumulatively exceed £100,000
    in value;•
    Furthermore, Audit Committee
        approval is required for the entering into by the Group of a commitment
        or arrangement (or any series of related commitments or arrangements)
        with News Corporation or any of its subsidiaries, or any other related
        party which involves or could reasonably involve the payment or receipt
        by the Group of amounts equal to or in excess of £10 million, but
        not exceeding £25 million in aggregate value with News Corporation.
        Any transaction in excess of £25 million in aggregate value must
        be submitted to the Audit Committee and, if approved by the Audit Committee,
    must also be submitted to the full Board for approval. The Audit Committee does not include an Audit Committee Financial
Expert as such term is defined by the SEC rules. The Audit Committee
members have considerable financial and business experience and the Board considers
that the membership as a whole has sufficient recent and relevant financial experience
to discharge its functions. In addition, the Board has determined that each member
of the Audit Committee has sufficient accounting or related financial management
expertise as required by the NYSE listing rules. Accordingly, it is the opinion
of the Board not to formally designate a member as the Audit Committee financial
expert. Internal controlThe
Directors have overall responsibility for establishing and maintaining the Groups
systems of internal control and risk management and for reviewing their effectiveness.
These systems are designed to manage, and where possible eliminate, the risk
of failure to achieve business objectives and to provide reasonable, but not
absolute, assurance against material misstatement or loss. An ongoing process
for identifying,
evaluating and managing the significant risks faced by the Group has been established,
in accordance with the guidance of the Turnbull Committee on internal control
issued in September 1999 and updated by the Financial Reporting Council in October
2005. This process has been in place for the year ended 30 June 2008 and up to
the date on which the financial statements were approved. The Audit Committee, on behalf of the Board, considers the effectiveness of the
operation of the Groups systems of internal control and risk management
during the year and this review has been carried out for the year ended 30 June
2008 and up to the date on which the financial statements were approved. This
review relates to the Company and its subsidiaries and does not extend to joint
ventures. The Audit Committee meets on at
least a quarterly basis with the Groups internal audit team and the external
auditors. There is a comprehensive budgeting and forecasting process, and the annual budget,
which is regularly reviewed and updated, is approved by the Board. Risk assessment
and evaluation take place as an integral part of this process. Performance is
monitored against budget through weekly and monthly reporting cycles. Monthly
reports on performance are provided to the Board and the Group reports to shareholders
each quarter. Each area of the Group carries out risk assessments of its operations
and ensures that the key risks are addressed. A Risk Management Committee, chaired
by the CFO and comprising Senior Executives, reviews the management of risks
in all areas of the Group. The
results of the Risk Management Committees review are integrated into the
budgeting and forecasting process and are integrated into the internal audit
planning. The internal audit team provides objective assurance as to the effectiveness
of the Groups systems of internal control and risk management to the Groups
operating management and
to the Audit Committee. Managements
report on internal control over financial reportingThe management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting, no matter how well designed, has inherent
limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and
presentation.


Further, because of changes in conditions, the effectiveness of internal control
over financial reporting may vary over time. Management, including the CEO and CFO, has conducted an evaluation to assess
the effectiveness of the Groups internal control over financial reporting
as of 30 June 2008 based upon criteria set forth in the Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on their assessment, management concluded that, as at 30 June
2008, the Groups internal
control over financial reporting was effective. The audit reports set out on page 56 are issued in accordance with auditing standards
of the Public Company Accounting Oversight Board (US). These reports express
unqualified opinions on the consolidated financial statements of the Group as
of and for the year ended 30 June 2008 as well as on the effectiveness of the
Groups internal control over financial reporting as at 30 June 2008. Disclosure controls and proceduresThe
Company maintains disclosure controls, procedures and systems that are designed
to ensure that information required to be disclosed in the reports filed under
the Securities Exchange Act is recorded, processed, summarised and reported within
the time periods specified in the SECs rules and forms, and the Companys UK listing obligations and that such information is accumulated and communicated to management, including the
CEO and CFO, as appropriate to allow such timely decisions regarding required disclosures. The Company has established a disclosure committee. The committee is chaired by the Company Secretary and its members consist of senior managers from group
finance, legal and investor relations. It has responsibility for considering the materiality of information (including inside information) and on a timely basis, determination of the disclosure and treatment of such information. The committee also
has responsibility for overseeing the process for the formal review of the contents of the Companys
Annual Report and filing on Form 20-F. The Company carried out an evaluation, under the supervision and with the participation
of the Companys management, including the CEO and CFO, of the effectiveness
of the design and operation of these disclosure controls, procedures and systems
at 30 June 2008. Based on that evaluation, the CEO and CFO of the Company have
concluded that the Companys disclosure controls and procedures are effective. Changes in internal controlsNo
change in the Groups internal control over financial reporting has occurred during the year ended 30 June 2008 that has materially affected, or is reasonably likely to materially
affect, the Groups internal control over financial reporting. Use of external auditorsThe Group has a policy on the provision by the external auditors of audit and non-audit services, which categorises such services between: •
    those
    services which the auditors are not permitted to provide;•
    those services which are
        acceptable for the auditors to provide and the provision of which has
    been pre-approved by the Audit Committee; and•
    those services for which
        the specific approval of the Audit Committee is required before the auditors
    are permitted to provide the service. The policy defines the types of services falling under each category and sets
out the criteria which need to be met and the internal approval mechanisms required
to be completed prior to any engagement. An analysis of all services provided
by the external auditors is reviewed by the Audit Committee on a quarterly basis. For the year ended 30 June 2008, the Audit Committee has discussed the matter
of audit independence with Deloitte & Touche LLP, the Groups external
auditors, and has received and
reviewed confirmation in writing that, in Deloitte & Touche LLPs professional
judgement, Deloitte & Touche LLP is independent within the meaning of all
UK and US regulatory and professional requirements and the objectivity of the
audit
engagement partner and audit staff is not impaired. The Audit Committee was satisfied throughout the year that the objectivity and
independence of Deloitte & Touche LLP was not in any way impaired by either
the nature of the non-audit related services undertaken during the year, the
level of non-




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Corporate governance reportcontinued audit fees charged, or any other facts or circumstances. There were no services provided during the year that were not pre-approved by the Audit Committee in accordance with the Groups
policy. Communication with shareholdersPresentations and
    webcasts on the development of the business are available to all shareholders
    on the Companys corporate website. The Company also uses email alerts
    and actively promotes downloading of all reports enhancing speed and equality
    of shareholder communication. The Company has taken full advantage of the
    provisions within the Companies 2006 Act allowing the website to be used as
    the primary means of communication with shareholders where they have not requested
    hard copy documentation. The shareholder information section on pages 104
    to 111 contains further details on electronic shareholder communications together
    with more general information of interest to shareholders which is also included
    on the Companys corporate website. The Company is committed to maintaining and improving dialogue with shareholders
in order to ensure that the objectives of both the Group and the shareholders
are understood. A programme of meetings with institutional shareholders, fund managers and analysts
takes place each year. The Company also makes presentations to analysts and investors
around the time of the half-year and full-year results announcement; conference
calls are held with analysts and investors following the announcement of the
first quarter and third quarter results, and on occasion, following the announcement
of the fourth quarter results, and presentations are made during the year to
many existing or potential shareholders. During the year, various members of
the Board have met with institutional shareholders and representative bodies,
reinforcing the continuation of open dialogue and discussion of strategy between
the Board and its shareholders. Non-Executive Directors are offered the opportunity
to attend meetings with major shareholders and are expected to attend if required. The Board views the AGM as an opportunity to communicate with private investors
and sets aside time at these meetings for shareholders to ask questions of the
Board. All members of the Board attended the 2007 AGM. At the AGM, the Chairman
provides a brief summary of the Companys activities for the previous year
to the shareholders. All resolutions at the 2007 AGM were voted by way of an
electronic poll. This follows best practice and allows the Company to count all
votes rather than just those of shareholders attending the meeting. As recommended
by the Combined Code, all resolutions were voted separately and the voting results,
which included all votes cast for, against and those withheld, together with
all proxies lodged prior to the meeting, were indicated at the meeting and the
final results were released to the London Stock Exchange as soon as practicable
after the meeting. The announcement was also made available via a link on the
Companys corporate website. As in previous years, the proxy form and the
announcement of the voting results made it clear that a vote withheld is
not a vote in law and will not be counted in the calculation of the proportion
of the votes for or against the resolution. Directors responsibilitiesThe responsibilities
of the Directors are set out on page 55. Report on directors remuneration1. Remuneration Committee1.1 Role of the Remuneration Committee and terms of referenceThe Remuneration Committee (the Committee)
is responsible for recommendations to the Board regarding: •
    the design and implementation
        of incentive compensation arrangements including share-based schemes;•
    remuneration packages
        for Executive Directors of the Company, including basic salary, performance-based
      bonus and long-term incentives, pensions and other benefits; and


•
    the Companys policy
        on remuneration for Board Directors and other Senior Executives of the
        Group who report directly to the CEO. In the latter case, decisions shall
      be recommended to the Committee by the CEO. The Committee sets the performance targets applicable to incentive compensation
arrangements. As part of this process, it seeks to ensure that such packages
provide employees with appropriate incentives to perform, reflect their positions
and roles within the Group, and that the employees are, in a fair and reasonable
manner, rewarded for their individual contributions to the success of the Group.
Payments or benefits offered to
employees in excess of £250,000 which do not form part of an employees
expected remuneration or benefits require the approval of the Committee. The Committee met three times during the year. The full terms of reference for the Committee are available on the Companys
corporate website. 1.2 Membership of the CommitteeThe Committee
comprised of the following Independent Non-Executive Directors throughout the
year ended 30 June 2008: •
    David Evans•
    Nicholas Ferguson (Chairman)•
    Jacques Nasser During the year, the Committee sought the advice of James Murdoch as CEO until
6 December 2007, and then Jeremy Darroch on matters relating to the Executive
Directors and Senior Executives who report to the CEO and advice from the Director
for People. The Committee was supported by the Company Secretary, the finance
and the human resources functions. No Director was present when matters affecting
his remuneration were considered. The former Chairman Rupert Murdoch (until 6
December 2007), did not attend any Committee meetings during the year. James
Murdoch has attended one meeting of the Committee. 2. AdvisorsThe Committee has engaged
the services of both a lead adviser Patterson Associates LLP and a support adviser
Hewitt New Bridge Street (formerly New Bridge Street Consultants LLP). The lead
adviser advises the Committee and the Company on overall direction and acts as
the primary lead for advice. The support adviser advises on share-based awards,
performance monitoring, remuneration data and accounting including IFRS and US
GAAP for any existing or new incentives and remuneration schemes and provides
analytical support. The support adviser works in conjunction with the lead adviser
and they provided no other services to the Company during the year. 3. Remuneration policyThe
Committees reward policy reflects its aim to align Executive Directors remuneration
with shareholders interests and to engage and retain world-class executive
talent for the benefit of the
Group. The main principles of the policy are that: •
    total rewards should be
        set at appropriate levels to reflect the competitive market in which
      the Group operates;•
    the majority of the total
        reward should be linked to the achievement of demanding performance targets;
      and•
    appropriate benchmarks
        are used when reviewing the salaries of the Executive Directors and Senior
      Executives. The Company uses a subset of the FTSE 100 as its benchmark. In formulating its remuneration policy, the Committee is keen to understand shareholders views
on executive remuneration. From time to time, the Company holds consultation
meetings with
a range of institutional investors, concerning aspects of the Committees
policy, and has taken their advice into account in arriving at remuneration decisions. The Committee believes that performance share awards continue to be the best
long-term incentive vehicle for Executive Directors and Senior Executives. The
Committee also believes that the
Groups historically strong operational performance




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has led investors to expect
    continued excellence in operational delivery. Accordingly, 70% of the Long-Term
    Incentive Plan (LTIP) vests based on operational
  performance, while 30% vests based on Total Shareholder Return (TSR) relative to the constituents of the FTSE 100. The operational performance conditions chosen to date include earnings per share
  (EPS), free cash flow per share (FCF) and Direct to Home (DTH)
  subscriber growth. The Committee will decide on appropriate performance conditions
  for future awards. It is currently expected that these will be similar to those
  currently used. All LTIP programmes are measured over three years using the performance measures
described above for the LTIP. The Committee also recognises that the interactions between different areas of
the business in creating long-term shareholder value are complex. Rather than
Senior Executives being incentivised primarily through measures relevant to their
own business area, their remuneration emphasises a critical set of Group-wide
goals in order to maximise the benefits of teamwork and collaboration across
the Group. The Executive Directors of the Company are employed on twelve-month rolling contracts. 4. Elements of Executive Director remuneration4.1 Remuneration MixThe Executive
Directors and Senior Executives total direct compensation consists
of salary, annual bonus, long-term incentives, pensions and other benefits. This
reward structure is regularly reviewed by the Committee to ensure that it continues
to support the Groups
objectives. Overview of current remuneration elements for executives, including Executive
Directors Element
	
	Objective
	
	Performance
	    conditionsBasic salary(see
section 4.2)
	
	Reflects the market value
of the position, as well as the
skills and experience of
theincumbent
	
	Reviewed
	      annually on the basis of
	      external market benchmarking and/or
	      reference to internalpositioningAnnual bonus(see
section 4.3)
	
	Rewards achievement of short-term
objectives setduring
the year
	
	Cash
	      award is subject to achievement
	      of team and individual
	      objectives. For Executive
	      Directors, award is wholly
	      dependent on group-level objectives
	      (earnings, cash andsubscriber
	      growth)LTIP(see
section 4.4)
	
	Rewards the achievement
oflong-term objectives
	
	30% of
	      the award is subject to achievement
	      of relative TSR performance
	      vs. the FTSE 100 over three
	      years. 70% of the award
	      is subject to achievement of
	      operating targets for EPS, FCFand
	      DTH subscriber growthPension and other benefits(see
sections6 and
7)
	
	Set below market norms,
to reflect higher proportion
ofperformance
pay
	
	Not
    applicable Performance-related elements of pay represent a higher proportion of remuneration than market norms. This, combined with the fact that BSkyBs pension arrangements for Executive
Directors are considerably less generous than those found at comparable companies, means that a large amount of pay is at risk. Pay is very competitive if BSkyBs stretching targets are delivered, but if these targets are not met, the
guaranteed elements of pay are below market norms.


The proportions of fixed and variable
      pay vary with performance outcomes. However, for target performance, approximately
      three-quarters of Executive Directors remuneration is
  performance-related in the year ended 30 June 2008, as shown by the chart below: Remuneration mix   Notes to chart:•
	FTSE Comparator
	    Group is ten companies above and ten companies below BSkyB in theFTSE
    100, ranked by market capitalisation on 30 April 2008.•
	Comparator pay
	    data was taken from the most recently available annual reports at30
    April 2008.•
	Annual bonus valuation assumes on-target performance.•
	LTIP valuation assumes
annualised expected value, where expected value is face value atthe
time of grant, discounted to reflect expected vesting for target performance. 4.2 Basic salaryThe basic salary for each Executive Director and Senior Executive is determined by the Committee taking into account the recommendations of the CEO (other than in respect of his own salary)
and information provided from external sources relative to the industry sectors in which the Group operates and companies of a similar size. Salaries for the CEO and CFO are periodically benchmarked against equivalent roles in comparable
companies.
There was no change to James Murdochs salary between the beginning of this financial year and 6 December 2007, when he ceased to be CEO. During the period that he was CFO in this
financial year, there was no change to Jeremy Darrochs salary; however, it increased by 29% upon his appointment as CEO on 7 December 2007. Andrew Griffith was awarded a salary of £450,000 upon his appointment as CFO on 7 April 2008.
These salaries reflect the Committees view of the appropriate base salary on appointment for roles of this complexity in a rapidly evolving business environment, taking into account a range of market benchmarks as described above. Over time,
it should be expected that these salaries would increase to industry market levels as each individual gains experience in their respective roles.
4.3 Annual bonusExecutive Directors and Senior Executives participate in a bonus scheme under which awards are made to participants at the discretion of the Committee. For the Executive Directors the level
of bonus paid depends purely on Group-wide operational performance measures, specifically: operating profit, free cash flow and DTH subscriber growth. These measures were chosen to reflect the tensions inherent in balancing growth, investment and
returns to shareholders: an improvement in one measure may come at the expense of improvement in another.
For the CEO, the maximum bonus that may be awarded is 200% of salary, while for the CFO the maximum bonus that may be awarded is 125% of salary, and for on target performance they would
receive 130% and 100% of salary respectively.




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Report on Directors remunerationcontinued For performance in the year ended 30 June 2008, which exceeded target by a substantial
margin, the CEO and CFO were awarded the following bonus payments: Bonus
    amount
	
	As
	    a(£)
	
	%
	    of salaryJeremy Darroch
	1,216,250
	
	162%Andrew Griffith
	450,000
	
	100%James Murdoch
	827,292
	
	80% For the year 1 July 2008 to 30 June 2009, the operational measures that will govern bonus payouts will again be: operating profit, free cash flow, and DTH subscriber growth.
Although bonus awards are primarily driven by performance relative to the stated measures, the Committee retain the discretion to adjust payouts (up and down), as an exception, if they feel
  that an important aspect of performance has not been reflected.
4.4 LTIPThe Company operates an LTIP for Executive Directors and Senior Executives, under which awards may be made to any employee or full-time Executive Director of the Group at the discretion of
  the Committee. Awards under the scheme are made as a nil priced option. Awards are not transferable or pensionable and are made over a number of shares in the Company, determined by the Committee. LTIP awards are satisfied using shares purchased in
  the market.
The current LTIP plan was approved by shareholders on 30 October 1998, and expires on 30 October 2008. The rules have been re-drafted and updated in 2008, and will be submitted for
  shareholder approval at the AGM on 26 September 2008. These updates primarily concern technical improvements and clarifications, a summary of which can be found in the Notice of Annual General Meeting.
Design of LTIP planThe
  LTIP has a structure tailored to the needs of the Company in which grants are
  made every year, but vesting occurs
  biennially, designed to reduce Executives reliance on annual
  vesting of LTIP awards. In the first year, an Executive is granted an award
  of shares that vests at the end of the three year performance cycle, subject
  to performance conditions. In the second year, a further discretionary award
  of up to normally no more than 100% of the year one award can be made. This
  award vests at the same time as the first award. While second year grants are
  linked to the previous year and therefore capped, the size of first year grants
  are determined by the Committee
  on the basis of a range of factors including internal and external market benchmarks.
  The grant is made in terms of a number of shares (as opposed to a monetary
  value) and therefore values in relation to salary may vary with share price
  movements.
Performance conditions for LTIP planThe
  awards vest, in full or in part, dependent on points gained for satisfying
  performance targets measured over
  three years. Performance targets are calibrated to ensure the achievement of
  Skys stretching long-term goals, and the cumulative total points achieved
  governs vesting. The extent to which performance targets have been met is reviewed
  by the Committee regularly and at the date of vesting of each award.
Awards which vested in August 2007The awards made in 2004 and 2005 vested on 11 August 2007. Vesting of 70% of the awards was subject to operational performance, as follows: Extent
        to whichOperational
        performance measure
    
    Target
    
    target achievedEPS
        growth
    
    Retail
        Price Index (RPI) + 7%
    
    142%Free Cash
        Flow per Share
    
    Undisclosed
    
    106%(commercially
        sensitive)Growth in
        DTH Subscriber
    
    Undisclosed
    
    109%Numbers
    
    (commercially
        sensitive)


As performance on all three
    of these measures exceeded targets, this portion of the awards vested in
    full. Vesting of the remaining 30% of the awards was subject to TSR performance
    relative
    to the constituents of the FTSE 100 at the time of grant. Despite the strong
    operational performance of the Company during the three year period ending
    10 August 2007 the Companys TSR performance was below median and accordingly
    the TSR
  portion of these awards lapsed. Awards vesting in August 2009Awards were made in August
2006, 30 July 2007, 6 February 2008 and 30 April 2008 to Executive Directors
as detailed in section 13 (LTIP) of this report. The first two of these awards
were regular annual LTIP awards made to the CEO and CFO, reflecting market benchmarks
and
the Committees desire to ensure that incentive compensation for Executive
Directors was tied to an appropriate mix of long-term, stretching performance
goals. The awards made in February and April 2008 were one-off awards made to
Jeremy Darroch and Andrew Griffith upon their appointments as CEO and CFO respectively,
to make their overall award level for the year commensurate with someone holding
that
position. These awards are due to vest in August 2009, and are subject to performance in
the preceding three years. As in previous years, vesting of 70% of the award
is dependent on operational measures, while 30% is governed by TSR performance.
The specifics of the measures and targets are as follows: i) Operational performance (governing 70% of award)Points are awarded for
performance on three operational measures as follows: EPS
	    growth
	
	Free cash flow per share
	
	DTH subscriber growthPerformance
	
	
	
	PerformancePerformance
	
	Points
	
	achieved
	
	Points
	
	achieved
	
	Pointsachieved
	
	awarded
	
	(% of target)
	
	awarded
	
	(% of target)
	
	awarded105%
	
	
	
	105%RPI+8%pa
	
	10
	
	or more
	
	10
	
	or more
	
	10RPI+7%pa
	
	8
	
	100%
	
	8
	
	100%
	
	8RPI+6%pa
	
	6
	
	95%
	
	6
	
	95%
	
	6RPI+5%pa
	
	4
	
	90%
	
	4
	
	90%
	
	4RPI+4%pa
	
	2
	
	85%
	
	2
	
	85%
	
	2RPI+3%pa
	
	1
	
	75%
	
	1
	
	75%
	
	1Less than
	
	
	
	Less than
	
	
	
	Less thanRPI + 3% pa
	
	0
	
	75%
	
	0
	
	75%
	
	0 The total number of points awarded governs the extent of vesting of the operational portion, according to a straight-line vesting schedule: Resulting vesting% of
	
	% ofTotal points achieved
	operational portion
	
	overall awardLess than 1
	0%
	
	0%1
	10%
	
	7%1-21
	10%  100% on a
	
	7%  70% on astraight-line basis
	
	straight-line basis21 or more
	100%
	
	70%




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ii) TSR Performance (governing 30% of award)The
Companys TSR performance is measured relative to the constituents of the
FTSE 100 at the time of grant. If the Companys TSR performance is below
median, the TSR element of the award lapses with no vesting. For median performance,
one third of the TSR portion of the award vests. For performance in the upper
quartile, the whole TSR portion of the award vests. For performance between median
and upper quartile, vesting is on a straight-line basis, as shown in the chart
below: TSR vesting schedule   TSR calculations are conducted independently by Hewitt New Bridge Street, employing a methodology which averages share prices over three months prior to grants and the three months prior to
the end of the three-year performance period. 5. Other share plans5.1
Management Long-Term Incentive Plan (Management LTIP)The Company also operates a Management LTIP, which has replaced options granted under the Executive Share Option Scheme. Selected employees will participate in the Management LTIP, but this
will not include any Executive Directors or Senior Executives who participate in the LTIP. Awards under this scheme are made at the discretion of the CEO. To date, the Management LTIP has mirrored the LTIP for Senior Executives and Executive
Directors, with the same performance conditions. Awards that are exercised under the Management LTIP can only be satisfied by the delivery of shares purchased in the market. 5.2 Executive
Share Option Schemes (Executive Schemes)The
Company has in place Approved and Unapproved Executive Share Option Schemes under
Her Majestys Revenue & Customs (HMRC) guidelines.
Executive Directors and Senior Executives who participate in the LTIP do not
participate in the Executive Schemes. No options have been granted since 2004
and the Company currently has no intention of making grants under the Executive
Scheme in the foreseeable
future. 5.3 Sharesave SchemeThe Sharesave Scheme is open to all UK and Irish employees, including Executive Directors. Options are normally exercisable after either three or five years from the date of grant. The price
at which options are offered is not less than 80% of the middle-market price on the dealing day immediately preceding the date of invitation. It is the policy of the Group to make an invitation to employees to participate in the scheme following the
announcement of the year-end results. 6. PensionsThe
Group provides pensions to eligible employees through the BSkyB Pension Plan
(Pension Plan), which is a defined contribution plan.
Employees contribute a minimum of 4% of pensionable salary (basic salary less
the pension offset) into the Pension Plan each year and the Group matches this
with a contribution of 8% of pensionable salary. 7. Other benefitsExecutive Directors are entitled to use of a company car, life assurance equal to two times base salary, increased to four times base salary when they become members of the Pension Plan, and
private medical insurance.


8. Service agreementsPolicyThe
Committees stated policy is that Executive Directors service agreements will contain a maximum notice period of one year. The Committee will also consider, where appropriate
to do so, reducing remuneration to a departing Director. However, the Committee will consider such issues on a case-by-case basis and will consider the terms of employment of a departing Director. A large proportion of each Executive Directors
total direct remuneration is linked to performance and therefore will not be
payable to the extent that the relevant targets are not met. James MurdochOn 6 December
    2007, James Murdoch relinquished the role of CEO, to take up the role of Non-Executive
    Chairman. His remuneration consists of Chairmans fees of £25,000
    per annum together with a Non-Executive Directors fee of £50,000.
    James Murdoch will be paid a bonus amount depending upon the performance criteria
    adopted by the Committee for his service as CEO during the 2007/08 financial
    year. Prior to his appointment as Chairman, James Murdoch had received a base
    salary of £1,045,000 per annum. Jeremy DarrochJeremy Darroch was
appointed CEO of the Company on 7 December 2007. His initial service contract
as CFO with the Company commenced on 16 August 2004 and was revised with effect
from 7 December 2007. The new agreement shall continue unless, or until, terminated
by either party giving to the other not less than twelve months notice
in writing. Jeremy Darrochs revised remuneration consists of a base salary
of £750,000 per annum. Jeremy Darroch will be paid a bonus amount depending
upon the performance criteria adopted by the Committee for each financial year
during the continuance of his service agreement with the Company. Jeremy Darroch is also entitled to other benefits, namely pension benefits, company
car, life assurance equal to four times base salary, medical insurance and an
entitlement to participate in
the LTIP. Jeremy Darroch has a non-compete clause in his service agreement specifying that
he shall not be able to work for any business or prospective business carried
on within the UK, which wholly
or partially competes with the Groups businesses at the date of termination
of his agreement. Such restriction will be for a period of twelve months. On termination of the agreement,
    Jeremy Darroch will be entitled to one years salary, pension and life
    assurance benefits from the date of termination and a pro-rata bonus up to
    the date of termination. In the instance of the termination of Jeremy Darrochs
    employment for cause, he would be paid salary and benefits up to the date
    of termination but this would not include any pro-rata bonus. Jeremy Darroch is a Non-Executive Director of Marks & Spencer Group plc and
retained fees for this appointment of £73,000 for the year ended 30 June
2008. Andrew GriffithAndrew Griffith has
a service agreement with the Company that commenced on 7 April 2008 and shall
continue unless, or until, terminated by either party giving to the other not
less than
twelve months notice in writing. Andrew Griffiths remuneration consists
of a base salary of £450,000 per annum. Andrew Griffith will be paid a bonus
amount depending upon the performance criteria adopted by the Committee for each
financial year during the continuance
of his service agreement with the Company. Andrew Griffith is also entitled to other benefits, namely pension benefits,
company car, life assurance equal to four times base salary, medical insurance
and an entitlement to participate
in the LTIP. Andrew Griffith has a non-compete clause in his service agreement specifying
that he shall not be able to work for any business or prospective business carried
on within the UK, which wholly
or partially competes with the Groups businesses at the date of termination
of his agreement. Such restriction will be for a period of twelve months. On termination of the agreement, Andrew Griffith will be entitled to one years
salary, pension and life assurance benefits from the date of termination and
a pro-rata bonus up to the date of termination. In the instance of the termination
of Andrew Griffiths




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    Sky Broadcasting Group plc |  | 49
|Annual Report 2008                    

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|Directors report  governance
|------------------------------
|continued                     
|                              
|                              

Report on Directors remunerationcontinued employment for cause, he
    would be paid salary and benefits up to the date of termination but this would
    not include any pro-rata bonus. 9. Non-Executive DirectorsThere has been no
    increase in the basic fees payable to the Non-Executive Directors and the
    Chairman set by the Board of Directors for the financial year ending 30 June
    2009; basic fees are £50,000 (2008: £50,000). Furthermore, the Non-Executive
    Directors will be paid an additional £10,000 (2008: £10,000) per
    annum each for membership of the Audit Committee, the Remuneration Committee
    and the Corporate Governance and Nominations Committee. The Chairman and the
    Chairmen of the Audit Committee, the Remuneration Committee and the Corporate
    Governance and Nominations Committee each receive an additional £25,000
    per annum (2008: £25,000). The Deputy Chairman will receive an additional
    fee of £10,000 per annum (2008: £10,000). Finally, the Senior Independent
    Director will receive an additional fee of £15,000 per annum (2008: £15,000).
    Each Non-Executive Director is engaged by the Company for an initial term
    of three years. Reappointment for a further term is not automatic, but may
    be mutually agreed. 10. Performance graphThe
following graph shows the Companys performance measured by TSR in the five years to 30 June 2008. This graph shows the growth in the value of a hypothetical £100 holding in the
Companys ordinary shares over five years, relative to three indices, which are considered to be the most relevant broad equity market indices for this purpose. The graph is included to meet a legislative requirement and is not directly
relevant to the performance criteria approved by shareholders for the Companys
long-term incentive plans. Breakdown of shareholder return from 1 July 2003 to 30 June 2008


11. Share
      interestsThe interests of the Directors
in the ordinary share capital of the Company during the year were: At
	
	At30 June
	
	30 JuneName of Director
	2008
	
	2007Jeremy Darroch
	60,000
	
	David Evans
	16,000
	(i)
	16,000
	(i)Nicholas Ferguson
	10,000
	
	10,000Andrew Higginson
	2,160
	
	2,104Lord Rothschild
	100,000
	
	100,000Lord Wilson of Dinton
	486
	
	486  (i) Held in the form of
    4,000 ADSs, one ADS is equivalent to four ordinary shares. Lord Rothschild is also deemed to be interested in 2 million ordinary shares
registered in the name of Bank of New York Nominees, as a result of being a director
of RIT Capital Partners plc; and in 18,750 ordinary shares as a result of being
a trustee of two charitable foundations of which Lord Rothschild is not a beneficiary. Except as disclosed in this report, no other Director held any interest in the
share capital, including options, of the Company, or of any subsidiary of the
Company, during the year. All interests at the date shown are beneficial and
there have been no changes between 1 July 2008 and 30 July 2008. During the year ended 30 June 2008, the share price traded within the range of
465.0p to 713.5p per share. The middle-market closing price on the last working
day of the financial year was
465.0p.




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|50                 |  | British Sky
    Broadcasting Group plc
|Annual Report 2008

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12. Directors
  remunerationThe emoluments of the Directors for the year are shown below:

| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | --------------------------------- | --------------------- |  | ------------------ |  | -------- |  | ------------------------------------------------------ |  | -------- |  | --------------------------------------------------------- |  | --------------------------------------------------------- |  | --------------------------------------------------------- | 
| |                                   | Salary
      and fees |  | Bonus
      scheme |  | Benefits |  | Total
      emoluments
      before
      pension 2008 |  | Pensions |  | Total
      emoluments
      including
      pension 2008 |  | Total
      emoluments
      including
      pension 2007 |  | Total
      emoluments
      including
      pension 2006 | 
| |                                   |                       |  |                    |  |          |  |                                                        | 
| |                                   |                       |  |                    |  |          |  |                                                        | 
| |                                   |                       |  |                    |  |          |  |                                                        | 
| |                                   | £                     |  | £                  |  | £        |  | £                                                      |  | £        |  | £                                                         |  | £                                                         |  | £                                                         | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | Executive                         |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | Jeremy Darroch(i)                 | 675,029               |  | 1,216,250          |  | 17,132   |  | 1,908,411                                              |  | 53,639   |  | 1,962,050                                                 |  | 1,423,752                                                 |  | 1,324,958                                                 | 
| | Andrew Griffith(ii)               | 106,154               |  | 450,000            |  | 2,948    |  | 559,102                                                |  | 8,402    |  | 567,504                                                   |  |                                                          |  |                                                          | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | Non-Executive                     |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | James Murdoch(iii)                | 493,897               |  | 827,292            |  | 349      |  | 1,321,538                                              |  | 35,937   |  | 1,357,475                                                 |  | 2,993,124                                                 |  | 2,749,285                                                 | 
| | Chase Carey                       | 50,000                |  |                   |  |         |  | 50,000                                                 |  |         |  | 50,000                                                    |  | 44,700                                                    |  | 42,600                                                    | 
| | David F. Devoe                    | 50,000                |  |                   |  |         |  | 50,000                                                 |  |         |  | 50,000                                                    |  | 44,700                                                    |  | 42,600                                                    | 
| | David Evans                       | 60,000                |  |                   |  |         |  | 60,000                                                 |  |         |  | 60,000                                                    |  | 49,700                                                    |  | 47,600                                                    | 
| | Nick Ferguson                     | 104,603               |  |                   |  |         |  | 104,603                                                |  |         |  | 104,603                                                   |  | 59,700                                                    |  | 51,805                                                    | 
| | Andrew Higginson                  | 60,000                |  |                   |  |         |  | 60,000                                                 |  |         |  | 60,000                                                    |  | 49,700                                                    |  | 47,600                                                    | 
| | Allan Leighton                    | 85,000                |  |                   |  |         |  | 85,000                                                 |  |         |  | 85,000                                                    |  | 59,700                                                    |  | 57,600                                                    | 
| | Jacques Nasser                    | 60,000                |  |                   |  |         |  | 60,000                                                 |  |         |  | 60,000                                                    |  | 49,700                                                    |  | 53,395                                                    | 
| | Gail Rebuck                       | 60,000                |  |                   |  |         |  | 60,000                                                 |  |         |  | 60,000                                                    |  | 49,700                                                    |  | 47,600                                                    | 
| | Daniel
      Rimer(iv)            | 11,795                |  |                   |  |         |  | 11,795                                                 |  |         |  | 11,795                                                    |  |                                                          |  |                                                          | 
| | Lord Rothschild                   | 68,629                |  |                   |  |         |  | 68,629                                                 |  |         |  | 68,629                                                    |  | 59,700                                                    |  | 57,600                                                    | 
| | Arthur Siskind                    | 60,000                |  |                   |  |         |  | 60,000                                                 |  |         |  | 60,000                                                    |  | 49,700                                                    |  | 47,600                                                    | 
| | Lord Wilson
      of Dinton       | 85,000                |  |                   |  |         |  | 85,000                                                 |  |         |  | 85,000                                                    |  | 59,700                                                    |  | 57,600                                                    | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | Former
      Directors            |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | Rupert Murdoch(v)                 | 32,404                |  |                   |  |         |  | 32,404                                                 |  |         |  | 32,404                                                    |  | 54,700                                                    |  | 52,600                                                    | 
| | Lord St John
      of Fawsley(vi) |                      |  |                   |  |         |  |                                                       |  |         |  |                                                          |  | 15,244                                                    |  | 42,600                                                    | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 
| | Total emoluments                  | 2,062,511             |  | 2,493,542          |  | 20,429   |  | 4,576,482                                              |  | 97,978   |  | 4,674,460                                                 |  | 5,063,520                                                 |  | 4,723,043                                                 | 
| |                                   |                       |  |                    |  |          |  |                                                        |  |          |  |                                                           |  |                                                           |  |                                                           | 

|      
|------
|Notes:
|(i)   
|(ii)  
|(iii) 
|(iv)  
|(v)   
|(vi)  
|      

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|British
    Sky Broadcasting Group plc |  | 51
|Annual Report 2008                    

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|Directors
      report  governance
|------------------------------------
|continued                           
|                                    
|                                    

Report on Directors
  remunerationcontinued

13. LTIPDetails of all outstanding
  awards held under the LTIP are shown below:

| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 
| | ---------------------- | ---------------------------------- | --- | ----------------------------------- | --- | ------------------------------------- | ----- | ---------------------------------- | ---- | --------------------------- | ---- | -------------------- |  | -------------------------------------------- | 
| |                        | Number
      of shares under award |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 
| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 
| |                        | At
      30 June                   |     | Granted
      during the
      year |     | Exercised
      during the
      year |       | Lapsed
      during the
      year |      | At
      30 June
      2008 |      | Exercise
      price |  | Market
      price at
      date of exercise | 
| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                     
| | Name
      of Director | 2007                               |     |                                     |     |                                       |       |                                    |      |                             |      |                      | 
| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 
| | James
      Murdoch(i) | 450,000                            |     |                                    |     |                                      |       | 450,000                            | (i)  |                            |      | n/a                  |  | £6.715                                       | 
| |                        | 382,500                            |     |                                    |     |                                      |       | 382,500                            | (i)  |                            |      | n/a                  |  | £6.715                                       | 
| |                        | 550,000                            |     |                                    |     |                                      |       |                                   |      | 550,000                     | (ii) | n/a                  |  | n/a                                          | 
| |                        |                                   |     | 550,000                             |     |                                      |       |                                   |      | 550,000                     | (ii) | n/a                  |  | n/a                                          | 
| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 
| | Jeremy
      Darroch   | 250,000                            |     |                                    |     | 175,000                               | (iii) | 75,000                             | (iv) |                            |      | n/a                  |  | £6.5342                                      | 
| |                        | 212,500                            |     |                                    |     | 148,750                               | (iii) | 63,750                             | (iv) |                            |      | n/a                  |  | £6.5342                                      | 
| |                        | 290,000                            |     |                                    |     |                                      |       |                                   |      | 290,000                     |      | n/a                  |  | n/a                                          | 
| |                        |                                   |     | 290,000                             |     |                                      |       |                                   |      | 290,000                     |      | n/a                  |  | n/a                                          | 
| |                        |                                   |     | 295,000                             |     |                                      |       |                                   |      | 295,000                     |      | n/a                  |  | n/a                                          | 
| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 
| | Andrew
      Griffith  | 100,000                            | (v) |                                    |     |                                      |       |                                   |      | 100,000                     |      | n/a                  |  | n/a                                          | 
| |                        | 50,000                             | (v) |                                    |     |                                      |       |                                   |      | 50,000                      |      | n/a                  |  | n/a                                          | 
| |                        |                                   |     | 125,000                             | (v) |                                      |       |                                   |      | 125,000                     |      | n/a                  |  | n/a                                          | 
| |                        |                                   |     | 125,000                             |     |                                      |       |                                   |      | 125,000                     |      | n/a                  |  | n/a                                          | 
| |                        |                                    |     |                                     |     |                                       |       |                                    |      |                             |      |                      |  |                                              | 

|                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Notes: The
      performance conditions attaching to these awards are set out in section
      4.4 (LTIP). The aggregate amount received by the directors under the LTIP
      was £5,636,562 (2007: nil). James Murdochs LTIP entitlement was
      settled in cash.
|(i)                                                                                                                                                                                                                                                                   
|(ii)                                                                                                                                                                                                                                                                  
|(iii)                                                                                                                                                                                                                                                                 
|(iv)                                                                                                                                                                                                                                                                  
|(v)                                                                                                                                                                                                                                                                   

14. Executive
  Share OptionsDetails of all outstanding
  options held under the Executive Schemes are shown below:

| |                        |                         |      |                                     |  |                                       |  |                                    |  |                       |  |                      |  |                                                    |  |                                         | 
| | ---------------------- | ----------------------- | ---- | ----------------------------------- |  | ------------------------------------- |  | ---------------------------------- |  | --------------------- |  | -------------------- |  | -------------------------------------------------- |  | --------------------------------------- | 
| |                        | Number
      of options |      |                                     |  |                                       |  |                                    |  |                       | 
| |                        |                         |      |                                     |  |                                       |  |                                    |  |                       |  |                      |  |                                                    |  |                                         | 
| |                        |                         |      | Granted
      during
      the year |  | Exercised
      during
      the year |  | Lapsed
      during
      the year |  | At
      30 June 2008 |  | Exercise
      price |  | Market
      price at
      date of
      exercise |  | Date
      from which
      exercisable | 
| |                        | At
      30 June 2007   |      |                                     |  |                                       |  |                                    |  |                       | 
| | Name of
      Director |                         |      |                                     |  |                                       |  |                                    |  |                      
| |                        |                         |      |                                     |  |                                       |  |                                    |  |                       |  |                      |  |                                                    |  |                                         | 
| | Andrew Griffith(i)     | 3,030                   | (ii) |                                    |  |                                      |  |                                   |  | 3,030                 |  | £9.90                |  | n/a                                                |  | 23.11.03                                | 
| |                        | 25,222                  |      |                                    |  |                                      |  |                                   |  | 25,222                |  | £9.90                |  | n/a                                                |  | 23.11.03                                | 
| |                        | 40,025                  |      |                                    |  |                                      |  |                                   |  | 40,025                |  | £7.94                |  | n/a                                                |  | 06.11.04                                | 
| |                        | 44,184                  |      |                                    |  |                                      |  |                                   |  | 44,184                |  | £6.62                |  | n/a                                                |  | 01.09.07                                | 
| |                        | 19,819                  | (ii) |                                    |  |                                      |  |                                   |  | 19,819                |  | £5.03                |  | n/a                                                |  | 06.08.08                                | 
| |                        |                         |      |                                     |  |                                       |  |                                    |  |                       |  |                      |  |                                                    |  |                                         | 

|    
|----
|(i) 
|(ii)



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|                   |  |                                         
|52                 |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|
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|

15. Sharesave
  Scheme optionsDetails of all outstanding
  options held under the Sharesave Scheme are shown below:

| |                        |                                      |  |                  |  |                  |  |               |  |          |  |                  |  |                   | 
| | ---------------------- | ------------------------------------ |  | ---------------- |  | ---------------- |  | ------------- |  | -------- |  | ---------------- |  | ----------------- | 
| |                        | Number
      of shares under options |  |                  |  |                  |  |               | 
| |                        |                                      |  |                  |  |                  |  |               |  |          |  |                  | 
| |                        | At                                   |  | Granted          |  | Exercised        |  | At            |  |          |  | Date             |  |                   | 
| |                        | 30
      June                        |  | during
      the |  | during
      the |  | 30
      June |  | Exercise |  | from
      which |  |                   | 
| | Name of
      Director | 2007                                 |  | year             |  | year             |  | 2008          |  | price    |  | exercisable      |  | Expiry
      date | 
| |                        |                                      |  |                  |  |                  |  |               |  |          |  |                  |  |                   | 
| | Jeremy Darroch         | 4,281                                |  |                 |  |                 |  | 4,281         |  | £3.86    |  | 01.02.10         |  | 01.08.10          | 
| |                        |                                      |  |                  |  |                  |  |               |  |          |  |                  |  |                   | 

Options under the Companys
  Sharesave Scheme are not subject to performance conditions.

Signed on behalf of the BoardNicholas Ferguson
  Remuneration Committee Chairman
  30 July 2008



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|                                         |  |   
|British Sky Broadcasting
      Group plc |  | 53
|Annual Report 2008                      

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|Directors
      report  governance
|------------------------------------
|continued                           
|                                    
|                                    

Other statutory
  informationPayment
  policyThe policy of the
  Group is to agree terms of payment with suppliers prior to entering into a contractual
  relationship. In the absence of a specific agreement, it is the policy of the
  Group to pay suppliers on a monthly basis. The Group had below 30 days
  purchases outstanding at 30 June 2008 (2007: below 30 days), based on the total
  amount invoiced by non-programme trade suppliers during the year ended 30 June
  2008. Programme creditors include significant balances which are not yet contractually
  due. In respect of amounts both contractually due and invoiced, the outstanding
  number of days purchases is below 30 days (2007: below 30 days). Financial
  instrumentsDetails of the Groups
  use of financial instruments, together with information on our risk management
  objectives and policies, and our exposure to price risks, credit risks, liquidity
  risks and cash flow risks, can be found in note 23 to the accounts. Share capitalDetails of the structure
  of the Companys share capital and changes in the share capital during
  the year are disclosed in notes 24 and 25 to the consolidated financial statements. The Shareholder information
    item on pages 104 to 111 contains details of the rights attaching to the Companys
    ordinary shares. The information disclosed
    to the Company, as at 30 July 2008, under Rule 5 of the Disclosure and Transparency
    Rules of the Financial Services Authority in respect of holdings exceeding
    the 3% notification threshold is detailed in Shareholder information
     Major shareholders on page 105. Charitable
  contributions and community and environmental activitiesThe Bigger Picture
  Review, the Groups sixth Corporate Responsibility Review, which does not
  form part of the Annual Report, will be published in October 2008, and will
  provide further information on the Groups commitment to corporate responsibility,
  including community and environmental activities (see www.sky.com/responsibilities).
  An overview of the Groups community and environmental activities is also
  included in the review of the business on page 18. During 2008, the Group donated £2,021,649 (2007: £1,881,125) to charities in the UK in the form of cash. The Groups total community investment (cash, time, in kind and
management costs) will be published in the Corporate Responsibility Review. Political
  contributionsPolitical contributions
  of the Group in the UK during 2008 amounted to nil (2007: nil). Annual General
  MeetingThe notice convening
    the AGM, to be held at The Cumberland Hotel, Great Cumberland Place, London
    W1H 7DL on 26 September 2008 at 10.00am, is available for download from the
    Companys corporate website at www.sky.com/corporate. Going concernAfter making enquires,
  the Directors have formed the judgement, at the time of approving the consolidated
  financial statements, that there is a reasonable expectation that the Group
  has adequate resources to continue in operational existence for the foreseeable
  future. For this reason, the Directors continue to adopt the going concern basis
  in preparing the consolidated financial statements.


AuditorsIn accordance with
  the provisions of Section 234ZA of the Companies Act 1985, each of the persons
  who are Directors of the Company at the date of approval of this report confirms
  that: •
    so far as the Director
      is aware, there is no relevant audit information (as defined in the Companies
      Act 1985) of which the Companys auditors are unaware; and•
    the Director has taken
      all the steps that he/she ought to have taken as a Director to make himself/herself
      aware of any relevant audit information (as defined) and to establish that
      the Companys auditors are aware of that information. A resolution to reappoint Deloitte
    & Touche LLP as the Companys auditors will be proposed at the forthcoming
    AGM. By order of the Board,Dave GormleyCompany Secretary30 July 2008




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|54                 |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|Consolidated
    financial statements
|-------------------------------------
|                                     
|                                     
|                                     

Statement of Directors responsibilityThe
Directors are responsible for preparing the Annual Report, Report on Directors remuneration
and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare consolidated financial statements
for each financial year. The Directors are required by the IAS Regulation to
prepare the group financial statements under IFRSs as adopted by the European
Union and as issued by the International Accounting Standards Board. The Directors
have also elected to prepare financial statements for the Company in accordance
with IFRSs as adopted by the European Union and as issued by the International
Accounting Standards Board. The financial statements are also required by law
to be properly prepared in accordance with the Companies Act 1985 and Article
4 of the IAS Regulation. International Accounting Standard 1 Presentation of Financial Statements (IAS
1) requires that financial statements present fairly, for each financial
year, the Companys financial position, financial performance and cash flows.
This requires the faithful representation of the effects of transactions, other
events and conditions in accordance with the definitions and recognition criteria
for assets, liabilities, income and expense set out in the International Accounting
Standards Boards Framework for the preparation and presentation
of financial statements. In virtually all circumstances, a fair presentation
will be achieved by compliance with all applicable IFRSs. However, Directors
are also required to: •
    properly select and apply
    accounting policies;•
    present information,
        including accounting policies, in a manner that provides relevant, reliable,
    comparable and understandable information; and•
    provide additional disclosures
        when compliance with the specific requirements in IFRSs are insufficient
        to enable users to understand the impact of particular transactions,
        other events and conditions on the entitys financial position and
    financial performance. The Directors are responsible for keeping proper accounting records that disclose
with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Companys website. Legislation
in the UK governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.




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|British
    Sky Broadcasting Group plc |  | 55
|Annual Report 2008                    

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|Consolidated
          financial statements
|-------------------------------------------
|continued                                  
|                                           
|                                           

Report of Independent Registered Public
Accounting FirmTo the Board of Directors
and Shareholders of 
British Sky Broadcasting Group plc
Grant Way, Isleworth 
Middlesex TW7 5QD
We have audited the accompanying consolidated balance sheets of British Sky
  Broadcasting Group plc and subsidiaries (the Group)
  as of 30 June 2008 and 2007, and the related consolidated income statements,
  consolidated statements of recognised income and expense and consolidated cash
  flow statements for each of the three years in the period ended 30 June 2008
  (all expressed in pounds sterling). These consolidated financial statements
  are the responsibility of the Groups management. Our responsibility is
  to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
  Accounting Oversight Board (United States). Those standards require that we
  plan and perform the audit to obtain reasonable assurance about whether the
  financial statements are free of material misstatement. An audit includes examining,
  on a test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  financial statement presentation. We believe that our audits provide a reasonable
  basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
  material respects, the financial position of British Sky Broadcasting Group
  plc and subsidiaries as of 30 June 2008 and 2007, and the results of their
  operations and their cash flows for each of the three years in the period ended
  30 June 2008, in conformity with International Financial Reporting Standards
  (IFRS) as adopted for use in the European Union and
  IFRS as issued by the International Accounting Standards Board (IASB). We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Groups internal control
over financial reporting as of 30 June 2008, based on the criteria established
inInternal Control-Integrated
Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated 30 July 2008 expressed an unqualified opinion on the Groups internal control over financial reporting. Deloitte & Touche LLPLondon, England30 July 2008


Report of Independent Registered Public
Accounting FirmTo the Board of Directors
and Shareholders of
British Sky Broadcasting Group plc
Grant Way, Isleworth
Middlesex TW7 5QD We have audited the internal
    control over financial reporting of British Sky Broadcasting Group plc and
    subsidiaries (the Group) as of 30 June 2008, based
    on criteria established in Internal Control-Integrated Framework issued
  by the Committee of Sponsoring Organizations of the Treadway Commission. The
  Groups
  management is responsible for maintaining effective internal control over financial
  reporting and for its assessment of the effectiveness of internal control over
  financial reporting, included in the accompanying Managements report
  on internal  control over financial reporting. Our responsibility is to express
  an opinion on the Groups
  internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion. A companys internal control over financial reporting is a process designed
by, or under the supervision of, the companys principal executive and principal
financial officers, or persons performing similar functions, and effected by
the companys board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of
the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Group maintained, in all material respects,
    effective internal control over financial reporting as of 30 June 2008, based
    on the criteria
      established in
    Internal Control-Integrated Framework issued by the Committee of Sponsoring
  Organizations of the Treadway
  Commission. We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial statements
as of and for the year ended 30 June 2008 of the Group and our report dated 30
July 2008 expressed an unqualified opinion on those financial statements. Deloitte & Touche LLPLondon, England30 July 2008




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|56                 |  | British Sky
    Broadcasting Group plc
|Annual Report 2008

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Consolidated Income Statementfor the year ended 30 June 2008

| |                                                                      |  |       |  |        |    |        |   |        |  
| | -------------------------------------------------------------------- |  | ----- |  | ------ | -- | ------ | - | ------ | -
| |                                                                      |  |       |  | 2008   |    | 2007   |   | 2006   |  
| |                                                                      |  | Notes |  | £m     |    | £m     |   | £m     |  
| |                                                                      |  |       |  |        |    |        |   |        |  
| | Revenue                                                              |  | 2     |  | 4,952  |    | 4,551  |   | 4,148  |  
| | Operating expense                                                    |  | 3     |  | (4,228 | )  | (3,736 | ) | (3,271 | )
| | Operating profit                                                     |  |       |  | 724    |    | 815    |   | 877    |  
| |                                                                      |  |       |  |        |    |        |   |        |  
| | Share of results of joint ventures and associates                    |  | 15    |  | 15     |    | 12     |   | 12     |  
| | Investment income                                                    |  | 4     |  | 47     |    | 46     |   | 52     |  
| | Finance costs                                                        |  | 4     |  | (177   | )  | (149   | ) | (143   | )
| | Profit on disposal of joint venture                                  |  | 5     |  | 67     |    |       |   |       |  
| | Impairment of available-for-sale investment                          |  | 6     |  | (616   | )  |       |   |       |  
| | Profit before tax                                                    |  | 7     |  | 60     |    | 724    |   | 798    |  
| |                                                                      |  |       |  |        |    |        |   |        |  
| | Taxation                                                             |  | 9     |  | (187   | )  | (225   | ) | (247   | )
| | (Loss) profit for the year                                           |  |       |  | (127   | )  | 499    |   | 551    |  
| |                                                                      |  |       |  |        |    |        |   |        |  
| | (Loss) earnings per share from (loss) profit for the year (in pence) |  |       |  |        |    |        |   |        |  
| | Basic                                                                |  | 10    |  | (7.3   | p) | 28.4   | p | 30.2   | p
| | Diluted                                                              |  | 10    |  | (7.3   | p) | 28.2   | p | 30.1   | p
| |                                                                      |  |       |  |        |    |        |   |        |  

The accompanying notes are an integral part of this consolidated income statement.

Consolidated Statement of Recognised Income and Expensefor the year ended 30 June 2008

| |                                                                          |  |       |  |      |   |      |   |      |  
| | ------------------------------------------------------------------------ |  | ----- |  | ---- | - | ---- | - | ---- | -
| |                                                                          |  |       |  | 2008 |   | 2007 |   | 2006 |  
| |                                                                          |  | Notes |  | £m   |   | £m   |   | £m   |  
| |                                                                          |  |       |  |      |   |      |   |      |  
| | (Loss) profit for the year                                               |  |       |  | (127 | ) | 499  |   | 551  |  
| |                                                                          |  |       |  |      |   |      |   |      |  
| | Net loss recognised directly in equity                                   |  |       |  |      |   |      |   |      |  
| | Loss on available-for-sale investments                                   |  | 16    |  | (192 | ) | (151 | ) |     |  
| | Cash flow hedges                                                         |  |       |  | 43   |   | (70  | ) | (160 | )
| | Tax on cash flow hedges                                                  |  |       |  | (13  | ) | 21   |   | 48   |  
| | Exchange differences on translation of foreign operations                |  |       |  | 4    |   |     |   |     |  
| |                                                                          |  |       |  | (158 | ) | (200 | ) | (112 | )
| |                                                                          |  |       |  |      |   |      |   |      |  
| | Amounts reclassified and reported in the income statement                |  |       |  |      |   |      |   |      |  
| | Cash flow hedges                                                         |  |       |  | 2    |   | 109  |   | 106  |  
| | Tax on cash flow hedges                                                  |  |       |  |     |   | (33  | ) | (32  | )
| | Transfer to (loss) profit on impairment of available-for-sale investment |  |       |  | 343  |   |     |   |     |  
| |                                                                          |  |       |  | 345  |   | 76   |   | 74   |  
| |                                                                          |  |       |  |      |   |      |   |      |  
| | Net profit (loss) recognised directly in equity                          |  |       |  | 187  |   | (124 | ) | (38  | )
| |                                                                          |  |       |  |      |   |      |   |      |  
| | Total recognised income and expense for the year                         |  |       |  | 60   |   | 375  |   | 513  |  
| |                                                                          |  |       |  |      |   |      |   |      |  

The accompanying notes are an integral part of this consolidated statement of recognised income and expense.



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|British
        Sky Broadcasting Group plc |  | 57
|Annual
        Report 2008                

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|Consolidated financial statements
|---------------------------------
|continued                        
|                                 
|                                 

Consolidated Balance Sheetas at
30 June 2008

| |                                                      |  |       |  |       |   |       | 
| | ---------------------------------------------------- |  | ----- |  | ----- | - | ----- | 
| |                                                      |  |       |  | 2008  |   | 2007  | 
| |                                                      |  | Notes |  | £m    |   | £m    | 
| |                                                      |  |       |  |       |   |       | 
| | Non-current assets                                   |  |       |  |       |   |       | 
| | Goodwill                                             |  | 12    |  | 852   |   | 741   | 
| | Intangible assets                                    |  | 13    |  | 303   |   | 261   | 
| | Property, plant and equipment                        |  | 14    |  | 722   |   | 670   | 
| | Investments in joint ventures and associates         |  | 15    |  | 114   |   | 34    | 
| | Available-for-sale investments                       |  | 16    |  | 338   |   | 797   | 
| | Deferred tax assets                                  |  | 17    |  | 23    |   | 54    | 
| | Trade and other receivables                          |  | 19    |  | 19    |   |      | 
| | Derivative financial assets                          |  | 23    |  | 13    |   |      | 
| |                                                      |  |       |  | 2,384 |   | 2,557 | 
| |                                                      |  |       |  |       |   |       | 
| | Current assets                                       |  |       |  |       |   |       | 
| | Inventories                                          |  | 18    |  | 310   |   | 384   | 
| | Trade and other receivables                          |  | 19    |  | 566   |   | 524   | 
| | Short-term deposits                                  |  | 23    |  | 185   |   | 15    | 
| | Cash and cash equivalents                            |  | 23    |  | 632   |   | 435   | 
| | Derivative financial assets                          |  | 23    |  | 5     |   | 5     | 
| |                                                      |  |       |  | 1,698 |   | 1,363 | 
| |                                                      |  |       |  |       |   |       | 
| | Total assets                                         |  |       |  | 4,082 |   | 3,920 | 
| |                                                      |  |       |  |       |   |       | 
| | Current liabilities                                  |  |       |  |       |   |       | 
| | Borrowings                                           |  | 22    |  | 338   |   | 16    | 
| | Trade and other payables                             |  | 20    |  | 1,294 |   | 1,295 | 
| | Current tax liabilities                              |  |       |  | 151   |   | 144   | 
| | Provisions                                           |  | 21    |  | 27    |   | 8     | 
| | Derivative financial liabilities                     |  | 23    |  | 83    |   | 36    | 
| |                                                      |  |       |  | 1,893 |   | 1,499 | 
| |                                                      |  |       |  |       |   |       | 
| | Non-current liabilities                              |  |       |  |       |   |       | 
| | Borrowings                                           |  | 22    |  | 2,108 |   | 2,014 | 
| | Trade and other payables                             |  | 22    |  | 67    |   | 84    | 
| | Provisions                                           |  | 21    |  | 22    |   | 18    | 
| | Derivative financial liabilities                     |  | 23    |  | 160   |   | 258   | 
| |                                                      |  |       |  | 2,357 |   | 2,374 | 
| |                                                      |  |       |  |       |   |       | 
| | Total liabilities                                    |  |       |  | 4,250 |   | 3,873 | 
| |                                                      |  |       |  |       |   |       | 
| | Shareholders (deficit) equity                       |  | 25    |  | (168  | ) | 47    | 
| |                                                      |  |       |  |       |   |       | 
| | Total liabilities and shareholders (deficit) equity |  |       |  | 4,082 |   | 3,920 | 
| |                                                      |  |       |  |       |   |       | 

The accompanying notes are an integral part of this consolidated balance sheet.



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|58                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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|
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|
|

Consolidated Cash Flow Statement
  for the year ended 30 June 2008

| |                                                                              |  |       |  |      |   |       |   |       |  
| | ---------------------------------------------------------------------------- |  | ----- |  | ---- | - | ----- | - | ----- | -
| |                                                                              |  |       |  | 2008 |   | 2007  |   | 2006  |  
| |                                                                              |  | Notes |  | £m   |   | £m    |   | £m    |  
| |                                                                              |  |       |  |      |   |       |   |       |  
| | Cash flows from operating activities                                         |  |       |  |      |   |       |   |       |  
| | Cash generated from operations                                               |  | 26    |  | 997  |   | 1,007 |   | 1,004 |  
| | Interest received                                                            |  |       |  | 43   |   | 46    |   | 43    |  
| | Taxation paid                                                                |  |       |  | (163 | ) | (128  | ) | (172  | )
| | Net cash from operating activities                                           |  |       |  | 877  |   | 925   |   | 875   |  
| |                                                                              |  |       |  |      |   |       |   |       |  
| | Cash flows from investing activities                                         |  |       |  |      |   |       |   |       |  
| | Dividends received from joint ventures and associates                        |  |       |  | 11   |   | 9     |   | 7     |  
| | Net funding to joint ventures and associates                                 |  |       |  | (6   | ) | (3    | ) | (2    | )
| | Purchase of property, plant and equipment                                    |  |       |  | (215 | ) | (292  | ) | (169  | )
| | Purchase of intangible assets                                                |  |       |  | (124 | ) | (64   | ) | (43   | )
| | Purchase of available-for-sale investments                                   |  |       |  | (6   | ) | (947  | ) |      |  
| | Purchase of subsidiaries (net of cash and cash equivalents purchased)        |  |       |  | (72  | ) | (104  | ) | (209  | )
| | Proceeds from the sale of subsidiaries                                       |  |       |  | 3    |   |      |   |      |  
| | (Increase) decrease in short-term deposits                                   |  |       |  | (170 | ) | 632   |   | (453  | )
| | Net cash used in investing activities                                        |  |       |  | (579 | ) | (769  | ) | (869  | )
| |                                                                              |  |       |  |      |   |       |   |       |  
| | Cash flows from financing activities                                         |  |       |  |      |   |       |   |       |  
| | Proceeds from borrowings                                                     |  |       |  | 383  |   | 295   |   | 1,014 |  
| | Repayment of borrowings                                                      |  |       |  | (16  | ) | (192  | ) |      |  
| | Repayment of obligations under finance leases                                |  |       |  | (1   | ) |      |   |      |  
| | Proceeds from disposal of shares in Employee Share Ownership Plan (ESOP) |  |       |  | 22   |   | 37    |   | 13    |  
| | Purchase of own shares for ESOP                                              |  |       |  | (45  | ) | (76   | ) | (17   | )
| | Purchase of own shares for cancellation                                      |  |       |  |     |   | (214  | ) | (408  | )
| | Interest paid                                                                |  |       |  | (165 | ) | (154  | ) | (105  | )
| | Dividends paid to shareholders                                               |  |       |  | (280 | ) | (233  | ) | (191  | )
| | Net cash (used in) from financing activities                                 |  |       |  | (102 | ) | (537  | ) | 306   |  
| |                                                                              |  |       |  |      |   |       |   |       |  
| | Effect of foreign exchange rate movements                                    |  |       |  | 1    |   |      |   | 1     |  
| | Net increase (decrease) in cash and cash equivalents                         |  |       |  | 197  |   | (381  | ) | 313   |  
| |                                                                              |  |       |  |      |   |       |   |       |  
| | Cash and cash equivalents at the beginning of the year                       |  |       |  | 435  |   | 816   |   | 503   |  
| | Cash and cash equivalents at the end of the year                             |  |       |  | 632  |   | 435   |   | 816   |  
| |                                                                              |  |       |  |      |   |       |   |       |  

The accompanying notes are an integral part of this consolidated cash flow statement.



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|Consolidated
        financial statements
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|continued                                
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Notes to the consolidated financial statements 1. Accounting policiesBritish Sky Broadcasting
Group plc (the Company) is a limited liability company
incorporated in England and Wales, and domiciled in the United Kingdom
(UK). The consolidated financial statements include the
Company and its subsidiaries (together, the Group) and
its interests in associates and jointly-controlled entities. a) Statement of
complianceThe consolidated
financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as
adopted by the European Union (EU), the Companies Act
1985 and Article 4 of the
International Accounting Standard (IAS) Regulations.
In addition, the Group also complied with IFRS as issued by the International
Accounting Standards Board (IASB). The following IFRSs were adopted from 1 July 2004, the date of transition to
IFRS (the Transition Date), which is earlier than required
under the IFRS transitional
provisions: IAS 32 Financial Instruments: Disclosure and Presentation,
IAS 39 Financial Instruments: Recognition and Measurement,
IFRS 2 Share-based Payment and IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations. b) Basis of preparationThe consolidated financial
statements have been prepared on a going concern basis and on an historical cost
basis, except for the remeasurement to fair value of financial instruments as
described in the accounting policies below. The Group maintains a 52 or 53 week fiscal year ending on the Sunday nearest
to 30 June in each year. In fiscal year 2008, this date was 29 June 2008, this
being a 52 week year (fiscal year 2007: 1 July 2007, 52 week year; fiscal year
2006: 2 July 2006, 52 week year). For convenience purposes, the Group continues
to date its consolidated financial statements as at 30 June. The Group has classified
assets and liabilities as current when they are expected to be realised in, or
intended for sale or consumption in, the normal operating cycle of the Group. c) Basis of consolidationi.
SubsidiariesSubsidiaries are entities
controlled by the Company. Control exists when the Company has the power, directly
or indirectly, to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. Subsidiaries are included in the consolidated
financial statements of the Company from the date control of the subsidiary commences
until the date that control ceases. Intra-group balances, and any unrealised
gains and losses or income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements. ii. Associates and joint venturesAssociates are entities
where the Group has significant influence, but not control or joint control,
over the financial and operating policies of the entity. Joint ventures are those
entities which are jointly controlled by the Group under a contractual agreement
with another party or parties. These consolidated financial statements include the Groups share of the
total recognised gains and losses of associates and joint ventures using the
equity method, from the date that significant influence or joint control commences
to the date that it ceases, based on present ownership interests and excluding
the possible exercise of potential voting rights, less any impairment losses
(see accounting policy j). When the
Groups interest in an associate or joint venture has been reduced to nil
because the Groups share of losses exceeds its interest in the associate
or joint venture, the Group only provides for additional losses to the extent
that it has incurred legal or constructive obligations to fund such losses, or
where the Group has made payments on behalf of the associate or joint venture.
Where the disposal of an investment in an associate or joint venture is considered
to be highly probable, the investment ceases to be equity accounted and, instead,
is classified as held for sale and stated at the lower of carrying amount and
fair value less costs to sell.


d) GoodwillBusiness combinations
that have occurred since the Transition Date are accounted for by applying the
purchase method of accounting. Following this method, goodwill is initially recognised
on consolidation, representing the difference between the fair value cost of
the business combination and the fair value of the identifiable assets, liabilities
and contingent liabilities assumed. Where a business combination occurs in several
stages, as a result of successive share purchases, the goodwill associated with
each stage is calculated using fair value information at the date of each additional
share purchase. In respect of business combinations that occurred prior to the Transition Date,
goodwill has been included at the amounts recognised under the Groups UK
Generally Accepted Accounting
Principles (UK GAAP) accounting policies on the Transition
Date. On disposal of a subsidiary, associate or joint venture, the attributable
amount of goodwill is included in the determination of profit or loss on disposal,
except for goodwill written off to reserves under UK GAAP prior to the Transition
Date, which is not reinstated and is not included in determining any subsequent
gain or loss on disposal. Goodwill is stated at cost less any impairment losses and is tested, at least
annually, for impairment, based on the recoverable amounts of the cash generating
unit to which the goodwill has been allocated. Any impairment identified is recognised
immediately in the income statement and is not subsequently reversed. The carrying
amount of goodwill in respect of associates and joint ventures is included in
the carrying amount of the
investment in the associate or joint venture. e) Intangible assets and property, plant
and equipment (PPE)i.
Intangible assetsResearch expenditure
is recognised in operating expense in the income statement as the expenditure
is incurred. Development expenditure (relating to the application of research
knowledge to plan or design new or substantially improved products for sale or
use within the business) is recognised as an intangible asset from the point
at which it is probable that the Group has the intention and ability to generate
future economic benefits from the development expenditure, that the development
is technically feasible and that the subsequent expenditure can be measured reliably.
Any other development expenditure is recognised in operating expense as incurred. Other intangible assets, which are acquired by the Group separately or through
a business combination, are initially stated at cost or fair value, respectively,
less accumulated amortisation and impairment losses, other than those that are
classified as held for sale, which are stated at the lower of carrying amount
and fair value less costs to sell. Amortisation of an intangible asset begins when the asset is available for use,
and is charged to the income statement through operating expense on a straight-line
basis over the intangible
assets estimated useful life, principally being a period between three
and ten years, unless the asset life is judged to be indefinite. If the useful
life is indefinite or the asset is not yet available for use, no amortisation
is charged and an impairment test is carried out at least annually. Other intangible
assets are tested for impairment in line with accounting policy j below. ii. Property, plant and equipmentOwned PPE is stated at
cost, net of accumulated depreciation and any impairment losses, (see accounting
policy j), other than those items that are classified as held for sale, which
are stated at the lower of carrying amount and fair value less costs to sell.
When an item of PPE comprises major components having different useful economic
lives, the components are accounted for as separate items of PPE. Assets held under finance leases, which confer rights and obligations similar
to those attached to owned assets, are treated as PPE (see accounting policy
o). The cost of PPE, less estimated residual value, is depreciated in operating expense
on a straight-line basis over its estimated useful life. Land, and assets that
are not yet available for use, are not depreciated. Principal useful economic
lives used for this purpose are:




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Freehold buildings
    25
      yearsEquipment,
      furniture and fixtures
    3 to 15 yearsAssets under
      finance leases and
    Lesser of lease
      term and the usefulleasehold improvements
    economic life
      of the asset Borrowing costs are recognised in finance costs in the period in which they are incurred regardless of how the borrowings have been applied. f) Derivative
  financial instruments and hedging activitiesThe Group uses a number
  of derivative financial instruments to hedge its exposure to fluctuations in
  interest and foreign exchange rates. In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007, and the consequential
amendments to IAS 1 Presentation of Financial Statements. Derivatives are held at fair value from the date that a derivative contract is entered into. Fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties in an arms length transaction. The fair value of derivative financial instruments is estimated with reference to the contracted value and the appropriate market value prevailing at the balance sheet date. Certain derivatives
held by the Group which relate to highly probable forecast transactions (hedged items), which meet qualifying criteria under IAS 39, are designated as cash flow hedges or fair value hedges, and are subject to cash flow hedge
accounting or fair value hedge accounting respectively. In certain circumstances, only the intrinsic value of a derivative has been designated as a cash flow hedge, with the remaining fair value not designated as a cash flow hedge. Certain other
derivatives held by the Group do not meet the qualifying criteria for recognition for accounting purposes as hedges, despite this being their economic function. Changes in the fair values of these derivatives are recognised immediately in the income
statement. The Group does not hold or issue derivatives for speculative purposes. Derivatives
  that qualify for cash flow hedge accountingChanges in the fair
  values of derivatives that are designated as cash flow hedges (cash flow
  hedging instruments) are initially recognised in the hedging reserve.
  In circumstances where the derivative used is a currency option, only changes
  in the intrinsic value of the option are designated under the cash flow hedging
  relationship, with all other movements being recorded immediately in the income
  statement. Amounts accumulated in the hedging reserve are subsequently recognised
  in the income statement in the periods in which the related hedged items are
  recognised in the income statement. At inception, the effectiveness of the Groups cash flow hedges is assessed through a comparison of the principal terms of the hedging instrument and the underlying hedged item. The ongoing effectiveness of the
Groups cash flow hedges is assessed using the dollar-offset approach, with the expected cash flows of hedging instruments being compared to the expected cash flows of the hedged items. This assessment is used to demonstrate that each hedge
relationship is expected to be highly effective on inception, has been highly effective in the period and is expected to continue to be highly effective in future periods. The measurement of hedge ineffectiveness for the Groups hedging
instruments is calculated using the hypothetical derivative method, with the fair values of the hedging instruments being compared to those of the hypothetical derivative that would result in the designated cash flow hedge achieving perfect hedge
effectiveness. The excess of the cumulative change in the fair value of the actual hedging instrument compared to that of the hypothetical derivative is deemed to be hedge ineffectiveness, which is recognised in the income statement. When a cash flow hedging instrument expires, is terminated or is exercised, or if a hedge no longer meets the qualifying criteria for hedge accounting, any cumulative gain or loss existing in the hedging reserve at
that time remains in the hedging reserve and is recognised when the forecast transaction is ultimately recognised in the income statement, provided that the underlying transaction is still expected to occur. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in the hedging reserve is immediately recognised in the income statement and all future changes in the fair value of the cash flow hedging instruments are immediately recognised in the
income statement.


Derivatives
  that qualify for fair value hedge accountingThe Group has designated
  certain derivatives as fair value hedges as defined under IAS 39. Any changes
  in the fair value of the derivatives are recognised immediately in the income
  statement. The carrying value of the underlying hedged items are adjusted for
  the change in the fair value of the hedged risks, with the gains or losses recognised
  immediately in the income statement, offsetting the fair value movement on the
  derivative. Prospective effectiveness is assessed quarterly, through a comparison of the principal terms of the hedging instrument and the underlying hedged item, including the likelihood of default by the derivative counterparty.
The retrospective effectiveness of the Groups fair value hedges is calculated quarterly using the cumulative dollar-offset approach, with movements in the fair value of the hedged item being compared to movements in the fair value of the
hedging instrument. The Group uses a range of 80% to 125% for hedge effectiveness and any relationship which has effectiveness outside this range is deemed to be ineffective and hedge accounting is suspended. Embedded
  derivativesDerivatives embedded
  in other financial instruments or other host contracts are treated as separate
  derivatives when their risks and characteristics are not closely related to
  those of the host contracts and the host contracts are not carried at fair value,
  with unrealised gains or losses reported in the income statement. Embedded derivatives
  are carried on the balance sheet at fair value from the inception of the host
  contract. Changes in fair value are recognised within the income statement during
  the period in which they arise. g) Inventoriesi. Acquired and commissioned television programme inventoriesProgramme inventories
  are stated at the lower of cost and net realisable value (NRV),
  including, where applicable, estimated subscriber escalation payments, and net
  of the accumulated expense charged to the income statement to date. Programming rights are included as inventories when the legally enforceable licence period commences and all of the following conditions have been met: (a) the cost of each programme is known or reasonably
determinable; (b) the programme material has been accepted by the Group in accordance with the conditions of the rights, and (c) the programme is available for its first showing. Prior to being included in inventories, the programming rights are
classified as television programme rights not yet available for transmission and not recorded on the Groups balance sheet and are instead disclosed as contractual commitments (see note 27). Payments made upon receipt of commissioned and
acquired programming, but in advance of the legal right to broadcast the programmes, are treated as prepayments. The cost of television programme inventories is recognised in the operating expense line of the income statement, primarily as described below: Sports  100% of the cost is recognised in the income statement on the first broadcast or, where the rights are for multiple seasons or competitions, such rights are principally recognised on a straight-line basis
across the seasons or competitions. News  100% of the cost is recognised in the income statement on first broadcast. General entertainment  The cost is recognised in the income statement based on the expected value of each planned broadcast. Movies  The cost is recognised in the income statement on a straight-line basis over the period of broadcast rights. Where programme rights are surplus to the Groups requirements, and no gain is anticipated through a disposal of the rights, or where the programming will not be broadcast for any other reason, a write-down to the
income statement is made. Any reversals of inventory write-downs are recognised as reductions in operating expense. ii. Set-top
  boxes, routers and related equipmentSet-top boxes (including
  Sky+ boxes and Sky+ HD boxes), routers and related equipment are valued at the
  lower of cost and NRV, the latter of which reflects the value that the business
  expects to realise from the set-top boxes and related




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|Consolidated financial statements
|---------------------------------
|continued                        
|                                 
|                                 

Notes to the
  consolidated financial statementscontinued 1. Accounting
  policies(continued)equipment in the hands
  of the customer, and are recognised through the operating expense line of the
  income statement. Any subsidy is expensed on enablement, which is the process
  of activating the viewing card during installation, so as to enable a viewer
  to view encrypted broadcast services, and effectively represents the completion
  of the installation process for new subscribers. The amount recognised in the
  income statement is determined on a weighted average cost basis, in accordance
  with IAS 2 Inventory. iii. Raw
  materials, consumables and goods held for resaleRaw materials, consumables
  and goods held for resale are valued at the lower of cost and NRV. The cost
  of raw materials, consumables and goods held for resale is recognised through
  the operating expense line of the income statement on a FIFO basis. h) Financial
  assets and liabilitiesFinancial assets and liabilities
  are initially recognised at fair value plus any directly attributable transaction
  costs. At each balance sheet date, the Group assesses whether there is any objective
  evidence that any financial asset is impaired. Financial assets and liabilities
  are recognised on the Groups balance sheet when the Group becomes a party
  to the contractual provisions of the financial asset or liability. Financial
  assets are derecognised from the balance sheet when the Groups contractual
  rights to the cash flows expire or the Group transfers substantially all the
  risks and rewards of the financial asset. Financial liabilities are derecognised
  from the Groups balance sheet when the obligation specified in the contract
  is discharged, cancelled or expires. i. Available-for-sale
  investmentsEquity investments
  intended to be held for an indefinite period of time are classified as available-for-sale
  investments. They are carried at fair value, where this can be reliably measured,
  with movements in fair value recognised directly in the available-for-sale reserve.
  Where the fair value cannot be reliably measured, the investment is carried
  at cost. Any impairment losses in equity investments classified as available-for-sale investments are recognised in the income statement and are not reversible through the income statement, and are determined with reference to
the closing market share price at the balance sheet date. Any subsequent increase in the fair value of the available-for-sale investment above the impaired value will be recognised within the available-for-sale reserve. Available-for-sale investments are included within non-current assets unless the carrying value is expected to be recovered principally through sale rather than continuing use, in which case they are included within
current assets. On disposal, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had previously been recognised directly in reserves is recognised in the income
statement. ii. Trade
  and other receivablesTrade and other receivables
  are non-derivative financial assets with fixed or determinable payments and,
  where no stated interest rate is applicable, are measured at the original invoice
  amount, if the effect of discounting is immaterial. Where discounting is material,
  trade and other receivables are measured at amortised cost using the effective
  interest method. An allowance account is maintained to reduce the carrying value
  of trade and other receivables for impairment losses identified from objective
  evidence, with movements in the allowance account, either from increased impairment
  losses or reversals of impairment losses, being recognised in the income statement. iii. Cash
  and cash equivalentsCash and cash equivalents
  include cash in hand, bank accounts, deposits receivable on demand and deposits
  with maturity dates of three months or less from the date of inception. Bank
  overdrafts that are repayable on demand and which form an integral part of the
  Groups cash management are also included as a component of cash and cash
  equivalents where offset conditions are met.


iv. Short-term
  depositsThis includes short-term
  deposits and commercial paper which have maturity dates of more than three months
  from inception. These deposits are initially recognised at fair value, and then
  carried at amortised cost through the income statement less any allowance for
  impairment losses. v. Trade
  and other payablesTrade and other payables
  are non-derivative financial liabilities and are measured at amortised cost
  using the effective interest method. Trade and other payables with no stated
  interest rate are measured at the original invoice amount if the effect of discounting
  is immaterial. vi. BorrowingsBorrowings are recorded
  as the proceeds received, net of direct issue costs. Finance charges, including
  any premium payable on settlement or redemption and direct issue costs, are
  accounted for on an accruals basis in the income statement using the effective
  interest method and are added to the carrying amount of the underlying instrument
  to which they relate, to the extent that they are not settled in the period
  in which they arise. i) Transponder
  rental prepaymentsPayments made in respect
  of future satellite broadcast capacity have been recorded as prepaid transponder
  costs. These payments are recognised in the income statement on a straight-line
  basis over the term of the agreement. j) ImpairmentAt each balance sheet
  date, in accordance with IAS 36 Impairment of Assets, the Group
  reviews the carrying amounts of all its assets excluding inventories (see accounting
  policy g), non-current assets classified as held for sale, financial assets
  (see accounting policy h) and deferred taxation (see accounting policy p) to
  determine whether there is any indication that any of those assets have suffered
  an impairment loss. An impairment, other than an impairment of an investment in a joint venture or associate, is recognised in the income statement whenever the carrying amount of an asset or its cash generating unit exceeds its
recoverable amount. An impairment of an investment in a joint venture or associate is recognised within the share of profit from joint ventures and associates. The recoverable amount is the greater of net selling price, defined as the fair value
less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks
specific to the asset. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Impairment losses recognised in respect of
cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to those units, and then to reduce the carrying amount of other assets in the unit on a pro-rata basis. An impairment loss for an individual asset or cash generating unit shall be reversed if there has been a change in estimates used to determine the recoverable amount since the last impairment loss was recognised and is
only reversed to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. k) ProvisionsProvisions are recognised
  when the Group has a probable, present legal or constructive obligation to make
  a transfer of economic benefits as a result of past events where a reliable
  estimate is available. The amounts recognised represent the Groups best
  estimate of the transfer of benefits that will be required to settle the obligation
  as of the balance sheet date. Provisions are discounted if the effect of the
  time value of money is material using a pre-tax market rate adjusted for risks
  specific to the liability. l) ESOP reserveWhere the Company or its
  subsidiaries purchase the Companys own equity shares, the cost of those
  shares, including any attributable transaction costs, is presented within




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the ESOP reserve as a deduction
  in shareholders equity in the consolidated financial statements. m) Revenue
  recognitionRevenue, which excludes
  value added tax and transactions between Group companies, represents the gross
  inflow of economic benefit from Skys operating activities. The Groups
  main sources of revenue are recognised as follows: –
    Retail subscription revenue,
      including subscriptions for Sky TV, Sky Broadband and Sky
      Talk services, is recognised as the goods or services are provided, net
      of any discount given. Pay-per-view revenue
      is recognised when the event or movie is viewed.–
    Wholesale revenue is recognised
      as the services are provided to the cable retailers and
      is based on the number of subscribers taking the Sky channels, as reported
      to the Group by the cable retailers,
      and the applicable rate card or contract.–
    Advertising sales revenue
      is recognised when the advertising is broadcast. Revenue
      generated from airtime sales, where Sky acts as an agent on behalf of
      third parties, is recognised on a net commission
      basis.–
    Sky Bet revenue is recognised
      in accordance with IAS 39. Sky Bet revenue represents
      income in the period for betting and gaming activities, defined as
      amounts staked by customers less winnings paid
      out.–
    Installation, hardware
      and service revenue is recognised in the income statement when
      the goods and services are delivered.–
    Other revenue principally
      includes income from Sky Active, Sky Card, Sky Mobile TV,
      technical platform services, Easynet Enterprise and Amstrad. Other revenue
      is recognised, net of any discount given,
      when the relevant goods or service are provided. Revenue is measured at the fair value of the consideration received or receivable. When the Group sells a set-top box, installation or service and a subscription in one bundled transaction, the Group allocates the
total arrangement consideration to the different individual elements based on their relative fair values. Management determines the fair value of individual elements based on vendor specific or third party evidence. The amount of revenue the Group
recognises for delivered elements is limited to the cash received. n) Employee
  benefitsWages, salaries, social
  security contributions, bonuses payable and non-monetary benefits for current
  employees are recognised in the income statement as the employees services
  are rendered. The Group provides pensions to eligible employees through defined contribution schemes. The amount charged to the income statement in the year represents the cost of contributions payable by the Group to the schemes in
exchange for employee services rendered in that year. The assets of the schemes are held independently of the Group. Termination benefits are recognised as a liability when, and only when, the Group has a demonstrable commitment to terminate the employment of an employee or group of employees before the normal retirement date or as
the result of an offer to encourage voluntary redundancy. The Group issues equity-settled
  and cash-settled share-based payments to certain employees which must be measured
  at fair value and recognised as an expense in the income statement, with a corresponding
  increase in equity in the case of equity-settled payments, and liabilities in
  the case of cash-settled awards. The fair values of equity-settled payments
  are measured at the dates of grant using option-pricing models, taking into
  account the terms and conditions upon which the awards are granted. Cash-settled
  share-based payments are measured at their fair value as at the balance sheet
  date. The fair value is recognised over the period during which employees become
  unconditionally entitled to the awards, subject to the Groups estimate
  of the number of awards which will lapse, either due to employees leaving the
  Group prior to vesting or due to non-market based performance conditions not
  being met. Where an award has market-based performance conditions, the fair
  value of the award is adjusted for the probability of achieving these via the
  option pricing model. The total amount recognised in the income statement as
  an expense is adjusted to reflect the


actual number of awards that vest, except where forfeiture is due to the failure to meet market-based performance measures. In accordance with the transitional provisions in IFRS 1, the recognition and measurement principles in IFRS 2 have only been applied to options and awards granted after 7 November 2002 that had not vested by 1 January
2005. o) LeasesLeases are classified
  as finance leases whenever the terms of the lease transfer substantially all
  the risks and rewards incidental to ownership of the asset to the lessee. All
  other leases are classified as operating leases. When the Group is lessor, sublease income from operating leases is recognised on a straight-line basis over the term of the lease. When the Group is lessee, assets held under finance leases are recognised as assets of the Group at their fair value on the date of acquisition, or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reductions of the lease obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. The lease expense arising from operating leases is charged to the income statement on a straight line basis over the term of the lease. Benefits received and receivable as incentives to enter into operating leases are
recorded on a straight line basis over the lease term. p) Taxation,
  including deferred taxationThe Groups liability
  for current tax is based on taxable profit for the year, and is calculated using
  tax rates that have been enacted or substantively enacted at the balance sheet
  date. Deferred tax assets and liabilities are recognised using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the balance sheet and the
corresponding tax bases used in the computation of taxable profit. Temporary differences arising from goodwill and the initial recognition of assets or liabilities that affect neither accounting profit nor taxable profit are not provided for.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and
it is probable that the temporary difference will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax
rates that have been enacted or substantially enacted at the balance sheet date. The carrying amount of deferred tax assets is reviewed at each balance sheet date and adjusted to reflect an amount that is probable to be realised based on the weight of all available evidence. Deferred tax is
calculated at the rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets and liabilities are not discounted. Deferred tax is charged or credited in the income statement, except
where it relates to items charged or credited directly to equity, in which case the deferred tax is also included within equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. q) Distributions
  to equity shareholdersDividends are recognised
  in the retained earnings reserve in the year in which they are declared. The cost of repurchasing the Groups own equity shares for cancellation (share buy-backs) is recorded in retained earnings. In addition, the nominal cost of shares repurchased is deducted
from share capital and a matching credit is recorded in the capital redemption reserve.




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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued 1. Accounting policies(continued)r) Earnings per shareBasic
earnings or loss per share represents the profit or loss for the year, divided
by the weighted average
  number of ordinary shares in issue during the year, excluding the weighted
  average number of ordinary shares
purchased by the Group and held in the Groups ESOP during the year to satisfy
employee share awards. Diluted earnings or loss per share represents the profit or loss for the year,
divided by the weighted average number of ordinary shares in issue during the
year, excluding the weighted average number of ordinary shares purchased by the
Group and held in the Groups ESOP during the year to satisfy employee share
awards, plus the weighted average number of dilutive shares resulting from share
options where the inclusion of these would not be
antidilutive. s) Foreign currency translationThe
Groups functional currency and presentational currency is pounds sterling.
Trading activities denominated in foreign currencies are recorded in pounds sterling
at the applicable monthly exchange rates. Monetary assets, liabilities and commitments
denominated in foreign currencies at the balance sheet date are reported at the
rates of exchange at that date. Non-monetary assets and liabilities denominated
in foreign currencies are translated to pounds sterling at the exchange rate
prevailing at the date of the initial transaction. Gains and losses from the
retranslation of assets and liabilities are included net in profit for the year,
except for exchange differences arising on non-monetary assets and liabilities
where the changes in fair value are recognised directly
in equity. The assets and liabilities of the Groups foreign operations are translated
at exchange rates prevailing on the balance sheet date. Income and expense items
are translated at the applicable monthly average exchange rates. Any exchange
differences arising are classified as equity
and transferred to other reserves. t) Reportable segmentsA reportable segment,
as defined by IAS
14 Segment Reporting, is a distinguishable business or geographical
component of the Group, that provides products or services, that are subject
to risks and rewards that are different from those of other segments. The Group
considers its primary reporting format to be business segments. The Group considers
that it has only one reportable segment, being the Broadcast segment. As the
revenue, results, assets and cash flows of the Broadcast segment are substantially
the same to
those of the consolidated Group, no separate analysis has been provided. u) Accounting standards, interpretations and amendments to existing standards
that are not yet effectiveThe Group has not yet adopted certain new standards, amendments and
interpretations to existing standards, which have been published but are only effective for accounting periods beginning on or after 1 July 2008, or later periods. These new standards are listed below: 
    IFRIC 12 Service Concession Arrangements (effective from 1 January
    2008).
    IFRIC 14 IAS 19  The
    Limit on a Defined Benefit Asset, Minimum Funding Requirements
    and their Interaction (effective from 1 January 2008).
    IFRIC 13 Customer Loyalty Programmes (effective from 1 July 2008).
    IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective
    from 1 October 2008).
    IAS 1 (revised) Presentation of Financial Statements (effective
    from 1 January 2009).
    IAS 32 Financial Instruments: Presentation (effective 1 January
    2009).
    Amendment to IAS 23 Borrowing Costs (effective from 1 January
    2009).
    IFRS 8 Operating Segments (effective from 1 January 2009).
    IFRIC 15 Agreements for the Construction of Real Estate (effective
    from 1 January 2009).
    Amendments to IFRS 2 Share-Based Payments (effective from 1 January
    2009).
    Amendments to IFRS 1 First
    Time Adoption of International Financial Reporting Standards (effective
    1 January 2009).
    IFRS 3 Business Combinations (effective from 1 July 2009).


–
    IAS 27 Consolidated & Separate Financial Statements (effective
    from 1 July 2009). The Directors are currently evaluating the impact of the adoption of these standards,
amendments and interpretations in future periods. v) Critical accounting policies and the use of judgementCertain accounting policies
are considered to be critical to the Group. An accounting policy is considered
to be critical
if its selection or application materially affects the Groups financial
position or results. The Directors are required to use their judgement in order
to select and apply the Groups critical accounting policies. Below is a
summary of the Groups critical accounting policies and details of the key
areas of judgement that are
exercised in their application. (i)
    Goodwill
      (see note 12)–
    Judgement is required in determining the fair value of identifiable assets, liabilities and contingent assets assumed in a business combination. Calculating the fair values involves the use of significant estimates and assumptions, including expectations about future cash flows, discount rates and the lives of assets following purchase.–
    Judgement is also required in evaluating whether any impairment loss has arisen against the carrying amount of goodwill. This may require calculation of the recoverable amount of cash generating units to which the goodwill is associated.    Such a calculation may involve estimates of the net present value of future forecast cash flows and selecting an appropriate discount rate. Alternatively, it may involve a calculation of the fair value less costs to sell of the applicable cash generating unit. (ii)
    Revenue
      (see note 2)–
    Selecting the appropriate timing for, and amount of, revenue to be recognised requires judgement. This may involve estimating the fair value of consideration before it is received. When the Group sells a set-top box, installation or service and a subscription in one bundled transaction, the total consideration from the arrangement is allocated to each element based on their relative fair values. The fair value of each individual element is determined using vendor specific or third party evidence on a periodic basis. The amount of revenue the Group recognises for delivered elements is limited to the cash received.–
    Judgement is also required in evaluating the likelihood of collection of customer debt after revenue has been recognised. This evaluation requires estimates to be made, including the level of provision to be made for amounts with uncertain recovery profiles. Provisions are based on historical trends in the percentage of debts which are not recovered, or on more detailed reviews of individually significant balances. (iii)
  Intangible
      assets and property, plant and equipment (see notes 13 and 14)–
  The assessment
      of the useful economic lives of these assets requires judgement.Depreciation
      and amortisation is charged to the income statement based on theuseful
      economic life selected. This assessment requires estimation of the periodover
      which the Group will benefit from the assets.
  Determining
      whether the carrying amount of these assets has any indication ofimpairment
      also requires judgement. If an indication of impairment is identified,further
      judgement is required to assess whether the carrying amount can besupported
      by the net present value of future cash flows forecast to be derivedfrom
      the asset. This forecast involves cash flow projections and selecting theappropriate
      discount rate.
  Assessing
      whether assets meet the required criteria for initial capitalisationrequires
      judgement. This requires a determination of whether the assets willresult
      in future benefits to the Group. In particular, internally generated intangibleassets
      must be assessed during the development phase to identify whether theGroup
      has the ability and intention to complete the development successfully.(iv)
	Programming inventory (see note 18)
	The key area of accounting for programming inventory requiring judgement
    is theassessment of the appropriate profile over which to recognise amortisation
    in theincome statement. This assessment requires the Group to form an expectation
    ofthe number of times a programme will be broadcast and the value associatedwith each broadcast.




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
    For general entertainment
        programming, in order to perform this assessment of amortisation profile,
        we consider the expected number of viewers a programme is likely to achieve
        on repeat broadcast, the alternative programming available to the programming
        scheduler, the potential marketing benefits relating to the scheduling
        of certain programmes and the Groups assessment of its competitors scheduling
        intentions when determining the amount of programme expense to recognise
        for each broadcast. Acquired movie rights are amortised on a straight-
        line basis over the period of the transmission rights. Where contracts
        for sports rights provide for multiple seasons or competitions, they
        are amortised on a straight-line basis across the season or competition
        as our estimate of the benefits received from these rights is determined
    to be most appropriately aligned with a straight-line amortisation profile.(v)
    Deferred tax (see note
    17)
    The key area of judgement
        in respect of deferred tax accounting is the assessment of the expected
        timing and manner of realisation or settlement of the carrying amounts
        of assets and liabilities held at the balance sheet date. In particular,
        assessment is required of whether it is probable that there will be suitable
    future taxable profits against which any deferred tax assets can be utilised.(vi)
    Available-for-sale investments
    (see note 16)
    The key areas of judgement
        in respect of available-for-sale investments are the assessment of whether
        there is objective evidence that a loss event has occurred after initial
        recognition of an available-for-sale investment, and whether such a loss
        event has a reliably measurable impact on the estimated future cash flows
        of the investment. At each balance sheet date, management consider whether
        there is objective evidence that a loss event has occurred and whether
        it has had an impact on the estimated future cash flows of the available-for-sale
        investment. If a loss event has occurred, management would then consider
        whether an impairment loss has occurred and the quantum of that loss.
        As at 30 June
2008, the Groups available-for-sale investments included a material investment
in ITV plc (ITV) which has been impaired in the year. The factors
management considered in determining whether an impairment loss in ITV had occurred
included observable data about the estimated future cash flows of ITV based on
ITVs publicly available financial reporting and announcements, publicly
available information from financial commentators about ITV and the market in
which
it operates, the historical performance of ITVs share price, and the regulatory
environment affecting ITV and the Group. The impairment losses accounted for
have been determined with reference to closing market share prices at the balance
sheet date (see accounting policy j).(vii)
    Taxation (see note 9)
    Tax laws that apply to
        the Groups businesses may be amended by the relevant authorities,
    for example as a result of changes in fiscal circumstances or priorities. Such
    potential amendments and their application to the Group are regularly monitored
    and the requirement for recognition of any liabilities assessed where necessary.
    The Group is subject
        to income taxes and judgement is required in determining the appropriate
        provision for transactions where the ultimate tax determination is uncertain.
        In such circumstances, the Group recognises liabilities for anticipated
        taxes due based on best information available and where the anticipated
        liability is probable and estimable. Where the final outcome of such
        matters differs from the amounts initially recorded, any differences
        will impact the income tax and deferred tax provisions in the period
        to which such determination is made. Where the potential liabilities
        are not considered probable, the amount at risk is disclosed unless an
    adverse outcome is considered remote.






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|Consolidated
        financial statements
|-----------------------------------------
|continued                                
|                                         
|                                         

Notes to the consolidated financial statementscontinued

2. Revenue

| |                                    |       |  |       |  |       | 
| | ---------------------------------- | ----- |  | ----- |  | ----- | 
| |                                    | 2008  |  | 2007  |  | 2006  | 
| |                                    | £m    |  | £m    |  | £m    | 
| |                                    |       |  |       |  |       | 
| | Retail subscription                | 3,769 |  | 3,406 |  | 3,157 | 
| | Wholesale subscription             | 181   |  | 208   |  | 224   | 
| | Advertising                        | 328   |  | 352   |  | 342   | 
| | Sky Bet                            | 44    |  | 47    |  | 37    | 
| | Installation, hardware and service | 276   |  | 212   |  | 131   | 
| | Other                              | 354   |  | 326   |  | 257   | 
| |                                    | 4,952 |  | 4,551 |  | 4,148 | 
| |                                    |       |  |       |  |       | 

Revenue arises from goods and services provided to the UK, with the exception of £365 million (2007: £289 million; 2006: £222 million) which arises from services provided to other countries.

3. Operating expense

| |                                    |       |  |       |  |       | 
| | ---------------------------------- | ----- |  | ----- |  | ----- | 
| |                                    | 2008  |  | 2007  |  | 2006  | 
| |                                    | £m    |  | £m    |  | £m    | 
| |                                    |       |  |       |  |       | 
| | Programming(i)                     | 1,713 |  | 1,539 |  | 1,599 | 
| | Transmission and related functions | 542   |  | 402   |  | 234   | 
| | Marketing                          | 743   |  | 734   |  | 622   | 
| | Subscriber management              | 700   |  | 618   |  | 468   | 
| | Administration(ii)(iii)            | 530   |  | 443   |  | 348   | 
| |                                    | 4,228 |  | 3,736 |  | 3,271 | 
| |                                    |       |  |       |  |       | 

|      |                                                                                                                                                                                                                                                                                                                             
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Included within programming for the year ended 30 June 2007 is a £65 million credit due to the Group, arising from certain contractual rights under one of the Groups channel distribution agreements. This
item was previously disclosed as a contingent asset in the Groups June 2006 consolidated financial statements.
|(ii)  | Included within administration for the year ended 30 June 2008 is £21 million (2007: £16 million) of expense relating to legal costs incurred on the Groups ongoing claim against EDS (the information and
technology solutions provider).                                                                                 
|(iii) | Included within administration for the year ended 30 June 2008 is £7 million of expense relating to a restructuring exercise undertaken following a review of operating costs.                                                                                                                                              

4. Investment income and finance costs

| |                                                          |      |  |      |  |      | 
| | -------------------------------------------------------- | ---- |  | ---- |  | ---- | 
| |                                                          | 2008 |  | 2007 |  | 2006 | 
| |                                                          | £m   |  | £m   |  | £m   | 
| |                                                          |      |  |      |  |      | 
| | Investment income                                        |      |  |      |  |      | 
| | Cash, cash equivalents and short-term deposits           | 25   |  | 33   |  | 52   | 
| | Dividends receivable from available-for-sale investments | 22   |  | 13   |  |     | 
| |                                                          | 47   |  | 46   |  | 52   | 
| |                                                          |      |  |      |  |      | 
| |                                                          |      |  |      |  |      | 

| |  |                                                                                                               |      |   |      |   |      |  
| |  | ------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | - | ---- | -
| |  |                                                                                                               | 2008 |   | 2007 |   | 2006 |  
| |  |                                                                                                               | £m   |   | £m   |   | £m   |  
| |  |                                                                                                               |      |   |      |   |      |  
| |  | Finance costs                                                                                                 |      |   |      |   |      |  
| |  |  Interest
    payable and similar charges                                                                    |      |   |      |   |      |  
| |  | £1 billion Revolving Credit Facility (RCF)                                                                  | (6   | ) | (12  | ) | (2   | )
| |  | Guaranteed Notes (see note 22)                                                                                | (167 | ) | (135 | ) | (123 | )
| |  | Finance lease interest                                                                                        | (7   | ) | (8   | ) | (4   | )
| |  |                                                                                                               | (180 | ) | (155 | ) | (129 | )
| |  |                                                                                                               |      |   |      |   |      |  
| |  |  Other
    finance income (expense)                                                                          |      |   |      |   |      |  
| |  | Remeasurement of borrowings and borrowings-related derivative financial instruments (not qualifying for hedge |      |   |      |   |      |  
| |  | accounting)                                                                                                   | 4    |   |     |   | (10  | )
| |  | Remeasurement of programming-related derivative financial instruments (not qualifying for hedge accounting)   | (1   | ) | 6    |   | (4   | )
| |  | Gain (loss) arising on derivatives in a designated fair value hedge accounting relationship                   | 14   |   | (5   | ) |     |  
| |  | (Loss) gain arising on adjustment for hedged item in a designated fair value hedge accounting relationship    | (14  | ) | 5    |   |     |  
| |  |                                                                                                               | 3    |   | 6    |   | (14  | )
| |  |                                                                                                               |      |   |      |   |      |  
| |  |                                                                                                               | (177 | ) | (149 | ) | (143 | )
| |  |                                                                                                               |      |   |      |   |      |  



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5. Profit on disposal of joint ventureOn
    12 December 2007, the Group sold its 100% stake in BSkyB Nature Limited,
    the investment holding company for the Groups 50% interest in the NGC-UK Partnership. As consideration for the disposal, the Group
received 21% interests in both NGC Network International LLC and NGC Network Latin America LLC (in effect, 21% of National Geographic Channels television operations outside of the United States of America). This was a non-cash transaction and
realised a profit on disposal of £67 million.

6. Impairment of available-for-sale investmentThe
Groups investment in ITV is carried at fair value. The fair value of ITV is determined with reference to its equity share price at the balance sheet date. An impairment was first recorded following a review
of the carrying value of the investment in ITV at 31 December 2007, due to the significant and prolonged decline in the equity share price. In accordance with International Financial Reporting Standards, the Group has continued to review that
carrying value throughout fiscal 2008 and has recognised a cumulative impairment loss of £616 million in the current year. The impairment loss for the year was determined with reference to ITVs closing equity share price of 47.5 pence at
27 June 2008, the last trading day of the Groups financial year.

In accordance with IAS 39, the effect of any further decline in the value of the equity share price of ITV will be recognised in the income statement at the relevant future balance sheet date. On 30 July 2008, the
equity share price of ITV was 44.5 pence.

7. Profit before taxationProfit before taxation is stated after charging (crediting):

| |                                                      |       |   |       |   |       |  
| | ---------------------------------------------------- | ----- | - | ----- | - | ----- | -
| |                                                      | 2008  |   | 2007  |   | 2006  |  
| |                                                      | £m    |   | £m    |   | £m    |  
| |                                                      |       |   |       |   |       |  
| | Cost of inventories recognised as an expense         | 1,436 |   | 1,387 |   | 1,281 |  
| | Depreciation of property, plant and equipment        | 155   |   | 120   |   | 89    |  
| | Amortisation of intangible assets                    | 91    |   | 72    |   | 51    |  
| | Rentals on operating leases and similar arrangements | 46    |   | 32    |   | 25    |  
| | Sub-lease rentals received on operating leases       | (2    | ) | (1    | ) | (1    | )
| |                                                      |       |   |       |   |       |  

Consolidated non-current assets outside the UK were £27 million (2007: £20 million).

Foreign exchangeForeign
exchange gains recognised in the income statement during the year amounted to £3 million (2007: £2 million; 2006: £6
million).

Audit feesAn analysis of auditors remuneration is as follows:

| |                                                                                           |      |  |      |  |      | 
| | ----------------------------------------------------------------------------------------- | ---- |  | ---- |  | ---- | 
| |                                                                                           | 2008 |  | 2007 |  | 2006 | 
| |                                                                                           | £m   |  | £m   |  | £m   | 
| |                                                                                           |      |  |      |  |      | 
| | Fees payable to the Companys auditors for the audit of the Companys
    annual accounts | 1    |  | 1    |  | 1    | 
| | Fees payable to the Companys
    auditors for other services:                            |      |  |      |  |      | 
| | The audit of the Companys subsidiaries pursuant to legislation                           | 1    |  | 1    |  | 1    | 
| | Other services pursuant to legislation                                                    | 1    |  | 1    |  |     | 
| | Total audit fees                                                                          | 3    |  | 3    |  | 2    | 
| |                                                                                           |      |  |      |  |      | 
| | Information technology services                                                           | 1    |  | 1    |  | 4    | 
| | Total non-audit fees                                                                      | 1    |  | 1    |  | 4    | 
| |                                                                                           |      |  |      |  |      | 
| |                                                                                           | 4    |  | 4    |  | 6    | 
| |                                                                                           |      |  |      |  |      | 

This information is presented in accordance with UK Companies Act requirements. For US reporting purposes (following guidance included in Item 16C of Form 20-F), amounts paid to auditors are analysed as follows: audit
fees £2 million (2007: £2 million; 2006: £1 million), audit-related fees £1 million (2007: £1 million; 2006 £1 million), and all other fees £1 million (2007: £1 million; 2006: £4 million). All other fees
relate to services provided in respect of information systems development.



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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued

8. Employee benefits and key management compensationa) Group employee benefits

| |                                                  |      |  |      |  |      | 
| | ------------------------------------------------ | ---- |  | ---- |  | ---- | 
| |                                                  | 2008 |  | 2007 |  | 2006 | 
| |                                                  | £m   |  | £m   |  | £m   | 
| |                                                  |      |  |      |  |      | 
| | Wages and salaries                               | 506  |  | 451  |  | 362  | 
| | Social security costs                            | 52   |  | 48   |  | 38   | 
| | Costs of employee share option schemes(i)        | 40   |  | 35   |  | 23   | 
| | Contributions to the Groups pension
schemes(ii) | 24   |  | 20   |  | 16   | 
| |                                                  | 622  |  | 554  |  | 439  | 
| |                                                  |      |  |      |  |      | 

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | £36 million relates to equity-settled share-based payments (2007: £33 million; 2006: £23 million) and £4 million relates to cash-settled share-based payments (2007: £2 million; 2006: nil). At
30 June 2008, the total expense relating to non-vested awards not yet recognised was £41 million which is expected to be recognised over a weighted average period of 1 year. At 30 June 2008, £6 million was recognised as liabilities arising from share-based payment transactions (2007: £2 million), none of which related to awards for which the counterpartys right to cash had
vested by the end of the year.
|(ii) | The Group operates defined contribution pension schemes. The pension charge for the year represents the cost of contributions payable by the Group to the schemes during the year. The amount payable to the schemes by
the Group at 30 June 2008 was £3 million (2007: £2 million).                                                                                                                                                                                                                                                                                                                                   

The average monthly number of full-time equivalent persons (including temporary employees) employed by the Group during the year was as follows:

| |                                       |        |  |        |  |        | 
| | ------------------------------------- | ------ |  | ------ |  | ------ | 
| |                                       | 2008   |  | 2007   |  | 2006   | 
| |                                       | Number |  | Number |  | Number | 
| |                                       |        |  |        |  |        | 
| | Channels and services                 | 2,624  |  | 2,472  |  | 2,403  | 
| | Customer service, sales and marketing | 7,918  |  | 7,591  |  | 6,486  | 
| | Transmission and technology           | 1,943  |  | 1,560  |  | 1,267  | 
| | Management and administration         | 1,660  |  | 1,464  |  | 1,060  | 
| |                                       | 14,145 |  | 13,087 |  | 11,216 | 
| |                                       |        |  |        |  |        | 

There are approximately 390 temporary staff included within the average number of full-time equivalent people employed by the Group.

b) Key management compensation (see note 30d)

| |                              |      |  |      |  |      | 
| | ---------------------------- | ---- |  | ---- |  | ---- | 
| |                              | 2008 |  | 2007 |  | 2006 | 
| |                              | £m   |  | £m   |  | £m   | 
| |                              |      |  |      |  |      | 
| | Short-term employee benefits | 5    |  | 5    |  | 4    | 
| | Share-based payments         | 4    |  | 3    |  | 2    | 
| |                              | 9    |  | 8    |  | 6    | 
| |                              |      |  |      |  |      | 

Post-employment benefits were less than £1 million (2007: less than £1 million; 2006: less than £1 million).

9. Taxation 
a) Taxation recognised in the income statement

| |                                                   |      |  |      |   |      |  
| | ------------------------------------------------- | ---- |  | ---- | - | ---- | -
| |                                                   | 2008 |  | 2007 |   | 2006 |  
| |                                                   | £m   |  | £m   |   | £m   |  
| |                                                   |      |  |      |   |      |  
| | Current tax expense                               |      |  |      |   |      |  
| | Current year                                      | 172  |  | 204  |   | 147  |  
| | Adjustment in respect of prior years              | 7    |  | (15  | ) | (6   | )
| | Total current tax charge                          | 179  |  | 189  |   | 141  |  
| |                                                   |      |  |      |   |      |  
| | Deferred tax expense                              |      |  |      |   |      |  
| | Origination and reversal of temporary differences | 5    |  | 22   |   | 106  |  
| | Adjustment in respect of prior years              | 3    |  | 14   |   |     |  
| | Total deferred tax charge                         | 8    |  | 36   |   | 106  |  
| |                                                   |      |  |      |   |      |  
| | Taxation                                          | 187  |  | 225  |   | 247  |  
| |                                                   |      |  |      |   |      |  

Taxation relates to a £179 million UK corporation tax charge (2007: £240 million; 2006: £247 million) and an £8 million tax charge (2007: £15 million credit; 2006: nil) in respect of the
utilisation of Luxembourg trading losses.



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|Annual Report 2008

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b) Deferred tax recognised directly in equity

| |                                                               |      |  |      |   |      |  
| | ------------------------------------------------------------- | ---- |  | ---- | - | ---- | -
| |                                                               | 2008 |  | 2007 |   | 2006 |  
| |                                                               | £m   |  | £m   |   | £m   |  
| |                                                               |      |  |      |   |      |  
| | Deferred tax charge (credit) relating to share-based payments | 7    |  | (5   | ) | (2   | )
| | Deferred tax charge (credit) relating to cash flow hedges     | 13   |  | 12   |   | (16  | )
| |                                                               | 20   |  | 7    |   | (18  | )
| |                                                               |      |  |      |   |      |  

c) Reconciliation of effective tax rateThe tax expense for the year is higher (2007: higher; 2006: higher) than the expense that would have been charged using the standard rate of corporation tax in the UK (29.5%) applied to profit before tax. The
applicable enacted or substantially enacted rate of UK corporation tax for the year was 29.5% (2007 and 2006: 30%). The differences are explained below:

| |                                                                                                          |      |   |      |   |      |  
| | -------------------------------------------------------------------------------------------------------- | ---- | - | ---- | - | ---- | -
| |                                                                                                          | 2008 |   | 2007 |   | 2006 |  
| |                                                                                                          | £m   |   | £m   |   | £m   |  
| |                                                                                                          |      |   |      |   |      |  
| | Profit before tax                                                                                        | 60   |   | 724  |   | 798  |  
| | Profit before tax multiplied by standard rate of corporation tax in the UK of 29.5% (2007 and 2006: 30%) | 18   |   | 217  |   | 239  |  
| |                                                                                                          |      |   |      |   |      |  
| | Effects of:                                                                                              |      |   |      |   |      |  
| | Non-deductible expense(i)                                                                                | 220  |   | 19   |   | 16   |  
| | Tax exempt revenue(ii)                                                                                   | (61  | ) | (11  | ) | (2   | )
| | Under (over)-provision in respect of prior years                                                         | 10   |   |     |   | (6   | )
| | Taxation                                                                                                 | 187  |   | 225  |   | 247  |  
| |                                                                                                          |      |   |      |   |      |  

|     |                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | Included within non-deductible expense is the tax effect of the impairment in available-for-sale investments relating to the Groups investment in ITV, see note 6.                          
|(ii) | Included within tax exempt revenue is the tax effect of the profit on disposal of a joint venture relating to the Groups disposal of its 50% interest in the NGC-UK Partnership, see note 5.

10. Earnings per shareThe weighted average number of shares for the year was:

| |                                             |             |   |             |   |             |  
| | ------------------------------------------- | ----------- | - | ----------- | - | ----------- | -
| |                                             | 2008        |   | 2007        |   | 2006        |  
| |                                             | Millions of |   | Millions of |   | Millions of |  
| |                                             | shares      |   | shares      |   | shares      |  
| |                                             |             |   |             |   |             |  
| | Ordinary shares                             | 1,753       |   | 1,759       |   | 1,830       |  
| | ESOP trust ordinary shares                  | (5          | ) | (4          | ) | (3          | )
| | Basic shares                                | 1,748       |   | 1,755       |   | 1,827       |  
| |                                             |             |   |             |   |             |  
| | Dilutive ordinary shares from share options |            |   | 12          |   | 5           |  
| | Diluted shares                              | 1,748       |   | 1,767       |   | 1,832       |  
| |                                             |             |   |             |   |             |  

The calculation of diluted (loss) earnings per share excludes 32 million share options (2007: 17 million; 2006: 37 million), which could potentially dilute earnings per share in the future.

Basic and diluted (loss) earnings per share are calculated by dividing the loss or profit for the year into the weighted average number of shares for the year. In order to provide a measure of underlying performance,
management have chosen to present an adjusted profit for the year which excludes items that may distort comparability. Such items arise from events or transactions that fall within the ordinary activities of the Group but which management believes
should be separately identified to help explain underlying performance.

| |                                                                                             |      |   |      |   |      |  
| | ------------------------------------------------------------------------------------------- | ---- | - | ---- | - | ---- | -
| |                                                                                             | 2008 |   | 2007 |   | 2006 |  
| |                                                                                             | £m   |   | £m   |   | £m   |  
| |                                                                                             |      |   |      |   |      |  
| | Reconciliation from (loss) profit for the year to adjusted profit for the year              |      |   |      |   |      |  
| | (Loss) profit for the year                                                                  | (127 | ) | 499  |   | 551  |  
| | Remeasurement of all derivative financial instruments (not qualifying for hedge accounting) | (3   | ) | (6   | ) | 14   |  
| | Cost relating to restructuring exercise                                                     | 7    |   |     |   |     |  
| | Amount receivable from channel distribution agreement (see note 3)                          |     |   | (65  | ) |     |  
| | Legal costs relating to claim against EDS (see note 3)                                      | 21   |   | 16   |   |     |  
| | Profit on disposal of joint venture (see note 5)                                            | (67  | ) |     |   |     |  
| | Impairment of available-for-sale investment (see note 6)                                    | 616  |   |     |   |     |  
| | Tax effect of above items                                                                   | (8   | ) | 17   |   | (4   | )
| | Adjusted profit for the year                                                                | 439  |   | 461  |   | 561  |  
| |                                                                                             |      |   |      |   |      |  



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|                                           |  |   
|British Sky Broadcasting
        Group plc |  | 69
|Annual Report 2008                        

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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued

10. Earnings per share(continued)

| |                                                                     |       |   |       |  |       | 
| | ------------------------------------------------------------------- | ----- | - | ----- |  | ----- | 
| |                                                                     | 2008  |   | 2007  |  | 2006  | 
| |                                                                     | pence |   | pence |  | pence | 
| |                                                                     |       |   |       |  |       | 
| | (Loss)
      earnings per share from (loss) profit for the year     |       |   |       |  |       | 
| | Basic                                                               | (7.3  | ) | 28.4  |  | 30.2  | 
| | Diluted                                                             | (7.3  | ) | 28.2  |  | 30.1  | 
| | Adjusted
      earnings per share from adjusted profit for the year |       |   |       |  |       | 
| | Basic                                                               | 25.1  |   | 26.3  |  | 30.7  | 
| | Diluted                                                             | 25.0  |   | 26.1  |  | 30.6  | 
| |                                                                     |       |   |       |  |       | 

The calculation of diluted
  adjusted earnings per share includes 9 million dilutive ordinary shares from
  share options (2007: 12 million; 2006: 5 million) and excludes 15 million share
  options (2007: 17 million; 2006: 37 million), which could potentially dilute
  earnings per share in the future.

11. Dividends

| |                                                                   |      |  |      |  |      | 
| | ----------------------------------------------------------------- | ---- |  | ---- |  | ---- | 
| |                                                                   | 2008 |  | 2007 |  | 2006 | 
| |                                                                   | £m   |  | £m   |  | £m   | 
| |                                                                   |      |  |      |  |      | 
| | Dividends
      declared and paid during the year                 |      |  |      |  |      | 
| | 2005
      Final dividend paid: 5.00p

      per ordinary share   |     |  |     |  | 92   | 
| | 2006
      Interim dividend paid:
      5.50p per ordinary share  |     |  |     |  | 99   | 
| | 2006
      Final dividend paid: 6.70p
      per ordinary share    |     |  | 117  |  |     | 
| | 2007
      Interim dividend paid:
      6.60p per ordinary share  |     |  | 116  |  |     | 
| | 2007
      Final dividend paid: 8.90p
      per ordinary share    | 156  |  |     |  |     | 
| | 2008
      Interim dividend paid:
      7.125p per ordinary share | 124  |  |     |  |     | 
| |                                                                   | 280  |  | 233  |  | 191  | 
| |                                                                   |      |  |      |  |      | 

The 2008 final dividend proposed
  is 9.625 pence per ordinary share being £168 million. The dividend was
  not declared at the balance sheet date and is therefore not recognised as a
  liability as at 30 June 2008.

Dividends are paid between
  Group companies out of profits available for distribution subject to, inter
  alia, the provisions of the companies articles of association and the
  Companies Act 1985 (as amended). There are restrictions over the distribution
  of any profits which are not generated from external cash receipts as defined
  in Technical Release 1/08, issued by the Institute of Chartered Accountants
  in England and Wales. All dividends were paid out of profits available for distribution.
  The ESOP has waived its rights to dividends.

12. Goodwill

| |                                                         |       | 
| | ------------------------------------------------------- | ----- | 
| |                                                         | Total | 
| |                                                         | £m    | 
| |                                                         |       | 
| | Carrying
      value                                    |       | 
| | At 1 July
      2006                                    | 637   | 
| | Purchase
      of 365 Media Group Plc (365 Media)     | 77    | 
| | Other purchases                                         | 27    | 
| | At 30 June
      2007                                   | 741   | 
| |                                                         |       | 
| | Purchase
      of Amstrad Plc (Amstrad) (see note 29) | 104   | 
| | Other purchases                                         | 7     | 
| | At 30 June
      2008                                   | 852   | 
| |                                                         |       | 

Goodwill has principally
  arisen from the Groups purchases of the Sports Internet Group (SIG),
  British Interactive Broadcasting (BiB), Easynet Group Limited (Easynet),
  365 Media and Amstrad. Impairment reviews were performed on these goodwill balances
  at 30 June 2008, which did not indicate impairment.

The amount of goodwill deductible
  for tax purposes is nil (2007: nil). Goodwill, allocated by cash generating
  unit, is analysed as follows:

| |                                                   |      |  |      | 
| | ------------------------------------------------- | ---- |  | ---- | 
| |                                                   | 2008 |  | 2007 | 
| |                                                   | £m   |  | £m   | 
| |                                                   |      |  |      | 
| | Interactive(i)                                    | 302  |  | 302  | 
| | Betting and
      gaming(ii)                      | 149  |  | 149  | 
| | Broadcast(iii)                                    | 364  |  | 253  | 
| | Easynet Enterprise(iv)                            | 30   |  | 30   | 
| | Multiple
      units without significant goodwill | 7    |  | 7    | 
| |                                                   | 852  |  | 741  | 
| |                                                   |      |  |      | 



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|70                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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|
|
|
|
|

Recoverable amounts for the
  cash generating units were calculated on the basis of value in use, using cash
  flows calculated for the next five years as forecast by management. A long-term
  growth rate of 3% was applied in order to extrapolate cash flow projections
  beyond this five year period, based on future industry expectations. The cash
  flows were discounted using a pre-tax discount rate of 8.3% (2007: 8.6%) .

i)
  InteractiveThe Interactive unit includes
  goodwill arising from the purchase of BiB. The key assumptions on which forecast
  five year cash flows were based included the number of interactive application
  providers on the interactive platform, the number of unique users of interactive
  services, the average spend per unique user, contractual rate cards, the number
  of customer connections to interactive services, and the level of conditional
  access and access control charges to broadcasters and interactive application
  providers on the Sky digital platform. The values assigned to each of these
  assumptions were determined based on historical data and trends within the unit,
  and on contractual rate cards, where these were available.ii)
  Betting and gamingThe Betting and gaming
  unit includes goodwill arising from the purchase of SIG and 365 Medias
  betting business. The key assumptions on which forecast five year cash flows
  were based include the number of weekly unique users, the number of bets placed
  per user per week, the average stake per user per week and the average spend
  per active user per week. The values assigned to each of these assumptions were
  determined based on an extrapolation of historical trends within the unit, and
  external information on expected future trends in betting and gaming.iii) BroadcastThe Broadcast unit includes
  goodwill arising from the purchase of Easynets UK broadband network assets,
  Easynets UK residential business, 365 Medias content business and
  Amstrad. The key assumptions on which forecast five year cash flows of the Broadcast
  unit were based include the number of gross DTH subscriber additions, the rate
  of DTH churn, the average revenue per subscriber, acquisition costs per subscriber
  and anticipated changes in the product mix and marketing mix of the broadcast
  business. The values assigned to each of these assumptions were determined based
  on the extrapolation of historical trends within the Group, and external information
  on expected future trends in the UK and Ireland entertainment and communications
  industry.iv) Easynet EnterpriseThe Easynet Enterprise unit includes goodwill arising from the purchase
  of Easynets enterprise broadband business in the UK and other European
  countries. The key assumptions on which forecast five year cash flows were based
  include the number of Easynet Enterprise customers, the average revenue per
  customer and the operating margin generated per customer. The values assigned
  to each of these assumptions were determined based on an extrapolation of historical
  trends within the unit, and external information on expected future trends in
  the enterprise broadband industry.

13. Intangible
  assets

| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | -------------------------------------------------------- | ------------------------------------ | - | --------------------- | - | ------------------------------------------------------------------------ |  | ----------------------------------------------------- | - | ----- | -
| |                                                          | Internallygeneratedintangible assets |   | Otherintangibleassets |   | Internallygeneratedintangibleassets
      not yetavailable
      for use |  | Other
      intangibleassets not yetavailable for use |   | Total |  
| |                                                          |                                      |   |                       |   |                                                                         
| |                                                          |                                      |   |                       |   |                                                                         
| |                                                          |                                      |   |                       |   |                                                                         
| |                                                          |                                      |   |                       |   |                                                                         
| |                                                          | £m                                   |   | £m                    |   | £m                                                                       |  | £m                                                    |   | £m    |  
| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | Cost                                                     |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | At 1 July
      2006                                     | 34                                   |   | 327                   |   |                                                                         |  | 30                                                    |   | 391   |  
| | Additions
      from business combinations               |                                     |   | 24                    |   |                                                                         |  |                                                      |   | 24    |  
| | Other additions                                          | 28                                   |   | 41                    |   |                                                                         |  | 22                                                    |   | 91    |  
| | Disposals                                                |                                     |   | (51                   | ) |                                                                         |  |                                                      |   | (51   | )
| | At 30 June
      2007                                    | 62                                   |   | 341                   |   |                                                                         |  | 52                                                    |   | 455   |  
| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | Additions
      from business combinations (see note 29) |                                     |   | 5                     |   |                                                                         |  | 3                                                     |   | 8     |  
| | Foreign exchange
      movements                         |                                     |   | 1                     |   |                                                                         |  |                                                      |   | 1     |  
| | Other additions                                          | 33                                   |   | 34                    |   | 4                                                                        |  | 58                                                    |   | 129   |  
| | Disposals                                                | (4                                   | ) | (25                   | ) |                                                                         |  |                                                      |   | (29   | )
| | Transfers                                                |                                     |   | 11                    |   |                                                                         |  | (11                                                   | ) |      |  
| | At 30 June 2008                                          | 91                                   |   | 367                   |   | 4                                                                        |  | 102                                                   |   | 564   |  
| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | Amortisation                                             |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | At 1 July
      2006                                     | 16                                   |   | 157                   |   |                                                                         |  |                                                      |   | 173   |  
| | Amortisation
      for the year                          | 9                                    |   | 63                    |   |                                                                         |  |                                                      |   | 72    |  
| | Disposals                                                |                                     |   | (51                   | ) |                                                                         |  |                                                      |   | (51   | )
| | At 30 June
      2007                                    | 25                                   |   | 169                   |   |                                                                         |  |                                                      |   | 194   |  
| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | Foreign exchange
      movements                         |                                     |   | 1                     |   |                                                                         |  |                                                      |   | 1     |  
| | Amortisation
      for the year                          | 14                                   |   | 77                    |   |                                                                         |  |                                                      |   | 91    |  
| | Disposals                                                | (4                                   | ) | (21                   | ) |                                                                         |  |                                                      |   | (25   | )
| | At 30 June 2008                                          | 35                                   |   | 226                   |   |                                                                         |  |                                                      |   | 261   |  
| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | Carrying
      amounts                                   |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  
| | At 1 July
      2006                                     | 18                                   |   | 170                   |   |                                                                         |  | 30                                                    |   | 218   |  
| | At 30 June
      2007                                    | 37                                   |   | 172                   |   |                                                                         |  | 52                                                    |   | 261   |  
| | At 30 June 2008                                          | 56                                   |   | 141                   |   | 4                                                                        |  | 102                                                   |   | 303   |  
| |                                                          |                                      |   |                       |   |                                                                          |  |                                                       |   |       |  



|                                           |  |   
|------------------------------------------ |  | --
|                                           |  |   
|British
        Sky Broadcasting Group plc |  | 71
|Annual
        Report 2008                

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|Consolidated financial statements
|---------------------------------
|continued                        
|                                 
|                                 

Notes to the
    consolidated financial statementscontinued

13. Intangible
  assets(continued)The Groups intangible
  assets include internal and external expenditure on software associated with
  our customer management systems, software licences, capitalised development
  costs, copyright licences, customer lists and relationships, patents and brands
  acquired in business combinations.

The estimated future amortisation
  charge on finite-lived intangible assets for each of the next five years is
  set out below. It is likely that future amortisation will vary from the figures
  below as the estimate does not include the impact of any future investments,
  disposals or capital expenditure.

| |                                     |      |  |      |  |      |  |      |  |      | 
| | ----------------------------------- | ---- |  | ---- |  | ---- |  | ---- |  | ---- | 
| |                                     | 2008 |  | 2009 |  | 2010 |  | 2011 |  | 2012 | 
| |                                     |      |  |      |  |      |  |      |  |      | 
| | Estimated
      amortisation charge | 112  |  | 90   |  | 59   |  | 24   |  | 8    | 
| |                                     |      |  |      |  |      |  |      |  |      | 

For intangible assets acquired
  in business combinations in the year, the average amortisation period is 3 years.

14. Property,
  plant and equipment

| |                                                          |           |         |              |   |               |   |                |   |       |  
| | -------------------------------------------------------- | --------- | ------- | ------------ | - | ------------- | - | -------------- | - | ----- | -
| |                                                          | Land and  |         |              |   | Equipment,    |   | Assets not yet |   |       |  
| |                                                          | freehold  |         | Leasehold    |   | furniture and |   | available for  |   |       |  
| |                                                          | buildings | (i)(ii) | improvements |   | fixtures      |   | use            |   | Total |  
| |                                                          | £m        |         | £m           |   | £m            |   | £m             |   | £m    |  
| |                                                          |           |         |              |   |               |   |                |   |       |  
| | Cost                                                     |           |         |              |   |               |   |                |   |       |  
| | At 1 July
      2006                                     | 115       |         | 53           |   | 591           |   | 50             |   | 809   |  
| | Additions
      from business combinations               |          |         |             |   | 1             |   |               |   | 1     |  
| | Other additions                                          | 5         |         | 6            |   | 232           |   | 27             |   | 270   |  
| | Disposals                                                | (1        | )       | (19          | ) | (93           | ) |               |   | (113  | )
| | Transfers                                                | (14       | )       | 24           |   | 30            |   | (40            | ) |      |  
| | At 30 June
      2007                                    | 105       |         | 64           |   | 761           |   | 37             |   | 967   |  
| |                                                          |           |         |              |   |               |   |                |   |       |  
| | Additions
      from business combinations (see note 29) |          |         |             |   | 1             |   |               |   | 1     |  
| | Foreign exchange
      movements                         |          |         | 1            |   | 9             |   |               |   | 10    |  
| | Other additions                                          | 3         |         | 7            |   | 148           |   | 46             |   | 204   |  
| | Disposals                                                |          |         |             |   | (30           | ) |               |   | (30   | )
| | Transfers                                                |          |         |             |   | 25            |   | (25            | ) |      |  
| | At 30 June 2008                                          | 108       |         | 72           |   | 914           |   | 58             |   | 1,152 |  
| |                                                          |           |         |              |   |               |   |                |   |       |  
| | Depreciation                                             |           |         |              |   |               |   |                |   |       |  
| | At 1 July
      2006                                     | 13        |         | 34           |   | 243           |   |               |   | 290   |  
| | Depreciation                                             | 5         |         | 4            |   | 111           |   |               |   | 120   |  
| | Disposals                                                | (1        | )       | (19          | ) | (93           | ) |               |   | (113  | )
| | At 30 June
      2007                                    | 17        |         | 19           |   | 261           |   |               |   | 297   |  
| |                                                          |           |         |              |   |               |   |                |   |       |  
| | Foreign exchange
      movements                         |          |         | 1            |   | 7             |   |               |   | 8     |  
| | Depreciation                                             | 3         |         | 2            |   | 150           |   |               |   | 155   |  
| | Disposals                                                |          |         |             |   | (30           | ) |               |   | (30   | )
| | At 30 June 2008                                          | 20        |         | 22           |   | 388           |   |               |   | 430   |  
| |                                                          |           |         |              |   |               |   |                |   |       |  
| | Carrying
      amounts                                   |           |         |              |   |               |   |                |   |       |  
| | At 1 July
      2006                                     | 102       |         | 19           |   | 348           |   | 50             |   | 519   |  
| | At 30 June
      2007                                    | 88        |         | 45           |   | 500           |   | 37             |   | 670   |  
| | At 30 June 2008                                          | 88        |         | 50           |   | 526           |   | 58             |   | 722   |  
| |                                                          |           |         |              |   |               |   |                |   |       |  

|     |                                                                                                                                                                                                                                                                                                                                                                                  
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | The amounts shown include
      assets held under finance leases with a net book value of £5 million
      (2007: £5 million). The cost of these assets was £9 million (2007:
      £8 million) and the accumulated depreciation was £4 million (2007:
      £3 million). Depreciation charged during the year on such assets was
      £1 million (2007: nil; 2006: £1 million).
|(ii) | Depreciation was not
      charged on £27 million of land (2007: £27 million).                                                                                                                                                                                                                                                                                                   



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|                   |  |                                           
|72                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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|
|
|
|
|

15. Investments in joint ventures and associatesA
list of the Groups significant investments in joint ventures and associates,
including the name, country of incorporation and proportion of ownership interest
is given in note 31 to the consolidated financial
statements.

The movement in joint ventures and associates during the year was as follows:

| |                                                  |                                                                              |      |    |      |  
| | ------------------------------------------------ | ---------------------------------------------------------------------------- | ---- | -- | ---- | -
| |                                                  |                                                                              | 2008 |    | 2007 |  
| |                                                  |                                                                              | £m   |    | £m   |  
| |                                                  |                                                                              |      |    |      |  
| | Share of net
    assets:                         |                                                                              |      |    |     
| | At 1 July                                        | 34                                                                           |      | 28 |     
| | Acquisition
    of joint ventures and associates |                                                                              |      |    |     
| |                                                 | Disposal of joint venture                                                    | (15  | )  |     |  
| |                                                 | Acquisition of associates                                                    | 82   |    |     |  
| | Movement in
    net assets                       |                                                                              |      |    |     
| |                                                 | Funding, net of repayments                                                   | 6    |    | 3    |  
| |                                                 | Dividends received                                                           | (11  | )  | (9   | )
| |                                                 | Share of profits                                                             | 15   |    | 12   |  
| |                                                 | Exchange differences on translation of foreign joint ventures and associates | 3    |    |     |  
| | At 30 June                                       | 114                                                                          |      | 34 |     
| |                                                  |                                                                              |      |    |      |  

The Groups share of any capital commitments and contingent liabilities of associates and joint ventures is shown in note 27.

a) Investments in joint venturesRepresenting
the Groups share of each joint venture:

| |                                     |      |   |      |  
| | ----------------------------------- | ---- | - | ---- | -
| |                                     | 2008 |   | 2007 |  
| |                                     | £m   |   | £m   |  
| |                                     |      |   |      |  
| | Non-current assets                  | 4    |   | 4    |  
| | Current assets                      | 49   |   | 59   |  
| | Current liabilities                 | (24  | ) | (28  | )
| | Non-current liabilities             | (1   | ) | (1   | )
| | Shareholders equity                | 28   |   | 34   |  
| |                                     |      |   |      |  
| | Revenue                             | 72   |   | 74   |  
| | Expense                             | (58  | ) | (60  | )
| | Taxation                            | (3   | ) | (2   | )
| | Share of profit from joint ventures | 11   |   | 12   |  
| |                                     |      |   |      |  

b) Investments in associatesRepresenting a 100% share of each associate:

| |                      |      |   |      | 
| | -------------------- | ---- | - | ---- | 
| |                      | 2008 |   | 2007 | 
| |                      | £m   |   | £m   | 
| |                      |      |   |      | 
| | Total assets         | 289  |   |     | 
| | Total liabilities    | (64  | ) |     | 
| | Shareholders equity | 225  |   |     | 
| |                      |      |   |      | 
| | Revenue(i)           | 132  |   |     | 
| | Profit(i)            | 38   |   |     | 
| |                      |      |   |      | 

|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(i) | Revenue and profit numbers are provided for the full year ending 30 June 2008.
|   

16. Available-for-sale investments

| |                                   |      |   |      |  
| | --------------------------------- | ---- | - | ---- | -
| |                                   | 2008 |   | 2007 |  
| |                                   | £m   |   | £m   |  
| |                                   |      |   |      |  
| | Investment in ITV at cost         | 946  |   | 946  |  
| | Unrealised loss on ITV investment |     |   | (151 | )
| | Impairment of ITV investment      | (616 | ) |     |  
| | Fair value of ITV investment      | 330  |   | 795  |  
| |                                   |      |   |      |  
| | Other investments at cost         | 8    |   | 2    |  
| |                                   | 338  |   | 797  |  
| |                                   |      |   |      |  

On 17 November 2006, the Group acquired 696 million shares in ITV, at a price of 135 pence per share, representing 17.9% of the issued capital of ITV, for a total consideration of £946 million including fees and
taxes. The Groups investment in ITV is carried at fair value. The fair value of ITV is determined with reference to its equity share price at the balance sheet date. An impairment was first recorded following a review of the carrying value of
the investment in ITV at 31 December 2007, due to the



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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued

16. Available-for-sale investments(continued)

significant and prolonged
    decline in the equity share price. In accordance with International Financial
    Reporting Standards, the Group has continued to review that carrying value
    throughout fiscal 2008 and has recognised a cumulative impairment loss of £616
    million in the current year. The impairment loss for the year was determined
    with reference to ITVs closing equity share price of 47.5 pence at
  27 June 2008, the last trading day of the Groups financial year.

Any disposal of the investment, assuming certain other factors remain consistent
with those existing at the balance sheet date, would be exempt from tax under
the provisions of the Substantial Shareholding Exemption (SSE). As such, the
SSE provisions would prevent any capital loss arising for tax purposes.

The Group holds certain unquoted equity investments that are carried at cost
less impairment. The fair value of these investments is not considered to differ
significantly from the carrying value.

17. Deferred tax
i) Recognised deferred tax assets

| |                                     |             |   |            |   |             |   |             |   |             |   |       |  
| | ----------------------------------- | ----------- | - | ---------- | - | ----------- | - | ----------- | - | ----------- | - | ----- | -
| |                                     |             |   |            |   |             |   | Share-based |   | Financial   |   |       |  
| |                                     | Fixed asset |   |            |   | Short-term  |   | payments    |   | instrument  |   |       |  
| |                                     | temporary   |   |            |   | temporary   |   | temporary   |   | temporary   |   |       |  
| |                                     | differences |   | Tax losses |   | differences |   | differences |   | differences |   | Total |  
| |                                     | £m          |   | £m         |   | £m          |   | £m          |   | £m          |   | £m    |  
| |                                     |             |   |            |   |             |   |             |   |             |   |       |  
| | At 1 July 2006                      | 26          |   | 33         |   | 8           |   | 11          |   | 22          |   | 100   |  
| | (Charge) credit to income           | (32         | ) | (18        | ) | 1           |   | 12          |   | 1           |   | (36   | )
| | Credit (charge) to equity           |            |   |           |   |            |   | 5           |   | (12         | ) | (7    | )
| | Business combinations               | (3          | ) |           |   |            |   |            |   |            |   | (3    | )
| | At 30 June 2007                     | (9          | ) | 15         |   | 9           |   | 28          |   | 11          |   | 54    |  
| |                                     |             |   |            |   |             |   |             |   |             |   |       |  
| | Credit (charge) to income           | 3           |   | (8         | ) | (1          | ) | (3          | ) | 1           |   | (8    | )
| | Charge to equity                    |            |   |           |   |            |   | (7          | ) | (13         | ) | (20   | )
| | Business combinations (see note 29) | (3          | ) |           |   |            |   |            |   |            |   | (3    | )
| | At 30 June 2008                     | (9          | ) | 7          |   | 8           |   | 18          |   | (1          | ) | 23    |  
| |                                     |             |   |            |   |             |   |             |   |             |   |       |  

Deferred tax assets have been recognised at 30 June 2008 and 30 June 2007 on the basis that, from managements current forecast of the Groups entities, it is probable that there will be suitable taxable
profits against which these assets can be utilised. Tax losses are treated as unrecognised deferred tax assets if it is not considered probable that suitable future taxable profits will arise. During the year, any tax losses suffered by UK entities
have been relieved against taxable profits in other UK entities in the Group.

The deferred tax asset recognised in respect of tax losses arises principally in Luxembourg. Based on managements forecast, there will be suitable future taxable profits against which this deferred tax asset can
be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the periods in which they reverse. The rate enacted or substantially enacted for the relevant periods of reversal is 28%
in the year ended 30 June 2008 (2007: 28% to 30%).

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

| |                          |      |   |      |  
| | ------------------------ | ---- | - | ---- | -
| |                          | 2008 |   | 2007 |  
| |                          | £m   |   | £m   |  
| |                          |      |   |      |  
| | Deferred tax assets      | 36   |   | 66   |  
| | Deferred tax liabilities | (13  | ) | (12  | )
| |                          | 23   |   | 54   |  
| |                          |      |   |      |  

ii) Unrecognised deferred tax assets

| |                                                                              |      |  |      | 
| | ---------------------------------------------------------------------------- | ---- |  | ---- | 
| |                                                                              | 2008 |  | 2007 | 
| |                                                                              | £m   |  | £m   | 
| |                                                                              |      |  |      | 
| | Tax losses arising from trading                                              | 128  |  | 152  | 
| | Tax losses arising from capital disposals and provisions against investments | 407  |  | 447  | 
| |                                                                              | 535  |  | 599  | 
| |                                                                              |      |  |      | 

Deferred tax assets have not been recognised in respect of the items above because it is not probable that future taxable profits will be available against which the Group can utilise the losses.

At 30 June 2008, a deferred tax asset of £48 million (2007: £50 million) principally arising from UK losses in the Group, has not been recognised. These losses can only be offset against taxable profits
generated in the entities concerned. There is currently insufficient evidence to support the recognition of a deferred tax asset relating to these losses. The UK trading losses can be carried forward indefinitely.



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|74                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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|
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At 30 June 2008, a deferred tax asset of £80 million (2007: £102 million) has not been recognised in respect of overseas trading losses on the basis that it is not probable that these temporary differences
will be utilised. These losses include £40 million (2007: £75 million) with respect to the Groups German holding companies of KirchPayTV and £40 million (2007: £27 million) with respect to the Groups holdings in
Easynets European subsidiaries. In respect of the unrecognised deferred tax of £80 million on the overseas trading losses, £63 million relates to losses that can be carried forward indefinitely and £17 million relates to losses
that have expiry dates between 2009 and 2023. At 30 June 2008, a deferred tax asset of £391 million (2007: £420 million) has not been recognised in respect of potential capital losses related to the Groups holding of KirchPayTV, on the basis that
utilisation of these temporary differences is not probable. At 30 June 2008, the Group also has capital losses with a tax value estimated to be in excess of £16 million (2007: £27 million) including provisions in a football club and other
investments, which have not been recognised as a deferred tax asset, on the basis that it is not probable that they will be utilised. The capital losses can be carried forward indefinitely. 18. Inventories 2008
	
	2007£m
	
	£mTelevision programme rights
	219
	
	290Set-top boxes and related equipment
	81
	
	84Other inventories
	10
	
	10310
	
	384 At 30 June 2008, at least 91% (2007: 89%) of the television programme rights and 100% (2007: 100%) of other inventories is expected to be recognised in the income statement within 12 months. 19. Trade and other receivables 2008
	
	2007£m
	
	£mGross trade receivables
	279
	
	276Less: provision for impairment of receivables
	(84
	)
	(72
	)Net trade receivables
	195
	
	204Amounts receivable from joint ventures andassociates
	10
	
	8Amounts receivable from other related parties
	6
	
	1Prepayments
	149
	
	175Accrued income
	105
	
	91VAT
	51
	
	4Other
	50
	
	41Current trade and other receivables
	566
	
	524Non current prepayments
	19
	
	Total trade and other receivables
	585
	
	524 Included within current trade and other receivables is £36 million (2007: £27 million) which is due in more than one year.


The ageing of the Groups net trade receivables past due subject to impairment is as follows: 2008
	
	2007£m
	
	£mUp to 30 days past due date
	42
	
	3030 to 60 days past due date
	9
	
	1160 to 120 days past due date
	8
	
	8More than 120 days past due date
	13
	
	2972
	
	78 The Directors consider that the carrying amount of trade and other receivables approximates to their fair values. The Group is exposed to credit risk on its trade and other receivables, however the Group does not have
any significant concentrations of credit risk, with exposure spread over a large number of counterparties and customers. Trade receivables principally comprise amounts outstanding from subscribers, advertisers and other customers. During fiscal year 2008 the Group identified an immaterial gain contingency of £28 million, which had in the 2007 Annual Report been included at 30 June 2007 in both Gross trade receivables
and Less: provision for impairment of receivables. In order to provide an appropriate comparative presentation, Gross trade receivables and Less: provision for impairment of trade
receivables as at 30 June 2007 have been amended to eliminate this item from both categories. The amended presentation did not impact Net trade receivables at 30 June 2007 nor the 2007 income or cash flow
statements. In fiscal year 2008, this contingency now stands at £34 million. Provisions for doubtful debts 2008
	
	2007£m
	
	£mBalance at beginning of year
	72
	
	60Amounts utilised
	(14
	)
	(5
	)Income statement charge
	26
	
	17Balance at end of year
	84
	
	72 20. Trade and other payables 2008
	
	2007£m
	
	£mTrade payables
	270
	
	380Amounts owed to joint ventures and associates
	3
	
	3Amounts owed to other related parties
	32
	
	36VAT
	105
	
	97Accruals
	534
	
	468Deferred income
	289
	
	245Other
	61
	
	661,294
	
	1,295 Included within trade payables are £111 million (2007: £139 million) of US dollar-denominated programme payables. The Directors consider that the carrying amount of trade and other payables approximates to
their fair values. Trade payables principally comprise amounts outstanding for programming purchases and ongoing costs.




|                                           |  |   
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|British
        Sky Broadcasting Group plc |  | 75
|Annual
        Report 2008                

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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued

21. Provisions

| |                                                  |        |  |          |  |          |   |        |  |          |  |                |  |          |   |         | 
| | ------------------------------------------------ | ------ |  | -------- |  | -------- | - | ------ |  | -------- |  | -------------- |  | -------- | - | ------- | 
| |                                                  | At     |  | Provided |  | Utilised |   | At     |  | Provided |  |                |  | Utilised |   | At      | 
| |                                                  | 1 July |  | during   |  | during   |   | 1 July |  | during   |  | On acquisition |  | during   |   | 30 June | 
| |                                                  | 2006   |  | the year |  | the year |   | 2007   |  | the year |  | of subsidiary  |  | the year |   | 2008    | 
| |                                                  | £m     |  | £m       |  | £m       |   | £m     |  | £m       |  | £m             |  | £m       |   | £m      | 
| |                                                  |        |  |          |  |          |   |        |  |          |  |                |  |          |   |         | 
| | Current liabilities                              |        |  |          |  |          |   |        |  |          |  |                |  |          |   |         | 
| | Provision for termination benefits(i)            |       |  | 3        |  |         |   | 3      |  |         |  |               |  | (3       | ) |        | 
| | Restructuring provision(ii)                      |       |  |         |  |         |   |       |  | 6        |  |               |  |         |   | 6       | 
| | Acquired and acquisition related provisions(iii) |       |  |         |  |         |   |       |  | 2        |  | 22             |  | (10      | ) | 14      | 
| | Other provisions(iv)                             | 6      |  | 1        |  | (2       | ) | 5      |  | 4        |  |               |  | (2       | ) | 7       | 
| |                                                  | 6      |  | 4        |  | (2       | ) | 8      |  | 12       |  | 22             |  | (15      | ) | 27      | 
| |                                                  |        |  |          |  |          |   |        |  |          |  |                |  |          |   |         | 
| | Non-current liabilities                          |        |  |          |  |          |   |        |  |          |  |                |  |          |   |         | 
| | Acquired and acquisition related provisions(iii) |       |  |         |  |         |   |       |  |         |  | 8              |  |         |   | 8       | 
| | Other provisions(v)                              | 19     |  | 2        |  | (3       | ) | 18     |  |         |  |               |  | (4       | ) | 14      | 
| |                                                  | 19     |  | 2        |  | (3       | ) | 18     |  |         |  | 8              |  | (4       | ) | 22      | 
| |                                                  |        |  |          |  |          |   |        |  |          |  |                |  |          |   |         | 

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | At 30 June 2007, the Group provided £3 million for expected costs of redundancy and related expenses. During the year ended 30 June 2008 this provision was fully utilised.                                                                                                                                                                                                                                                                                                                                                                                      
|(ii)  | During the year ended 30 June 2008 the Group provided £6 million for the expected costs of a restructuring exercise undertaken. It is expected for the provision to be utilised over the next twelve
months.                                                                                                                                                                                                                                                                                                                                                     
|(iii) | During the year ended 30 June 2008 the Group took control of Amstrad. Following the purchase method of accounting the Group has recognised at fair value both the provisions and contingent liabilities acquired in the
business combination. The provisions recognised primarily relate to warranties and repair costs, the settlement of outstanding customer claims and the fair value of a contingent liability in respect of importation duty on set-top boxes, see note 27.
It is expected for these provisions to be utilised within the next three years.
|(iv)  | Included in other provisions are amounts provided for onerous contracts for property leases, maintenance and legal disputes. The timing of the cash flows for onerous property leases and maintenance are dependent on the
terms of the remaining leases. The timing of the cash flows for legal disputes cannot be reasonably determined.                                                                                                                                                                                                                       
|(v)   | Included within non-current other provisions are onerous property leases. The timing of the cash flows are dependant on the terms of the leases.                                                                                                                                                                                                                                                                                                                                                                                                                 

22. Borrowings and non-current other payables

| |                                                                                 |       |  |       |  | 
| | ------------------------------------------------------------------------------- | ----- |  | ----- |  | 
| |                                                                                 | 2008  |  | 2007  |  | 
| |                                                                                 | £m    |  | £m    |  | 
| |                                                                                 |       |  |       |  | 
| |                                                                                 |       |  |       |  | 
| | Current
        borrowings                                                      |       |  |       |  | 
| | US$600
        million of 6.875% Guaranteed Notes repayable in February 2009(i) | 301   |  |      |  | 
| | Loan
        Notes(ii)                                                          | 37    |  | 16    |  | 
| |                                                                                 | 338   |  | 16    |  | 
| |                                                                                 |       |  |       |  | 
| | Non-current
        borrowings                                                  |       |  |       |  | 
| | US$600
        million of 6.875% Guaranteed Notes repayable in February 2009(i) |      |  | 299   |  | 
| | £100
        million of 7.750% Guaranteed Notes repayable in July 2009(i)       | 100   |  | 100   |  | 
| | US$650
        million of 8.200% Guaranteed Notes repayable in July 2009(i)     | 326   |  | 324   |  | 
| | US$750
        million of 5.625% Guaranteed Notes repayable in October 2015(i)  | 379   |  | 364   |  | 
| | £400
        million of 5.750% Guaranteed Notes repayable in October 2017(i)    | 398   |  | 397   |  | 
| | US$750
        million of 6.100% Guaranteed Notes repayable in February 2018(i) | 372   |  |      |  | 
| | £300
        million of 6.000% Guaranteed Notes repayable in May 2027(i)        | 295   |  | 295   |  | 
| | US$350
        million of 6.500% Guaranteed Notes repayable in October 2035(i)  | 171   |  | 169   |  | 
| | Obligations
        under finance leases(iii)                                   | 67    |  | 66    |  | 
| |                                                                                 | 2,108 |  | 2,014 |  | 
| |                                                                                 |       |  |       |  | 
| | Non-current
        other payables                                              |       |  |       |  | 
| | Accruals                                                                        | 19    |  | 10    |  | 
| | Deferred
        income                                                         | 48    |  | 74    |  | 
| |                                                                                 | 67    |  | 84    |  | 
| |                                                                                 |       |  |       |  | 



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|76                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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(i) Guaranteed NotesAt 30 June 2008, the
Group had in issue the following publicly-traded Guaranteed Notes: US$600 million of 6.875% Guaranteed Notes, repayable in February 2009. At
the time of issuing these notes, the US dollar proceeds were swapped into pounds
sterling (£367 million) at an average fixed rate of 8.200%, payable semi-annually.
In July 2003, the Group entered into an interest rate hedging arrangement in
respect of £61 million of this swapped debt. The effect of this new hedging
arrangement was that, from July 2003 until February 2009, the Group pays floating
six months London Inter-Bank Offer Rate (LIBOR) plus a margin of
3.490% on £61 million of its swapped debt. However, at each six monthly
reset date, the counterparty to this transaction has the right to cancel the
transaction with immediate effect. In October 2003, the Group entered into a
further hedging arrangement in respect of an additional £61 million of this
swapped debt, the effect of which was to reduce the rate payable to 7.950% for
the period August 2003 to February 2004. Thereafter, until August 2006, the rate
payable is 7.950% plus any margin by which the floating six monthly LIBOR reset
rate exceeds the sum of the previous reset rate plus 0.500% . Thereafter, the
rate reverts to a fixed 8.180% . In February 2005, the 7.950% interest rate on
this swap was renegotiated to 8.020% with all other aspects of the swap remaining
unchanged. £100 million of 7.750% Guaranteed Notes, repayable in July 2009. The fixed
coupon is payable annually. US$650 million of 8.200% Guaranteed Notes, repayable in July 2009. At the
time of issuing these notes, the US dollar proceeds were swapped into pounds
sterling (£413 million) at an average fixed rate of 7.653% payable semi-annually.
In December 2002 the Group entered into further swap arrangements relating to £63.5
million of this debt. These arrangements were subsequently amended in March 2003
and July 2004, the effect of which was to fix the
interest rate on £63.5 million at 5.990% until January 2004, after which
time it reverted to a floating six months LIBOR plus a margin of 2.460%, except
that should LIBOR be less than 2.750% for the period January to July 2004, 2.890%
for the period July 2004 to January 2005, or 2.990% thereafter, the effective
rate shall be deemed to be 7.653% . After July 2004, the margin over LIBOR increased
from 2.460% to 2.840% . In order to increase its exposure to floating rates,
in July 2003, the Group entered into another interest rate hedging arrangement
in respect of a further £63.5 million of the above-mentioned debt. The effect
of this arrangement was that, from July 2003 until July 2009, the Group will
pay floating six months
LIBOR plus a margin of 2.8175% on this £63.5 million, except that should
LIBOR be less than 2.750% for the period January to July 2004, or less than 2.990%
thereafter, the Group shall revert back to 7.653% . At 30 June 2008, none of
the floor levels had been breached; therefore, the Group continues to pay the
relevant floating rates. US$750 million of 5.625% Guaranteed Notes, repayable in October 2015, which
were issued in October 2005. At the time of issuing these notes, the Group entered
into swap transactions to convert the dollar proceeds
to pounds sterling (£428 million), which carry interest at an average fixed
rate of 5.401% until maturity, payable semi-annually. The Group entered into
further interest rate hedging arrangements in respect of £257 million of
this swapped debt. The effect of these arrangements was that, from October 2005
until October 2015, the Group will pay an average floating rate of six months
LIBOR plus a margin of 0.698% on £257 million of its swapped debt. £400 million of 5.750% Guaranteed Notes, repayable in October 2017, which
were issued in October 2005. The fixed coupon is payable annually. On 14 June
2006, the Group entered into an interest rate hedging arrangement in respect
of £20 million of this debt. The effect of this hedging arrangement is that,
from October 2007 until October 2009, the Group will pay floating six months
LIBOR plus a margin of 0.325% on £20 million of its debt. On the same date,
the Group entered into a further interest rate hedging arrangement in respect
of £10 million of this debt, to take effect from October 2009 and mature
in October 2017. Under the terms of this swap the Group will pay floating six
months LIBOR plus a margin of 0.325% . However, at each annual reset date from
October 2009 to October 2017, the counterparty to this transaction has the right
to cancel the transaction with immediate effect. On 21 June 2007, the Group entered
into
interest rate hedging arrangements in respect of a further £50 million of


debt whereby, from June 2007, the Group will pay floating six months LIBOR minus
0.229% . £300 million of 6.000% Guaranteed Notes, repayable in May 2027, which were
issued in May 2007. The fixed coupon is payable annually. US$350 million of 6.500% Guaranteed Notes, repayable in October 2035, which
were issued in October 2005. At the time of issuing these notes, the Group entered
into swap transactions to convert the dollar proceeds
to pounds sterling (£200 million) at an average fixed rate of 5.826%, payable
semi-annually. US$750 million of 6.100% Guaranteed Notes, repayable in February 2018, which
were issued in February 2008. At the time of issuing these notes, the US dollar
proceeds were swapped into pounds sterling (£387 million). 25% of the resulting
sterling liability was subject to floating interest rates at LIBOR plus 1.89%,
with the remaining 75% incurring a fixed interest rate of 6.83% semi-annually. (ii) Loan NotesThe Group issued Loan
Notes of £37 million during the current year as part consideration for the
purchase of Amstrad. The notes are repayable at the option of the note holders
either on 31 March or on 30 September in any year between 31 March 2008 and 30
September 2017, at which time the notes are fully redeemable. Under the terms
of the Loan Notes the Group pays floating six month LIBOR minus 1.000% until
29 September 2012. After this date the Group will pay floating six month LIBOR
minus 0.500% . The coupon is payable semi-annually. The Group issued Loan Notes of £16 million during the prior year as part
consideration for the purchase of 365 Media. The notes are repayable at the option
of the note holders either on 30 June or on 31 December in any year between the
first date on which all of the relevant holdings of Loan Notes have been in issue
for more than six months and 31 December 2009. Under the terms of the Loan Notes,
the Group pays floating twelve months LIBOR minus 1.000% . The coupon is payable
annually. £16 million of Loan Notes were repaid during the current period. (iii) Finance leasesThe minimum lease payments
under finance leases fall due as follows: 2008
	
	2007£m
	
	£mWithin one year
	9
	
	8Between one and two years
	8
	
	8Between two and three years
	8
	
	8Between three and four years
	8
	
	8Between four and five years
	8
	
	8After five years
	184
	
	193225
	
	233Future finance charges on finance leaseliabilities
	(154
	)
	(162
	)Present value of finance lease liabilities
	71
	
	71 The main obligations under finance leases are in relation to: (a)
	finance arrangements in connection with the broadband network infrastructure. During the year, repayments of £5 million (2007: £7 million) were made against the lease. A proportion of these payments have been
allocated against the capital outstanding. The lease bears interest at a rate of 11.1% and expires in March 2040.(b)
	finance arrangements in connection with the contact centre in Dunfermline. During the year, repayments of £1 million (2007: £1 million) were made against the lease. A proportion of these payments have been
allocated against the capital amount outstanding. The lease bears interest at a rate of 8.5% and expires in September 2020.




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|British Sky Broadcasting
        Group plc |  | 77
|Annual Report 2008                        

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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued 22. Borrowings and non-current other payables(continued) (iv) Revolving Credit FacilityIn
    November 2004, the Company entered into a £1 billion RCF. This facility was used to cancel an existing £600 million RCF and is available for general corporate purposes. The £1 billion facility has a
maturity date of July 2010, and interest accrues at a margin of between 0.45% and 0.55% above LIBOR, dependent on the Groups leverage ratio of Net Debt to earnings before interest, taxes, depreciation and amortisation
(EBITDA) (as defined in the loan agreement). The Company is subject to two financial covenants under our revolving credit
facility, a maximum leverage ratio and a minimum coverage ratio, which are tested
at the end of each six monthly accounting period. The key financial covenants
are the ratio of Net Debt to EBITDA (as defined in the loan agreement) and EBITDA
to Net Interest Payable (as defined in the loan agreement). Net Debt to EBITDA
must be no more than 3:1 and EBITDA to Net Interest Payable must be at least
3.5:1. We were in compliance with these covenants for all periods presented. At 30 June 2008, the ratio of Net Debt to EBITDA (as defined in the loan agreement)
was 1.9:1 (2007: 1.8:1) . In the year ended 30 June 2008, the ratio of EBITDA
to Net Interest Payable (as defined in the loan agreement) was 7.5:1 (2007: 9.8:1)
.. Commitment fees of £2 million (2007: £2 million; 2006: £2 million)
were payable for undrawn amounts available under the RCF, based on a rate equal
to 40% of the applicable margin of 0.55% over LIBOR (30 June 2007: 40% of the
applicable margin of 0.50% over LIBOR; 30 June 2006: 40% of the applicable margin
of 0.45% over LIBOR). (v) GuaranteesThe following guarantees
are in place relating to the Groups borrowings: (a) British Sky Broadcasting
Limited, Sky Subscribers Services Limited, BSkyB Investments Limited, BSkyB Finance
UK plc, BSkyB Publications
Limited and Sky In-Home Service Limited (SHS) have given joint and
several guarantees in relation to the Companys £1 billion RCF, (b)
British Sky Broadcasting Limited, Sky Subscribers Services Limited, BSkyB Finance
UK plc, BSkyB Publications Limited and BSkyB Investments Limited have given joint
and several guarantees in relation to the US$750 million, US$650 million,
US$600 million, £300 million and £100 million Guaranteed Notes
issued by the Company, (c) the Company, British Sky Broadcasting Limited, Sky
Subscribers Services Limited, BSkyB Investments Limited and BSkyB Publications
Limited have given joint and several guarantees in relation to the US$750
million,
US$350 million and £400 million Guaranteed Notes issued by BSkyB Finance
UK plc. On 13 March 2008, SHS became an acceding guarantor to the Companys
RCF. If the RCF is drawn SHS is required to accede as a guarantor of the
Companys bond debt. At present the RCF is not drawn. (vi) Capital Risk ManagementThe Groups objectives
when managing capital are to endeavour to ensure that the Group has the ability
to access capital markets when necessary and to optimise liquidity and operating
flexibility through the arrangement of new debt, while seeking to minimise the
cost of capital. The Group manages capital on the basis of the ratio of Net Debt:EBITDA, and manages
its short and long-term capital structure by seeking to maintain leverage ratios
consistent with a long-term investment grade credit rating (BBB- or better from
Standard & Poors and Baa3 or better from Moodys). The Groups
current ratings are BBB (Standard & Poors) and Baa2 (Moodys).
The leverage ratios assessed by these rating agencies are those of Net Debt:EBITDA
and Gross Debt:EBITDA. Net Debt is defined as total borrowings, including the
cash flows arising under operating leases and transponder prepayments, less cash
and cash equivalents, excluding derivatives. Gross Debt does not reduce total
borrowings by the inclusion of cash and cash equivalents. EBITDA is defined as
Operating Profit before Interest, Tax, Depreciation and Amortisation.


The Group is also required to maintain a Net Debt:EBITDA ratio below 3:1 under
the terms of its Revolving Credit Facility. The Revolving Credit Facility definition
of Net Debt does not require the inclusion of operating lease or transponder
cash flows. At 30 June 2008, the Groups ratio of Net Debt:EBITDA, as defined by the
Rating Agencies, was 2.3:1 (2007 2.1:1) . The Net Debt:EBITDA ratio as defined
by the terms of the Revolving Credit Facility was 1.9:1 (2007
1.8:1) .




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|78                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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23. Derivatives and other financial instrumentsSet out below are the derivative financial instruments entered into by the Group to manage its interest rate and foreign exchange risks.

| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | ---------------------------------------------- | ---------- |  | --------- | - | ---------- | - | --------- | - | ---------- |  | -------- | - | ---------- | - | -------- | -
| |                                                |            |  | 2008      |   |            |   |           |   | 2007       |  |          |  
| |                                                | Asset      |  | Liability |   | Asset      |   | Liability |  
| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| |                                                | Fair Value |  | Notional  |   | Fair Value |   | Notional  |   | Fair Value |  | Notional |   | Fair Value |   | Notional |  
| |                                                | £m         |  | £m        |   | £m         |   | £m        |   | £m         |  | £m       |   | £m         |   | £m       |  
| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Fair value hedges                              |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Interest rate swaps and swaptions              | 9          |  | (276      | ) |           |   | (94       | ) |           |  | (50      | ) | (11        | ) | (224     | )
| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Cash flow hedges                               |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Cross-currency swaps                           |           |  |          |   | (180       | ) | (1,441    | ) |           |  |         |   | (208       | ) | (1,151   | )
| | Forward exchange contracts                     | 5          |  | 24        |   | (11        | ) | 190       |   |           |  | (10      | ) | (22        | ) | (308     | )
| | Currency options (collars)                     | 2          |  | 121       |   | (10        | ) | 121       |   | 1          |  | 144      |   | (13        | ) | 144      |  
| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Derivatives not in a formal hedge relationship |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Interest rate swaps and swaptions              |           |  | (20       | ) | (3         | ) | (135      | ) |           |  | (20      | ) | (6         | ) | (135     | )
| | Forward exchange contracts                     |           |  | 4         |   |           |   | 13        |   |           |  |         |   | (1         | ) | (17      | )
| | Basis swaps                                    |           |  |          |   | (39        | ) | (353      | ) |           |  |         |   | (33        | ) | (257     | )
| | Embedded derivatives                           | 2          |  | (19       | ) |           |   |          |   | 4          |  | (22      | ) |           |   |         |  
| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  
| | Total                                          | 18         |  | (166      | ) | (243       | ) | (1,699    | ) | 5          |  | 42       |   | (294       | ) | (1,948   | )
| |                                                |            |  |           |   |            |   |           |   |            |  |          |   |            |   |          |  

The maturity of the derivative financial instruments is as follows:

| |                            |       |  |           |   |       |  |           |  
| | -------------------------- | ----- |  | --------- | - | ----- |  | --------- | -
| |                            | 2008  |  | 2007      |  
| |                            |       |  |           |   |       |  |           |  
| |                            | Asset |  | Liability |   | Asset |  | Liability |  
| |                            | £m    |  | £m        |   | £m    |  | £m        |  
| |                            |       |  |           |   |       |  |           |  
| | In one year or less        | 4     |  | (81       | ) | 1     |  | (16       | )
| | Between one and two years  | 2     |  | (90       | ) | 1     |  | (89       | )
| | Between two and five years | 3     |  | (3        | ) | 3     |  | (101      | )
| | In more than five years    | 9     |  | (69       | ) |      |  | (88       | )
| |                            |       |  |           |   |       |  |           |  
| | Total                      | 18    |  | (243      | ) | 5     |  | (294      | )
| |                            |       |  |           |   |       |  |           |  

In the above table, the carrying value of derivative instruments equals their fair value. The notional value of the derivative is shown as the principal value of the underlying hedged item.

The Groups portfolio of rate derivatives is diversified by maturity, counterparty
and type. Natural offsets between transactions within the portfolio and the designation
of certain derivatives as hedges significantly reduce the risk of income statement
volatility.

Diversification of counterparty exposure from derivatives is managed within credit
limits that ensure that there is no significant risk to any one counterparty.
In addition to this deals are only executed with counterparties that have a long-term
rating of A- or better.

Included within the fair value of forward exchange contracts are a number of
US dollar-denominated forward exchange contracts which the Group has taken out
with counterparty banks on behalf of two of its joint ventures: The History Channel
(UK) and Chelsea Digital Media Limited. On the same dates as these forward contracts
were entered into, the Group entered into equal and opposite forward contracts
with the respective joint ventures. As a result, the net fair value of these
contracts to the Group was nil (2007: nil). The gross sterling equivalent face
value of these forward contracts at 30 June 2008 was £5 million (2007: £5
million).

Group treasury activityThe
Groups treasury function is responsible for raising finance for the Groups
operations, together with associated liquidity management and the management
of foreign exchange, interest rate and credit risks. Treasury operations are
conducted within a framework of policies and guidelines authorised and reviewed
by both the Audit Committee and the Board, which receive regular updates of treasury
activity. Derivative instruments are transacted for risk management purposes
only. It is the Groups policy that all hedging is to cover known risks
and that no speculative trading in financial instruments is undertaken. Regular
and frequent reporting to management is required for all transactions and exposures,
and the internal control environment is subject to periodic review by the Groups
internal audit team.



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    Sky Broadcasting Group plc |  | 79
|Annual Report 2008                    

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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued 23. Derivatives and other financial instruments(continued)The
Groups principal market risks are exposures to changes in interest rates and foreign exchange rates, which arise both from the Groups sources of finance and from its operations. Following evaluation of
those market risks, the Group selectively enters into derivative financial instruments to manage these exposures. The principal instruments currently used are interest rate swaps and options on interest rate swaps (swaptions)
to hedge interest rate risks, and cross-currency swaps, forward exchange contracts,
currency options (collars) and similar financial instruments to hedge transactional
and translational currency exposures. Interest rate riskThe Group has financial
exposures to both UK and US interest rates, arising primarily
from the Groups long-term bonds and other borrowings. The Groups
hedging policy requires that between 50% and 75% of borrowings are held at fixed
interest rates. This is achieved by issuing fixed rate bonds and then using interest
rate swap and swaption agreements to adjust the balance between fixed and floating
rate debt. The Groups bank debt is at floating rates, and, when drawn,
means that the mix of fixed and floating rate debt fluctuates and is therefore
managed to ensure compliance with the Groups hedging policy. At 30 June
2008, 74% of borrowings are held at fixed rates after hedging (2007: 74%). Certain
of the swaption agreements can be cancelled prior to the maturity of the bonds
to which they apply. The Groups US dollar-denominated debt has all been swapped to pounds sterling
using a combination of cross-currency and interest rate swap arrangements to
convert both the principal amounts of debt, together with interest rate obligations,
from US dollars to pounds sterling, at fixed exchange rates. The counterparties
have a minimum long-term rating of A- or equivalent from Moodys
and Standard & Poors. At 30 June
2008, the split of the Groups aggregate borrowings into their core currencies
was US dollar 62% and pounds sterling 38% (2007: US dollar 57% and pounds sterling
43%). The Group has designated a number of cross-currency swap agreements as cash flow
hedges of 79% (2007: 81%) of the Groups exposure to US dollar interest
rates on elements of the Groups US dollar denominated Guaranteed Notes.
As such, the effective portion of the gain or loss on the swaps designated and
qualifying as cash flow hedging instruments is reported as a component of the
hedging reserve, outside of the income statement, and is then reclassified into
the income statement in the same period that the forecast transactions affect
the income statement (i.e. when the interest expense is incurred and/or gains
or losses relating to the retranslation of US dollar denominated debt principal
are recognised in the income statement). Any hedge ineffectiveness on the swaps
is recognised directly in profit or loss. The ongoing effectiveness testing is
performed using the cumulative dollar-offset approach. During the year ended
30 June 2008, there were no instances in which the hedge relationship was not
highly effective (2007: no instances). The Group has designated a number of interest rate swap agreements as fair value
hedges of 21% (2007: 14%) of the Groups debt portfolio. Movements in the
fair value of the hedged items are taken to the income statement and are offset
by movements in the fair value of the hedging instruments, which are also taken
to the income statement. Any hedge ineffectiveness on the swaps is recognised
directly in the income statement. Ongoing effectiveness testing is performed
using the cumulative dollar-offset approach. During the year ended 30 June 2008,
there were no instances in which the hedge relationship was not highly effective
(2007: no instances). Swaption agreements which convert fixed interest rates to floating interest rates
and cross-currency swaps which convert floating rate US dollar interest to floating
rate pounds sterling interest have not been designated as hedging instruments
for hedge accounting purposes and, as such, movements in their value are recorded
directly in the income statement. The fair value of the Groups debt-related interest rate and currency derivative
portfolio at 30 June 2008 was a £213 million net liability, with net notional
principal amounts totalling £1,864 million.
This compares to a £258 million net liability at 30 June 2007 and net notional
principal amounts totalling £1,487 million. The fair value of the


Groups derivative instruments designated as cash flow hedges at 30 June
2008 was a £180 million net liability (2007: £208 million net liability).
The fair value of the Groups derivative instruments designated as fair
value hedges at 30 June 2008 was a £9 million net asset (2007: £11
million net liability). In November 2004, the Group entered into a £1,000 million RCF. At 30 June
2008, the facility was undrawn (2007: undrawn). The facility has a maturity date
of July 2010, and interest accrues at a margin of between 0.45% and 0.55% per
annum above LIBOR, dependent on the Groups leverage ratio of Net Debt to
EBITDA (as defined in the loan agreement). The current applicable margin is 0.55%
(2007: 0.50%), which is based on a net debt to EBITDA ratio of above 2.00:1,
but below 3.00:1. Should the ratio decrease to below 2.00:1 but above 1.00:1,
the margin falls to 0.50%, and below that to 0.45% . The ratio of net debt to
EBITDA at 30 June 2008 was 1.9:1 (2007: 1.8:1), indicating a margin of 0.50%
on
future drawings. At 30 June 2008, 30 June 2007 and 30 June 2006, the Groups annual finance
costs would be unaffected by any change to the Groups credit rating in
either direction. Foreign exchange riskThe
Groups revenues and operating expenses are substantially denominated in
pounds sterling. A small proportion of operating expenses is denominated in US
dollars, while a small proportion of revenues is denominated in euros. In the
current year, approximately 7% of operating expenses (£305 million) was
denominated in US dollars (2007: approximately 7% (£261 million)) and 8%
of revenues was denominated in euros (2007: 6%). The US dollar expense relates
mainly to the Groups programming contracts with US suppliers. The euro
revenues are primarily due to subscribers located in Ireland. The Groups
exposure to euro-denominated revenue is offset to a certain extent by euro-denominated
costs, relating mainly to certain transponder rentals; the net position being
a euro surplus (2007: surplus; 2006: surplus). During the year, the Group managed its currency exposure on US dollar-denominated
programming contracts by the purchase of forward exchange contracts and currency
options (collars) for up to five years ahead. All US dollar-denominated forward
exchange contracts and collars entered into by the Group are in respect of firm
commitments only and those instruments maturing over the year following 30 June
2008 represent approximately 90% (2007: approximately 80%) of US dollar-denominated
costs falling due in that year. At 30 June 2008, the Group had outstanding commitments
to purchase, in aggregate, US$629 million (2007: US$634 million) at an
average rate of US$1.87 to £1.00 (2007: US$1.85
to £1.00) . In addition, collars were held relating to the purchase of a
total of US$241 million (2007: US$288 million). The Group has designated a number of forward exchange contracts and collars as
cash flow hedges of up to approximately 80% (2007: approximately 80%) of the
Groups exposure to US dollar payments on its programming contracts with
US movie licensors for a period of five years, thereafter nil (2007: five years,
thereafter nil). The Group has also designated a number of foreign exchange contracts
as cash flow hedges of approximately 100% of certain US dollar-denominated sport
programming contracts. As such, the effective portion of the gain or loss on
these contracts is reported as a component of the hedging reserve, outside the
income statement, and is transferred to the income statement as the forecast
transactions affect the income statement (i.e. when US dollar-denominated trade
payables are retranslated and related programming inventory is amortised through
the income statement). For forward exchange contracts, hedge accounting is applied
to changes in the full fair value. For currency options (collars), hedge accounting
is only applied to changes in intrinsic value. Any hedge ineffectiveness on the
forward exchange contracts and collars is recognised directly in the income statement.
The ongoing effectiveness testing is performed using the dollar-offset approach.
If forecast transactions are no longer expected to occur, any amounts included
in the hedging reserve related to that forecast transaction would be recognised
directly in the income statement. Certain forward exchange contracts and collars
have not been designated as hedges and movements in their values continue to
be recorded directly in the income statement. During the year, the Group managed its exposure to euros for up to one year ahead
using forward exchange contracts. This hedging was introduced part way through
the year and represented approximately 26% of euro-denominated revenues for the
year




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|80                 |  | British Sky
    Broadcasting Group plc
|Annual Report 2008

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(2007: nil). At 30 June 2008, the Group had outstanding commitments to sell,
in aggregate 194 million euros (2007: nil) at an average rate of€1.26
and further commitments to purchase, in aggregate 65 million euros (2007: nil) at an average rate of€1.30. The Group has designated a number of forward contracts as cash flow hedges of
up to approximately 75% (2007: nil)
of the Groups exposure to euro-denominated subscription revenues and transponder
costs. As such, the effective portion of the gain or loss on these contracts is reported
as a component of the hedging reserve, outside the income statement, and is then
reclassified into the income statement in the same periods that the forecast
transactions affect the income statement (i.e. when the programming stock is
amortised and/or gains or losses relating to the retranslation of any US dollar-denominated
creditor balances are recognised in the income
statement). During the year 31 million euros were exchanged for US dollars (2007: 78 million
euros), £93 million was exchanged for US dollars (2007: £84 million)
and 26 million euros were exchanged for pounds sterling (2007: 15 million euros)
on currency spot markets. At 30 June 2008, 24 million euros (£19 million)
were retained by the Group (2007: 61 million euros (£41
million)). It is the Groups policy that anticipated foreign currency exposures are
substantially hedged in advance of the fiscal
year in which the exposure occurs. Credit riskThe Group is exposed
to default risk amounting to invested cash and cash equivalents and short-term
deposits, and the positive fair value of derivatives held. However, as


financial transactions and instruments are only executed with counter parties
that are all A- long-term rating or better and the Groups
policy is to ensure that investments are spread across a number of counterparties,
these risks are deemed to be low. The Groups maximum exposure to credit risk on trade receivables is the
carrying amounts as disclosed in note
19. Liquidity riskThe
Groups financial liabilities are shown in note 22, other than current trade
and other payables, shown in note
20, and provisions, shown in note 21. To ensure continuity of funding, the
Groups policy is to ensure that available funding matures over a period
of years. At 30 June 2008, 50% (2007: 43%) of the Groups total available
funding (including undrawn amounts on our RCF) was due to mature in more than
five years. The following table analyses the Groups non-derivative financial liabilities,
net-settled derivative financial instruments and gross-settled financial instruments
into relevant maturity groupings based on the remaining period at the balance
sheet date to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash
flows. These amounts may not reconcile to the amounts disclosed on the balance sheet
for borrowings, derivative financial instruments and trade and other payables.




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|Consolidated
      financial statements
|---------------------------------------
|continued                              
|                                       
|                                       

Notes to the
  consolidated financial statementscontinued

23. Derivatives
  and other financial instruments(continued)

| |                                                             |  |                    |   |                   |   |                    |   |                 |  
| | ----------------------------------------------------------- |  | ------------------ | - | ----------------- | - | ------------------ | - | --------------- | -
| |                                                             |  |                    |   | Between           |   | Between            |   | More            |  
| |                                                             |  | Less
      than 12 |   | one
      and two |   | two
      and five |   | than
      five |  
| |                                                             |  | months             |   | years             |   | years              |   | years           |  
| |                                                             |  | £m                 |   | £m                |   | £m                 |   | £m              |  
| |                                                             |  |                    |   |                   |   |                    |   |                 |  
| | At
      30 June 2008                                       |  |                    |   |                   |   |                    |   |                 |  
| | Non derivative
      financial liabilities                  |  |                    |   |                   |   |                    |   |                 |  
| | Bonds 
      USD                                           |  | 404                |   | 395               |   | 167                |   | 1,352           |  
| | Bonds 
      GBP                                           |  | 49                 |   | 149               |   | 123                |   | 1,067           |  
| | Loan Notes                                                  |  | 2                  |   | 2                 |   | 5                  |   | 44              |  
| | Obligations
      under finance leases and other borrowings |  | 9                  |   | 8                 |   | 24                 |   | 184             |  
| | Trade and other
      payables                              |  | 979                |   | 36                |   | 5                  |   |                |  
| | Provisions                                                  |  | 8                  |   | 3                 |   | 9                  |   | 7               |  
| | Net settled
      derivatives                               |  |                    |   |                   |   |                    |   |                 |  
| | Financial assets                                            |  | (5                 | ) | (5                | ) | (15                | ) | (13             | )
| | Financial liabilities                                       |  |                   |   | (1                | ) | (5                 | ) | (8              | )
| | Gross settled
      derivatives                             |  |                    |   |                   |   |                    |   |                 |  
| | Outflow                                                     |  | 915                |   | 635               |   | 303                |   | 1,476           |  
| | Inflow                                                      |  | (807               | ) | (520              | ) | (248               | ) | (1,332          | )
| |                                                             |  |                    |   |                   |   |                    |   |                 |  
| |                                                             |  |                    |   |                   |   |                    |   |                 |  
| |                                                             |  |                    |   |                   |   |                    |   |                 |  

| |                                                             |  |                    |   |                   |   |                    |   |                 |  
| | ----------------------------------------------------------- |  | ------------------ | - | ----------------- | - | ------------------ | - | --------------- | -
| |                                                             |  |                    |   | Between           |   | Between            |   | More            |  
| |                                                             |  | Less
      than 12 |   | one
      and two |   | two
      and five |   | than
      five |  
| |                                                             |  | months             |   | years             |   | years              |   | years           |  
| |                                                             |  | £m                 |   | £m                |   | £m                 |   | £m              |  
| |                                                             |  |                    |   |                   |   |                    |   |                 |  
| | At
      30 June 2007                                       |  |                    |   |                   |   |                    |   |                 |  
| | Non derivative
      financial liabilities                  |  |                    |   |                   |   |                    |   |                 |  
| | Bonds 
      USD                                           |  | 80                 |   | 379               |   | 434                |   | 888             |  
| | Bonds 
      GBP                                           |  | 49                 |   | 48                |   | 231                |   | 1,108           |  
| | Loan Notes                                                  |  | 1                  |   | 1                 |   | 17                 |   |                |  
| | Obligations
      under finance leases and other borrowings |  | 8                  |   | 8                 |   | 24                 |   | 193             |  
| | Trade and other
      payables                              |  | 1,005              |   | 56                |   | 14                 |   |                |  
| | Provisions                                                  |  | 5                  |   | 4                 |   | 10                 |   | 11              |  
| | Net settled
      derivatives                               |  |                    |   |                   |   |                    |   |                 |  
| | Financial assets                                            |  |                   |   |                  |   |                   |   | (1              | )
| | Financial liabilities                                       |  | (4                 | ) | (4                | ) | (14                | ) | (17             | )
| | Gross settled
      derivatives                             |  |                    |   |                   |   |                    |   |                 |  
| | Outflow                                                     |  | 656                |   | 620               |   | 278                |   | 954             |  
| | Inflow                                                      |  | (545               | ) | (504              | ) | (231               | ) | (844            | )
| |                                                             |  |                    |   |                   |   |                    |   |                 |  

At 30 June 2008, the Groups RCF was undrawn (30 June 2007: undrawn). The Groups undrawn committed bank facilities, subject to covenants, are as follows:

| |                                             |  |       |  |       | 
| | ------------------------------------------- |  | ----- |  | ----- | 
| |                                             |  | 2008  |  | 2007  | 
| |                                             |  | £m    |  | £m    | 
| |                                             |  |       |  |       | 
| | Expiring between
      two and three years  |  | 1,000 |  |      | 
| | Expiring between
      three and four years |  |      |  | 1,000 | 
| |                                             |  |       |  |       | 

The Groups RCF matures in July 2010.

On 3 April 2007, the Group
  established a Euro Medium Term Note Programme (the Programme). The
  Programme provides the Group with a standardised documentation platform to allow
  for senior debt issuance in the Eurobond markets. The maximum potential issuance
  under the Programme is £1 billion. On 14 May 2007, under the Programme,
  the Group issued £300 million aggregate principal amount of Eurobonds paying
  6.000% interest and maturing on 14 May 2027.



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|82                 |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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Financial instrumentsThe accounting classification
  of each class of the Groups financial assets and financial liabilities,
  together with their fair values, is as follows:

| |                                        |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | -------------------------------------- |  | ------------- |  | -------------- |  | ----------------- | - | -------------------- | - | --------------- |  | ----------------------- | - | -------------------- | - | ---------------- | -
| |                                        |  | Held
      to |  |                |  | Derivatives       |   | Derivatives
      in |   |                 |  |                         |   |                      |   |                  |  
| |                                        |  | maturity      |  | Available      |  | deemed
      held |   | hedging              |   | Loans
      and |  |                         |   | Total
      carrying |   | Total
      fair |  
| |                                        |  | investments   |  | for
      sale |  | for
      trading |   | relationships        |   | receivables     |  | Other
      liabilities |   | value                |   | values           |  
| |                                        |  | £m            |  | £m             |  | £m                |   | £m                   |   | £m              |  | £m                      |   | £m                   |   | £m               |  
| |                                        |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | At
      30 June 2007                  |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | Quoted bond
      debt                 |  |              |  |               |  |                  |   |                     |   |                |  | (1,948                  | ) | (1,948               | ) | (1,938           | )
| | Derivative
      financial instruments |  |              |  |               |  | (36               | ) | (253                 | ) |                |  |                        |   | (289                 | ) | (289             | )
| | Loan notes                             |  |              |  |               |  |                  |   |                     |   |                |  | (16                     | ) | (16                  | ) | (16              | )
| | Trade and other
      payables         |  |              |  |               |  |                  |   |                     |   |                |  | (1,101                  | ) | (1,101               | ) | (1,101           | )
| | Obligations
      under finance        |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | leases and
      other borrowings      |  |              |  |               |  |                  |   |                     |   |                |  | (66                     | ) | (66                  | ) | (66              | )
| | Available-for-sale
      investments   |  |              |  | 797            |  |                  |   |                     |   |                |  |                        |   | 797                  |   | 797              |  
| | Trade and other
      receivables      |  |              |  |               |  |                  |   |                     |   | 333             |  |                        |   | 333                  |   | 333              |  
| | Short-term
      deposits              |  | 15            |  |               |  |                  |   |                     |   |                |  |                        |   | 15                   |   | 15               |  
| | Cash and cash
      equivalents        |  | 124           |  |               |  |                  |   |                     |   | 311             |  |                        |   | 435                  |   | 435              |  
| |                                        |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | At
      30 June 2008                  |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | Quoted bond
      debt                 |  |              |  |               |  |                  |   |                     |   |                |  | (2,342                  | ) | (2,342               | ) | (2,233           | )
| | Derivative
      financial instruments |  |              |  |               |  | (40               | ) | (185                 | ) |                |  |                        |   | (225                 | ) | (225             | )
| | Loan notes                             |  |              |  |               |  |                  |   |                     |   |                |  | (37                     | ) | (37                  | ) | (37              | )
| | Trade and other
      payables         |  |              |  |               |  |                  |   |                     |   |                |  | (1,046                  | ) | (1,046               | ) | (1,046           | )
| | Obligations
      under finance        |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  
| | leases and
      other borrowings      |  |              |  |               |  |                  |   |                     |   |                |  | (67                     | ) | (67                  | ) | (67              | )
| | Available-for-sale
      investments   |  |              |  | 338            |  |                  |   |                     |   |                |  |                        |   | 338                  |   | 338              |  
| | Trade and other
      receivables      |  |              |  |               |  |                  |   |                     |   | 393             |  |                        |   | 393                  |   | 393              |  
| | Short-term
      deposits              |  | 185           |  |               |  |                  |   |                     |   |                |  |                        |   | 185                  |   | 185              |  
| | Cash and cash
      equivalents        |  | 412           |  |               |  |                  |   |                     |   | 220             |  |                        |   | 632                  |   | 632              |  
| |                                        |  |               |  |                |  |                   |   |                      |   |                 |  |                         |   |                      |   |                  |  

The fair values of financial assets and financial liabilities are determined as follows:

|• | The fair value of financial
      assets and financial liabilities with standard terms and conditions and
      which are traded on active liquid markets is determined with reference to
      quoted market prices;                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | The fair value of other
      financial assets and financial liabilities (excluding derivative instruments)
      is determined in accordance with generally accepted pricing models based
      on discounted cash flow analysis using prices from
      observable current market transactions and dealer quotes for similar instruments;       
|• | The fair value of derivative
      instruments is calculated using quoted prices. Where such prices are not
      available, use is made of discounted cash flow analysis using the
      applicable yield curve for
      the duration of the instruments for non-optional derivatives, and option
      pricing models for optional derivatives;
|• | Foreign currency forward
      contracts are measured using quoted forward exchange rates and yield curves
      derived from quoted interest rates matching maturities of the contracts;                                                                                                                                                         
|• | Interest rate swaps are
      measured at the present value of future cash flows estimated and discounted
      based on the applicable yield curves derived from quoted interest rates;
      and                                                                                                                                                
|• | The fair value of obligations
      under finance leases and other borrowings is estimated by discounting the
      future cash flows to net present value. The fair value of short-term
      deposits and cash and cash equivalents is equivalent
      to book value due to the short-term nature of these instruments.                        

The differences between book
  values and fair values reflect unrealised gains or losses inherent in the financial
  instruments, based on valuations as at 30 June 2008 and 30 June 2007. The volatile
  nature of the markets means that values at any subsequent date could be significantly
  different from the values reported above.

In addition to the financial
  assets and liabilities in the above fair value table, the Group had holdings
  in the equity share capital of other listed and unlisted entities at 30 June
  2008 and 30 June 2007 (see note 16).

The Group also had holdings
  in joint ventures and associates, which are accounted for using the equity method
  (see note 15). As these investments are unlisted, their fair value cannot be
  measured reliably.



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      Sky Broadcasting Group plc |  | 83
|Annual
      Report 2008                

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|Consolidated
      financial statements
|---------------------------------------
|continued                              
|                                       
|                                       

Notes to the
  consolidated financial statementscontinued 23. Derivatives
  and other financial instruments(continued)Sensitivity analysisThe sensitivity
  of the Groups financial instruments to fluctuations in interest rates
  and exchange rates is as follows: Foreign exchange
  sensitivityThe following table details
  the Groups sensitivity to a 10% increase and decrease in pounds sterling
  against all currencies in which it has significant transactions. The sensitivity
  analysis includes only outstanding foreign currency denominated monetary items
  and adjusts their translation at the period end for a 10% change in foreign
  currency rates. A positive number below indicates an increase in profit and
  other equity where pounds sterling moves by 10% against the relevant currency.
  In the case of the Groups US dollar exposures, the Group benefits from
  sterling strengthening against the dollar. In the case of the Groups net
  euro exposure, the Group benefits from sterling weakening against the euro. US
      Dollar
    
    Euro2008
    
    2007
    
    2008
    
    2007£m
    
    £m
    
    £m
    
    £mProfit or loss
    
      2
    
      7
    
      (3
    )
      (16
    )Other equity
    
    33
    
    40
    
    (10
    )
     Interest rate
  sensitivityThe sensitivity analyses
  below have been determined based on the exposure to interest rates for both
  derivatives and non-derivative financial instruments at the balance sheet date.
  For floating rate liabilities, the analysis is prepared assuming the amount
  of liability outstanding at the balance sheet date was outstanding for the whole
  year. A 1 percentage point increase or decrease represents managements
  assessment of the reasonably possible change in interest rates. If interest rates had been 1 percentage point higher and all other variables were held constant, the Groups loss for the year ended 30 June 2008 would decrease by £1 million (2007: profit for the year would
decrease by £1 million) and other equity reserves would decrease by £14 million (2007: decrease by £9 million). The sensitivity analyses provided are hypothetical only and should be used with caution as the impacts provided are not necessarily indicative of the actual impacts that would be experienced because the Groups
actual exposure to market rates is constantly changing as the Groups portfolio of debt, foreign currency and equity contracts changes. In addition, the effect of a change in a particular market variable on fair values or cash flows is
calculated without considering interrelationships between the various market rates or mitigating actions that would be taken by the Group. The changes in valuations are estimates of the impact of changes in market variables and are not a prediction
of future events or anticipated gains or losses. Additional
  informationDuring the current year,
  the Group recognised amounts of less than £1 million in the income statement
  due to hedge ineffectiveness (2007: less than £1 million). During the current year £11 million was removed from the hedging reserve and credited to finance costs in the income statement (2007: charge of £106 million; 2006: charge of £92 million). During the current year £13 million was removed from the hedging reserve and recognised as programming costs in the income statement (2007: £3 million; 2006: £14 million). At 30 June 2008, the carrying value of financial assets that were, upon initial recognition, designated as financial assets at fair value through profit or loss, was nil (2007: nil). Cash and cash equivalents include
  £412 million (2007: £124 million) of held to maturity investments,
  which have maturity dates of less than three months from


inception. Treasury policy requires that cash is distributed across a wide range of counterparties. On 25 November 2005, the Group entered into a stock loan arrangement with a third party whereby the Group acquired a £100 million basket of listed shares (the Initial Purchase) and, at the
same time, the Group agreed to sell the basket of listed shares at the same price as the Initial Purchase on 25 November 2006. During the period of share ownership, Sky was entitled to all rights of ownership associated with the shares. At 30 June
2006, the Group recorded the stock loan arrangement as a short-term deposit at fair value with changes in fair value taken to the income statement. The arrangement was terminated in July 2006. 24. Share
  capital 2008
    
    2007£m
    
    £mAuthorised
      ordinary shares of 50p3,000,000,000
       (2007: 3,000,000,000)
    
    1,500
    
    1,500Allotted,
      called-up and fully paid1,752,842,599
       (2007: 1,752,842,599)
    
    876
    
    876 2008
    
    2007Number
      of
    
    Number
      ofordinary
      shares
    
    ordinary
      sharesAllotted and
      fully paid during the yearBeginning of
      year
    
      1,752,842,599
    
      1,791,077,599Shares repurchased
      and subsequently cancelled
    
    
    
    (38,235,000
    )End
      of year
    
    1,752,842,599
    
    1,752,842,599 The Company has one class of ordinary shares which carries equal voting rights and no contractual right to receive payment. Share option
  and contingent share award schemesThe Company operates various
  equity-settled share option schemes (the Schemes) for certain employees. The number of newly issued shares which may be allocated under the Schemes on any day shall not, when aggregated with the number of newly issued shares which have been allocated in the previous ten years under the
Schemes and any other employee share scheme adopted by the Company, exceed such number as represents five percent of the ordinary share capital of the Company in issue immediately prior to that day. In determining this limit no account shall be
taken of any newly issued shares where the right to acquire the newly issued shares was released, lapsed, cancelled or otherwise became incapable of exercise. Options and awards which will be satisfied by ESOP shares do not fall within these
headroom limits. The share awards outstanding can be summarised as follows: 2008
    
    2007Number
      of
    
    Number
      ofordinary
      shares
    
    ordinary
      sharesExecutive Share
      Option Scheme options(i)
    
      19,705,967
    
      24,909,710Sharesave Scheme
      options(ii)
    
    5,010,788
    
    5,795,544Management
      LTIP awards(iii)
    
    11,563,264
    
    11,306,811LTIP awards(iv)
    
    6,048,983
    
    7,965,417Key Contributors
      Plan (KCP) awards(v)
    
    
    
    14,23742,329,002
    
    49,991,719 (i) Executive
  Share Option Scheme optionsIncluded within the
  total Executive Share Option Scheme options outstanding at 30 June 2008 are
  17,900,467 options (2007: 22,955,210) which may be exercised in the final year
  before their lapsing date, regardless of meeting performance criteria, provided
  that the employee remains in employment with the Group. Where performance criteria
  are achieved, the options may be exercised immediately following the end of
  the vesting period (being the term over which the performance criteria are required
  to be




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|84                 |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|
|
|
|
|

met). The remaining 1,805,500 options (2007: 1,954,500) have no performance criteria attached, other than the requirement that the employee remains in employment with the Group. The contractual life of all Executive
  Share Option Scheme options is ten years. Grants under the Executive Share Option Scheme were made on an annual basis to
selected employees, with the exercise price of options being equal to the Companys
share price on the date of grant. For those options with performance conditions,
growth in EPS has to exceed growth in the Retail Prices Index plus 3% per annum
in order for awards to vest. Options vest on an accelerated basis over a period
of up to four years from the date of
grant. (ii) Sharesave Scheme optionsAll Sharesave Scheme options outstanding at 30 June 2008 and 30 June 2007 have no performance criteria attached, other than the requirement that the employee remains in employment with the Group. Options granted under
the Sharesave scheme must be exercised within six months of the relevant award vesting date. The Sharesave Scheme is open to all employees. Options are normally exercisable
after either three, five or seven years from the date of grant. The price at
which options are offered is not less than 80% of the middle-market price on
the dealing day immediately preceding the date of invitation. It is the policy
of the Group to make an invitation to employees to participate in the scheme
following the announcement of the end of year results. (iii) Management LTIP awardsAll Management LTIP awards outstanding at 30 June 2008 and 30 June 2007 vest only if performance conditions are met. Awards granted under the Management LTIP must be exercised within one year of the relevant award
vesting date.


The Company grants awards
    to selected employees under the Management LTIP. Awards under this scheme
    mirror the LTIP, with the same performance conditions. Awards exercised under
    the Management LTIP can only be satisfied by the issue of market-purchased
  shares. (iv) LTIP awardsAll LTIP awards outstanding at 30 June 2008 and 30 June 2007 vest only if performance conditions are met. Awards granted under the LTIP must be exercised within one year of the relevant award vesting date. The Company operates the LTIP for Executive Directors and Senior Executives.
Awards under the scheme are granted in the form of a nil-priced option, and are
satisfied using market-purchased shares. The awards vest in full or in part dependent
on the satisfaction of specified performance targets. 30% of the award vests
dependent on TSR performance over a three year performance period, relative to
the constituents of the FTSE 100 at the time of grant, and the remaining 70%
vests dependent on performance against operational targets. (v) KCP awardsAll KCP awards outstanding at 30 June 2007 vest only if performance conditions are met. The contractual life of all KCP awards is ten years. Designated managers participated in the KCP, which was a replica scheme of the
LTIP, with the same performance conditions. Awards exercised under the KCP can
only be satisfied by the issue of shares purchased in the
market. For the purposes of the disclosure below, the Management LTIP awards, LTIP awards
and KCP awards (Senior Management Schemes) have been aggregated.




|                                           |  |   
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|                                           |  |   
|                                           |  |   
|British
        Sky Broadcasting Group plc |  | 85
|Annual
        Report 2008                

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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

Notes to the consolidated financial statementscontinued

24. Share capital(continued)The movement in share awards outstanding is summarised in the following table:

| |                             |  |                      |   |                      |  |                           |   |                |  |            |   |                |  |            |   |                | 
| | --------------------------- |  | -------------------- | - | -------------------- |  | ------------------------- | - | -------------- |  | ---------- | - | -------------- |  | ---------- | - | -------------- | 
| |                             |  | Executive
    Scheme |   | Sharesave
    Scheme |  | Senior Management Schemes |   | Total          | 
| |                             |  |                      |   |                      |  |                           |   |                |  |            |   |                |  |            |   |                | 
| |                             |  |                      |   | Weighted             |  |                           |   | Weighted       |  |            |   | Weighted       |  |            |   | Weighted       | 
| |                             |  |                      |   | average              |  |                           |   | average        |  |            |   | average        |  |            |   | average        | 
| |                             |  |                      |   | exercise price       |  |                           |   | exercise price |  |            |   | exercise price |  |            |   | exercise price | 
| |                             |  | Number               |   | £                    |  | Number                    |   | £              |  | Number     |   | £              |  | Number     |   | £              | 
| |                             |  |                      |   |                      |  |                           |   |                |  |            |   |                |  |            |   |                | 
| | Outstanding at 1 July 2006  |  | 36,289,000           |   | 6.62                 |  | 5,149,576                 |   | 4.20           |  | 11,329,157 |   | 0.00           |  | 52,767,733 |   | 4.96           | 
| | Granted during the year     |  |                     |   |                     |  | 1,829,980                 |   | 4.53           |  | 11,648,099 |   | 0.00           |  | 13,478,079 |   | 0.62           | 
| | Exercised during the year   |  | (6,914,179           | ) | 5.21                 |  | (255,610                  | ) | 4.89           |  | (1,173,645 | ) | 0.00           |  | (8,343,434 | ) | 4.47           | 
| | Forfeited during the year   |  | (4,465,111           | ) | 7.29                 |  | (786,457                  | ) | 4.35           |  | (2,517,146 | ) | 0.00           |  | (7,768,714 | ) | 4.63           | 
| | Expired during the year     |  |                     |   |                     |  | (141,945                  | ) | 4.93           |  |           |   |               |  | (141,945   | ) | 4.93           | 
| | Outstanding at 30 June 2007 |  | 24,909,710           |   | 6.89                 |  | 5,795,544                 |   | 4.24           |  | 19,286,465 |   | 0.00           |  | 49,991,719 |   | 3.93           | 
| |                             |  |                      |   |                      |  |                           |   |                |  |            |   |                |  |            |   |                | 
| | Granted during the year     |  |                     |   |                     |  | 2,018,443                 |   | 5.38           |  | 7,780,625  |   | 0.00           |  | 9,799,068  |   | 1.11           | 
| | Exercised during the year   |  | (2,848,742           | ) | 5.45                 |  | (1,765,973                | ) | 3.77           |  | (5,261,399 | ) | 0.00           |  | (9,876,114 | ) | 2.25           | 
| | Forfeited during the year   |  | (2,355,001           | ) | 7.36                 |  | (803,709                  | ) | 4.72           |  | (4,193,444 | ) | 0.00           |  | (7,352,154 | ) | 2.87           | 
| | Expired during the year     |  |                     |   |                     |  | (233,517                  | ) | 5.42           |  |           |   |               |  | (233,517   | ) | 5.42           | 
| | Outstanding at 30 June 2008 |  | 19,705,967           |   | 7.05                 |  | 5,010,788                 |   | 4.73           |  | 17,612,247 |   | 0.00           |  | 42,329,002 |   | 3.84           | 
| |                             |  |                      |   |                      |  |                           |   |                |  |            |   |                |  |            |   |                | 

The weighted average market price of the Groups shares at the date of exercise for share options exercised during the year was £6.45 (2007: £5.94) . For those exercised under the Executive Scheme it was
£6.78 (2007: £6.01), for those exercised under the Sharesave Scheme it was £5.71 (2007: £5.71), and for those exercised under the Senior Management Schemes it was £6.52 (2007: £5.57) .

The middle-market closing price of the Companys shares at 27 June 2008
was £4.65 (29 June 2007: £6.40) .

The following table summarises information about share awards outstanding at
30 June 2008:

| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 
| | ------------------------ |  | -------------------- |  | ---------------- |  | ------------------------ |  | ---------------- |  | ---------- |  | ---------------- |  | ---------- |  | ---------------- | 
| |                          |  | Executive
    Scheme |  | Sharesave Scheme |  | Senior Management Scheme |  | Total            | 
| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 
| |                          |  |                      |  | Weighted         |  |                          |  | Weighted         |  |            |  | Weighted         |  |            |  | Weighted         | 
| |                          |  |                      |  | average          |  |                          |  | average          |  |            |  | average          |  |            |  | average          | 
| |                          |  |                      |  | remaining        |  |                          |  | remaining        |  |            |  | remaining        |  |            |  | remaining        | 
| |                          |  |                      |  | contractual life |  |                          |  | contractual life |  |            |  | contractual life |  |            |  | contractual life | 
| | Range of exercise prices |  | Number               |  | Years            |  | Number                   |  | Years            |  | Number     |  | Years            |  | Number     |  | Years            | 
| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 
| | £0.00  £1.00            |  |                     |  |                 |  |                         |  |                 |  | 17,612,247 |  | 2.1              |  | 17,612,247 |  | 2.1              | 
| | £2.00  £3.00            |  |                     |  |                 |  | 67,567                   |  | 1.6              |  |           |  |                 |  | 67,567     |  | 1.6              | 
| | £3.00  £4.00            |  |                     |  |                 |  | 817,632                  |  | 1.7              |  |           |  |                 |  | 817,632    |  | 1.7              | 
| | £4.00  £5.00            |  | 22,658               |  | 6.2              |  | 2,220,084                |  | 2.2              |  |           |  |                 |  | 2,242,742  |  | 2.3              | 
| | £5.00  £6.00            |  | 6,201,075            |  | 5.3              |  | 1,886,502                |  | 3.5              |  |           |  |                 |  | 8,087,577  |  | 4.9              | 
| | £6.00  £7.00            |  | 5,559,102            |  | 4.1              |  | 15,263                   |  | 1.0              |  |           |  |                 |  | 5,574,365  |  | 4.1              | 
| | £7.00  £8.00            |  | 3,969,943            |  | 3.3              |  |                         |  |                 |  |           |  |                 |  | 3,969,943  |  | 3.3              | 
| | £9.00  £10.00           |  | 3,827,685            |  | 2.4              |  | 3,740                    |  |                 |  |           |  |                 |  | 3,831,425  |  | 2.4              | 
| | £11.00  £12.00          |  | 12,247               |  | 2.0              |  |                         |  |                 |  |           |  |                 |  | 12,247     |  | 2.0              | 
| | £12.00  £13.00          |  | 113,257              |  | 2.0              |  |                         |  |                 |  |           |  |                 |  | 113,257    |  | 2.0              | 
| |                          |  | 19,705,967           |  | 4.0              |  | 5,010,788                |  | 2.6              |  | 17,612,247 |  | 2.1              |  | 42,329,002 |  | 3.0              | 
| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 

The following table summarises information about share awards outstanding at 30 June 2007:

| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 
| | ------------------------ |  | -------------------- |  | ---------------- |  | ------------------------ |  | ---------------- |  | ---------- |  | ---------------- |  | ---------- |  | ---------------- | 
| |                          |  | Executive
    Scheme |  | Sharesave Scheme |  | Senior Management Scheme |  | Total            | 
| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 
| |                          |  |                      |  | Weighted         |  |                          |  | Weighted         |  |            |  | Weighted         |  |            |  | Weighted         | 
| |                          |  |                      |  | average          |  |                          |  | average          |  |            |  | average          |  |            |  | average          | 
| |                          |  |                      |  | remaining        |  |                          |  | remaining        |  |            |  | remaining        |  |            |  | remaining        | 
| |                          |  |                      |  | contractual life |  |                          |  | contractual life |  |            |  | contractual life |  |            |  | contractual life | 
| | Range of exercise prices |  | Number               |  | Years            |  | Number                   |  | Years            |  | Number     |  | Years            |  | Number     |  | Years            | 
| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 
| | £0.00  £1.00            |  |                     |  |                 |  |                         |  |                 |  | 19,286,465 |  | 2.2              |  | 19,286,465 |  | 2.2              | 
| | £2.00  £3.00            |  |                     |  |                 |  | 277,874                  |  | 1.2              |  |           |  |                 |  | 277,874    |  | 1.2              | 
| | £3.00  £4.00            |  |                     |  |                 |  | 2,305,099                |  | 1.7              |  |           |  |                 |  | 2,305,099  |  | 1.7              | 
| | £4.00  £5.00            |  | 51,396               |  | 7.2              |  | 2,837,100                |  | 3.1              |  |           |  |                 |  | 2,888,496  |  | 3.2              | 
| | £5.00  £6.00            |  | 8,675,016            |  | 6.4              |  | 300,985                  |  | 0.9              |  |           |  |                 |  | 8,976,001  |  | 6.2              | 
| | £6.00  £7.00            |  | 6,721,457            |  | 5.1              |  | 68,287                   |  | 0.5              |  |           |  |                 |  | 6,789,744  |  | 5.0              | 
| | £7.00  £8.00            |  | 5,154,316            |  | 4.4              |  |                         |  |                 |  |           |  |                 |  | 5,154,316  |  | 4.4              | 
| | £9.00  £10.00           |  | 4,170,704            |  | 3.4              |  | 6,199                    |  | 1.0              |  |           |  |                 |  | 4,176,903  |  | 3.4              | 
| | £11.00  £12.00          |  | 12,247               |  | 3.0              |  |                         |  |                 |  |           |  |                 |  | 12,247     |  | 3.0              | 
| | £12.00  £13.00          |  | 124,574              |  | 3.0              |  |                         |  |                 |  |           |  |                 |  | 124,574    |  | 3.0              | 
| |                          |  | 24,909,710           |  | 5.1              |  | 5,795,544                |  | 2.3              |  | 19,286,465 |  | 2.2              |  | 49,991,719 |  | 3.7              | 
| |                          |  |                      |  |                  |  |                          |  |                  |  |            |  |                  |  |            |  |                  | 



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|86                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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The range of exercise prices of the options outstanding at 30 June 2008 was between nil and £12.98 (2007: nil and £12.98) . For those options outstanding under the Executive Scheme it was between £4.93
and £12.98 (2007: £4.93 and £12.98) and for those outstanding under the Sharesave Scheme it was between £2.11 and £9.71 (2007: £2.11 and £9.71); for all options outstanding under the Senior Management Schemes the
exercise price was nil.

The following table summarises additional information about the awards exercisable
at 30 June 2008 and 30 June 2007:

| |                                   |  |                     |  |                     |  |                  |  |                     |  |                     |  |                  | 
| | --------------------------------- |  | ------------------- |  | ------------------- |  | ---------------- |  | ------------------- |  | ------------------- |  | ---------------- | 
| |                                   |  | 2008                |  | 2007                | 
| |                                   |  |                     |  |                     |  |                  |  |                     |  |                     |  |                  | 
| |                                   |  |                     |  | Average remaining   |  |                  |  |                     |  | Average remaining   |  |                  | 
| |                                   |  | Options exercisable |  | contractual life of |  | Weighted average |  | Options exercisable |  | contractual life of |  | Weighted average | 
| |                                   |  | at 30 June          |  | exercisable options |  | exercise price   |  | at 30 June          |  | exercisable options |  | exercise price   | 
| |                                   |  |                     |  |                     |  |                  |  |                     |  |                     |  |                  | 
| | Executive Scheme options          |  | 18,270,869          |  | 3.8                 |  | £7.20            |  | 19,240,781          |  | 4.6                 |  | £7.31            | 
| | Sharesave Scheme options          |  | 174,043             |  | 0.1                 |  | £4.04            |  | 246,846             |  | 0.1                 |  | £5.47            | 
| | Senior Management Schemes options |  | 312,804             |  | 0.1                 |  | £0.00            |  | 14,237              |  | 7.1                 |  | £0.00            | 
| |                                   |  | 18,757,716          |  | 3.7                 |  | £7.05            |  | 19,501,864          |  | 4.5                 |  | £7.28            | 
| |                                   |  |                     |  |                     |  |                  |  |                     |  |                     |  |                  | 

Information for awards granted during the yearThe
weighted average fair value of equity-settled share options granted during the
year, as estimated at the date of grant, was £4.86 (2007: £4.02) .
This was calculated using the Black-Scholes share option pricing model, except
for awards which have market-based performance conditions, where a Monte-Carlo
simulation model was used, and for grants of nil-priced options, which were treated
as the award of a free share.

(i) Sharesave SchemeThe
weighted average fair value of equity-settled share options granted during the
year under the Sharesave Scheme, as estimated at the date of grant, was £2.23 (2007: £1.75)
.. This was calculated using the Black-Scholes share option pricing model, using
the following weighted average assumptions:

| |                         |           |  |           | 
| | ----------------------- | --------- |  | --------- | 
| |                         | 2008      |  | 2007      | 
| |                         |           |  |           | 
| | Share price             | £6.93     |  | £5.66     | 
| | Exercise price          | £5.38     |  | £4.53     | 
| | Expected volatility     | 23.0%     |  | 25.4%     | 
| | Expected life           | 4.1 years |  | 3.5 years | 
| | Expected dividends      | 2.2%      |  | 2.2%      | 
| | Risk-free interest rate | 5.0%      |  | 4.8%      | 
| |                         |           |  |           | 

(ii) Senior Management SchemeThe
weighted average fair value of equity-settled share options granted during the
year under the Senior Management Schemes, as estimated at the date of grant,
was £5.54 (2007: £4.38) . For those awards with
market-based performance conditions, this was calculated using a Monte-Carlo
simulation model. Awards granted as nil-priced options were treated as the award
of a free share.

The Monte-Carlo simulation model reflected the historical volatilities of the Companys share price and those of all other companies to which the Companys performance would be compared, over a period equal
to the vesting period of the options. The fair value of nil-priced options granted during the year was measured on the basis of the market-price of the Companys shares on the date of grant, discounted for expected dividends which would not be
received over the vesting period of the options.

The following weighted average assumptions were used in calculating these fair values:

| |                         |           |  |           | 
| | ----------------------- | --------- |  | --------- | 
| |                         | 2008      |  | 2007      | 
| |                         |           |  |           | 
| | Share price             | £6.53     |  | £5.49     | 
| | Exercise price          | £0.00     |  | £0.00     | 
| | Expected volatility     | 18.9%     |  | 23.6%     | 
| | Expected life           | 1.9 years |  | 3.0 years | 
| | Expected dividends      | 2.4%      |  | 2.2%      | 
| | Risk-free interest rate | 5.3%      |  | 4.8%      | 
| |                         |           |  |           | 

Expected volatility was determined by calculating the historical volatility of the Companys share price, over a period equal to the expected life of the options. Expected life was based on the contractual life of
the options and adjusted, based on managements best estimate, for the effects of exercise restrictions and behavioural considerations.



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|Consolidated
        financial statements
|-----------------------------------------
|continued                                
|                                         
|                                         

Notes to the consolidated financial statementscontinued

25. Reconciliation of shareholders equity

| |                                                |         |   |         |  |         |   |         |   |            |   |          |  |          |   |                  |  
| | ---------------------------------------------- | ------- | - | ------- |  | ------- | - | ------- | - | ---------- | - | -------- |  | -------- | - | ---------------- | -
| |                                                |         |   |         |  |         |   |         |   | Available- |   |          |  |          |   | Total            |  
| |                                                | Share   |   | Share   |  | ESOP    |   | Hedging |   | for-sale   |   | Other    |  | Retained |   | shareholders    |  
| |                                                | capital |   | premium |  | reserve |   | reserve |   | reserve    |   | reserves |  | earnings |   | (deficit) equity |  
| |                                                | £m      |   | £m      |  | £m      |   | £m      |   | £m         |   | £m       |  | £m       |   | £m               |  
| |                                                |         |   |         |  |         |   |         |   |            |   |          |  |          |   |                  |  
| | At 1 July 2006                                 | 896     |   | 1,437   |  | (25     | ) | (52     | ) |           |   | 311      |  | (2,446   | ) | 121              |  
| | Purchase of own equity shares for cancellation | (20     | ) |        |  |        |   |        |   |           |   | 20       |  | (214     | ) | (214             | )
| | Recognition and transfer of cash flow hedges   |        |   |        |  |        |   | 39      |   |           |   |         |  |         |   | 39               |  
| | Tax on items taken directly to equity          |        |   |        |  |        |   | (12     | ) |           |   |         |  | 5        |   | (7               | )
| | Revaluation of available-for-sale investment   |        |   |        |  |        |   |        |   | (151       | ) |         |  |         |   | (151             | )
| | Share-based payment                            |        |   |        |  | (29     | ) |        |   |           |   |         |  | 22       |   | (7               | )
| | Profit for the year                            |        |   |        |  |        |   |        |   |           |   |         |  | 499      |   | 499              |  
| | Dividends                                      |        |   |        |  |        |   |        |   |           |   |         |  | (233     | ) | (233             | )
| | At 30 June 2007                                | 876     |   | 1,437   |  | (54     | ) | (25     | ) | (151       | ) | 331      |  | (2,367   | ) | 47               |  
| |                                                |         |   |         |  |         |   |         |   |            |   |          |  |          |   |                  |  
| | Recognition and transfer of cash flow hedges   |        |   |        |  |        |   | 45      |   |           |   |         |  |         |   | 45               |  
| | Tax on items taken directly to equity          |        |   |        |  |        |   | (13     | ) |           |   |         |  | (3       | ) | (16              | )
| | Impairment of available-for-sale investment    |        |   |        |  |        |   |        |   | 151        |   |         |  |         |   | 151              |  
| | Exchange differences on translation of foreign |         |   |         |  |         |   |         |   |            |   |          |  |          |   |                  |  
| | operations                                     |        |   |        |  |        |   |        |   |           |   | 4        |  |         |   | 4                |  
| | Share-based payment                            |        |   |        |  | 17      |   |        |   |           |   |         |  | (9       | ) | 8                |  
| | Loss for the year                              |        |   |        |  |        |   |        |   |           |   |         |  | (127     | ) | (127             | )
| | Dividends                                      |        |   |        |  |        |   |        |   |           |   |         |  | (280     | ) | (280             | )
| | At 30 June 2008                                | 876     |   | 1,437   |  | (37     | ) | 7       |   |           |   | 335      |  | (2,786   | ) | (168             | )
| |                                                |         |   |         |  |         |   |         |   |            |   |          |  |          |   |                  |  

To provide a more concise presentation
  of shareholders equity, management has chosen to re-analyse the reserves reported, consolidating the capital redemption reserve, merger reserve, foreign currency translation
reserve and special reserve into a single column described as other reserves.

Share premium and special reserveOn 10 December 2003,
the High Court approved
a reduction in the Companys share premium account of £1,120 million,
as approved by the Companys shareholders at the AGM held on 14 November
2003. This amount was equal to the Company-only profit and loss account reserve
deficit at 30 June 2003. As part of the application, the Companys balance
sheet at 30 September 2003 was required to be presented. At that date, the deficit
on the
Company-only profit and loss account reserve had reduced by £14 million
since 30 June 2003, to £1,106 million. As a condition of the reduction,
the reduction in the share premium account of £1,120 million was permitted
to be offset against the profit and loss account reserve by the amount of the
deficit at 30 September 2003. The excess of £14 million was credited to
a special reserve, and, under the terms of the reduction, will remain undistributable
until all the creditors of the Company and its guarantors (as at 10 December
2003) are paid.

Purchase of own equity shares for cancellation and capital redemption reserveOn 4 November 2005, the
Companys shareholders approved a resolution at the AGM for the Company
to purchase up to 92 million ordinary shares (the 2005 resolution).
This authority to buyback shares expired on 3 November 2006. During the year
ended 30 June 2007, the Company purchased, and subsequently cancelled, 38 million
ordinary shares at an average price of £5.55, with a nominal value of £20
million, for a consideration of £214 million including stamp duty and commission
of £2 million. The nominal value of the shares cancelled has been credited
to other reserves.

The following table provides information about purchases of equity shares by
the company, including purchases by the Groups ESOP, during the fiscal
year.

| |                                       |              |     |            | 
| | ------------------------------------- | ------------ | --- | ---------- | 
| |                                       | Total number |     | Average    | 
| |                                       | of shares    |     | price paid | 
| | Period                                | purchased    | (i) | per share  | 
| |                                       |              |     |            | 
| | July                                  |             |     |           | 
| | August                                | 2,000,000    |     | £6.73      | 
| | September                             |             |     |           | 
| | October                               |             |     |           | 
| | November                              | 1,500,000    |     | £6.31      | 
| | December                              |             |     |           | 
| | January                               |             |     |           | 
| | February                              | 1,700,000    |     | £5.69      | 
| | March                                 |             |     |           | 
| | April                                 |             |     |           | 
| | May                                   | 2,300,000    |     | £5.44      | 
| | June                                  |             |     |           | 
| | Total for the year ended 30 June 2008 | 7,500,000    |     | £6.02      | 
| |                                       |              |     |            | 
| |                                       |              |     |            | 

|(i) | All share purchases were open market transactions and are included in the
    month of settlement.
|--- | --------------------------------------------------------------------------------------------------



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|88                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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ESOP reserveThe cost of the Companys
  ordinary shares held by the Groups ESOP is treated as a deduction in
  arriving at total shareholders equity. The movement in the ESOP reserve
was as follows:

| |                                              |                 |   |            |  |     |  
| | -------------------------------------------- | --------------- | - | ---------- |  | --- | -
| |                                              |                 |   | Average    |  |     |  
| |                                              | Number of       |   | price paid |  |     |  
| |                                              | ordinary shares |   | per share  |  | £m  |  
| |                                              |                 |   |            |  |     |  
| | At 1 July 2006                               | 4,448,876       |   | £5.66      |  | 25  |  
| | Share options exercised during the year      | (8,343,434      | ) | £5.62      |  | (47 | )
| | Shares purchased by the ESOP during the year | 12,500,000      |   | £6.07      |  | 76  |  
| | At 30 June 2007                              | 8,605,442       |   | £6.29      |  | 54  |  
| |                                              |                 |   |            |  |     |  
| | Share options exercised during the year      | (9,876,114      | ) | £6.34      |  | (62 | )
| | Shares purchased by the ESOP during the year | 7,500,000       |   | £6.02      |  | 45  |  
| | At 30 June 2008                              | 6,229,328       |   | £5.87      |  | 37  |  
| |                                              |                 |   |            |  |     |  

Hedging reserveChanges in the fair values
of derivatives that are designated as cash flow hedges are initially recognised
in the hedging reserve, and subsequently recognised in the income statement when
the related hedged items are recognised in the income statement. In addition,
deferred taxation relating to these derivatives is also initially recognised
in the hedging reserve prior to transfer to the income statement.

Available-for-sale reserveAvailable-for-sale investments
are carried at fair value where this can be reliably measured, with movements
in the fair value recognised directly in the available-for-sale reserve. At 30
June 2008,
the Groups
available-for-sale reserve was nil (2007: £151 million) following the impairment
of the Groups
investment in ITV, see note 6.

Other reservesThe
Groups other reserves include a capital redemption reserve, a merger reserve,
a foreign currency translation reserve, and a special reserve. The capital redemption
reserve was £95 million as at 30 June
2008 (2007: £95 million). The merger reserve was £222 million as at
30 June 2008 (2007: £222 million). The special reserve was £14 million
as at 30 June 2008 (2007: £14 million). The foreign currency translation
reserve was £4 million as at 30 June 2008 (2007: less than £1 million).

26. Notes to the Consolidated Cash Flow StatementReconciliation
of profit before taxation to cash generated from operations

| |                                                         |       |   |       |   |       |  
| | ------------------------------------------------------- | ----- | - | ----- | - | ----- | -
| |                                                         | 2008  |   | 2007  |   | 2006  |  
| |                                                         | £m    |   | £m    |   | £m    |  
| |                                                         |       |   |       |   |       |  
| | Profit before taxation                                  | 60    |   | 724   |   | 798   |  
| | Depreciation of property, plant and equipment           | 155   |   | 120   |   | 89    |  
| | Amortisation of intangible assets                       | 91    |   | 72    |   | 51    |  
| | Profit on disposal of joint venture                     | (67   | ) |      |   |      |  
| | Impairment of available-for-sale investment             | 616   |   |      |   |      |  
| | Share-based payment expense                             | 36    |   | 33    |   | 23    |  
| | Net finance costs                                       | 130   |   | 103   |   | 91    |  
| | Share of results of joint ventures and associates       | (15   | ) | (12   | ) | (12   | )
| |                                                         | 1,006 |   | 1,040 |   | 1,040 |  
| |                                                         |       |   |       |   |       |  
| | Increase in trade and other receivables                 | (59   | ) | (47   | ) | (102  | )
| | Decrease (increase) in inventories                      | 88    |   | (59   | ) | 31    |  
| | (Decrease) increase in trade and other payables         | (30   | ) | 68    |   | 32    |  
| | (Decrease) increase in provisions                       | (2    | ) | 1     |   | (13   | )
| | (Decrease) increase in derivative financial instruments | (6    | ) | 4     |   | 16    |  
| | Cash generated from operations                          | 997   |   | 1,007 |   | 1,004 |  
| |                                                         |       |   |       |   |       |  



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|British
        Sky Broadcasting Group plc |  | 89
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        Report 2008                

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|Consolidated
        financial statements
|-----------------------------------------
|continued                                
|                                         
|                                         

Notes to the consolidated financial statementscontinued

27. Contracted commitments, contingencies and guaranteesa) Future minimum expenditure contracted for but not recognised in the financial statements

| |                                     |         |  |         |  |         |  |         |  |         |  |         |  |          |  |  |          | 
| | ----------------------------------- | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | -------- |  |  | -------- | 
| |                                     | Year    |  | Year    |  | Year    |  | Year    |  | Year    |  |         |  |          |  |  |          | 
| |                                     | ending  |  | ending  |  | ending  |  | ending  |  | ending  |  |         |  | Total at |  |  | Total at | 
| |                                     | 30 June |  | 30 June |  | 30 June |  | 30 June |  | 30 June |  | After   |  | 30 June  |  |  | 30 June  | 
| |                                     | 2009    |  | 2010    |  | 2011    |  | 2012    |  | 2013    |  | 5 years |  | 2008     |  |  | 2007     | 
| |                                     | £m      |  | £m      |  | £m      |  | £m      |  | £m      |  | £m      |  | £m       |  |  | £m       | 
| |                                     |         |  |         |  |         |  |         |  |         |  |         |  |          |  |  |          | 
| | Television programme rights(i)      | 870     |  | 860     |  | 306     |  | 240     |  | 40      |  | 40      |  | 2,356    |  |  | 2,638    | 
| | Set-top boxes and related equipment | 194     |  | 7       |  |        |  |        |  |        |  |        |  | 201      |  |  | 187      | 
| | Third party payments(ii)            | 50      |  | 49      |  | 10      |  | 5       |  | 1       |  |        |  | 115      |  |  | 118      | 
| | Transponder capacity(iii)           | 67      |  | 42      |  | 36      |  | 34      |  | 34      |  | 81      |  | 294      |  |  | 331      | 
| | Property, plant and equipment(iv)   | 122     |  | 23      |  |        |  |        |  |        |  |        |  | 145      |  |  | 16       | 
| | Intangible asset                    | 10      |  | 3       |  |        |  |        |  |        |  |        |  | 13       |  |  | 4        | 
| | Other                               | 43      |  | 17      |  | 6       |  | 3       |  | 1       |  |        |  | 70       |  |  | 58       | 
| |                                     | 1,356   |  | 1,001   |  | 358     |  | 282     |  | 76      |  | 121     |  | 3,194    |  |  | 3,352    | 
| |                                     |         |  |         |  |         |  |         |  |         |  |         |  |          |  |  |          | 

For the avoidance of doubt, any foreign currency commitments are translated to pounds sterling at the rate prevailing on 30 June 2008.

|(i)   | At 30 June 2008, the Group had minimum television programming rights commitments of £2,356 million (2007: £2,638 million), of which £367 million (2007: £527 million) related to commitments payable
in US dollars for periods of up to eight years (2007: six years).                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | Assuming that movie subscriber numbers remain unchanged from current levels, an additional £296 million (US$590 million) of commitments (2007: £284 million, (US$569 million)) would also be payable in
US dollars, relating to price escalator clauses. The pound sterling television programme rights commitments include similar price escalation clauses that would result in additional commitments of £3 million (2007: £10 million) if
subscriber numbers were to remain at current levels.                                                                                                                                                                                                                                             
|(ii)  | The third party payment commitments are in respect of distribution agreements for the television channels owned and broadcast by third parties, retailed by the Group to retail and commercial subscribers
(Sky Distributed Channels) and are for periods of up to six years (2007: seven years). The extent of the commitment is largely dependent upon the number of retail subscribers to the relevant Sky Distributed Channels, and in
certain cases, upon inflationary increases. If both the retail subscriber levels to these channels and the rate payable for each Sky Distributed Channel were to remain at current levels subject to inflationary increases, the additional commitment
would be £636 million (2007: £968 million).
|(iii) | Transponder capacity commitments are in respect of the Astra and Eurobird satellites that the Group uses for digital transmissions to both retail subscribers and cable operators. The commitments are for periods of up
to twelve years (2007: thirteen years). Three additional transponder agreements were entered into in the year ended 30 June 2006 to provide capacity to facilitate the launch of the Groups HD services. No additional agreements were entered into
in the years ended 30 June 2007 and 30 June 2008.                                                                                                                                                                                                                
|(iv)  | On 21 December 2007, the Group entered into a property development agreement to construct a new production and broadcast centre.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

b) Contingent assetsThe Group has served
  a claim for a material amount against EDS (an information and technology solutions
  provider) which provided
services to the Group as part of the Groups investment in customer management
systems software and infrastructure. The amount which may be recovered by the
Group will not be finally determined until resolution of the claim.

c) Contingent liabilities and guaranteesIn April 2007, Virgin
Media Communications Limited, Virgin Media Television Limited and Virgin Media
Limited issued proceedings in the High Court in England and Wales against British
Sky Broadcasting Group plc and British Sky Broadcasting Limited, alleging that
the Group has infringed Article 82 EC and the Chapter II prohibition by pursuing
an anticompetitive strategy designed to weaken Virgin Media group, which allegedly
entailed (i) a constructive
refusal
to supply the Groups basic pay television channels to Virgin Media group
for supply via Virgin Media groups cable network in the UK; (ii) a refusal
to pay fair prices for the right to carry Virgin Media groups television
channels
as part of the Groups retail channel offering; and (iii) the Groups
purchase of a significant shareholding in ITV (which purchase was, it is alleged,
designed principally to damage Virgin Media groups ability to compete in
the supply of pay television services, by preventing Virgin Media group from
obtaining access to attractive programming content). Virgin Media group seeks
from the Court a declaration that the Group occupies a dominant market position
in specified pay TV retail and purchasing markets in the UK and that the Group
has, by its conduct as alleged, abused its dominant position(s) contrary to Article
82 EC and the Chapter II prohibition on these relevant markets. Virgin Media
group also seeks mandatory injunctions requiring the Group to transact with Virgin
Media group on fair and/or non-discriminatory terms for the supply of the Groups
basic pay television channels to Virgin Media and for the licensing of Virgin
Media groups
television channels, for on-supply to the Groups subscribers. Virgin Media
group also seeks damages to compensate it for its alleged losses arising from
the Groups
alleged conduct.

The Group intends to defend the proceedings vigorously and submitted its defence
to the High Court on 2 July 2007 denying
Virgin Media groups allegations that it had infringed Article 82 EC or
Chapter II prohibition. It is, at this stage, too early to estimate the likely
outcome of the proceedings.

On 7 May 2008 the Nomenclature Committee of the European Commission issued an
Explanatory Note EN (0590/2007) to the Combined Nomenclature setting
out their view that set-top boxes with a hard drive should be classified under
Customs Tariff heading 8521 90 00 and so subject to a 13.9% ad valorem duty on
importation to the European Union. As a consequence the Group is exposed to potential
retrospective Customs Duty liability in respect of such set-top boxes imported
by Amstrad Plc (acquired in September 2007) and for the reimbursement of certain
suppliers in line with the terms of contractual
supply agreements.

Managements opinion is that the retrospective application of the Explanatory
Note would be wrong as a matter of law. In addition management considers that
the adoption of the EN puts the EU in breach of the Information Technology Agreement
of 1996, a view which is shared by the US and Japan who have instigated WTO proceedings
against the EU on this matter. The Group therefore intends, in common with other
affected importers, to appeal any retrospective assessment made and to defend
its position on this matter.



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As a result of the potential
  remedies available under the Community Customs Code, the Group considers that
  in the event that an assessment is made for import duty relating to imports
  prior to 7 May 2008, it is probable that no outflow of economic benefit would
  be required to discharge this obligation, and that as such at 30 June 2008 any
  liability should be considered contingent.

Certain subsidiaries of the Company have agreed to provide additional funding to several of their investments in limited and unlimited companies and partnerships, in accordance with funding agreements. Payment of this
additional funding would be required if requested by the investees in accordance with the funding agreements. The maximum potential amount of future payments which may be required to be made by the subsidiaries of the Company to their investments,
in both limited and unlimited companies and partnerships under the undertakings and additional funding agreements, is £11 million (2007: £4 million).

The Group has guarantees in place relating to the Groups borrowings, see note 22  Borrowings and non-current other payables.

28. Operating
  lease commitmentsThe minimum lease
  rentals to be paid under non-cancellable operating leases at 30 June are as
  follows:

| |                                    |      |  |      | 
| | ---------------------------------- | ---- |  | ---- | 
| |                                    | 2008 |  | 2007 | 
| |                                    | £m   |  | £m   | 
| |                                    |      |  |      | 
| | Within one
      year              | 45   |  | 32   | 
| | Between one
      and two years    | 43   |  | 27   | 
| | Between two
      and three years  | 34   |  | 27   | 
| | Between three
      and four years | 28   |  | 22   | 
| | Between four
      and five years  | 24   |  | 19   | 
| | After five
      years             | 59   |  | 79   | 
| |                                    | 233  |  | 206  | 
| |                                    |      |  |      | 

The majority of operating leases relate to property. The rents payable under these leases are subject to renegotiation at the various intervals specified in the leases.

The minimum sub-lease rentals to be received under non-cancellable operating sub-leases at 30 June are as follows:

| |                                    |      |  |      | 
| | ---------------------------------- | ---- |  | ---- | 
| |                                    | 2008 |  | 2007 | 
| |                                    | £m   |  | £m   | 
| |                                    |      |  |      | 
| | Within one
      year              | 3    |  | 3    | 
| | Between one
      and two years    | 3    |  | 3    | 
| | Between two
      and three years  | 3    |  | 3    | 
| | Between three
      and four years | 3    |  | 2    | 
| | Between four
      and five years  | 2    |  | 2    | 
| | After five
      years             | 1    |  | 3    | 
| |                                    | 15   |  | 16   | 
| |                                    |      |  |      | 

Sub-lease rentals primarily
  relate to property leases.

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      Group plc |  | 91
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|Consolidated financial statements
|---------------------------------
|continued                        
|                                 
|                                 

Notes to the
  consolidated financial statementscontinued

29. Purchase
  of subsidiariesOn 5 September 2007,
  the Group took control of Amstrad Plc (Amstrad). The Group purchased
  100% of the issued share capital for consideration of £127 million, satisfied
  by £90 million of cash and £37 million of issued Loan Notes. Amstrad
  is the parent company of a group of companies involved primarily in the supply
  of digital television set-top box receiving equipment to the Group. The purchase
  of Amstrad provides the Group an opportunity to vertically integrate its supply
  chain, bringing technologies in house and allowing greater involvement in the
  design and application of products. This transaction has been accounted for
  under the purchase method.

| |                                                                                                                |                      |   |                  |   |            |  
| | -------------------------------------------------------------------------------------------------------------- | -------------------- | - | ---------------- | - | ---------- | -
| |                                                                                                                |                      |   | Fair
      value |   | Recognised |  
| |                                                                                                                | Net
      book value |   | adjustments      |   | values     |  
| |                                                                                                                | £m                   |   | £m               |   | £m         |  
| |                                                                                                                |                      |   |                  |   |            |  
| | Net assets
      of Amstrad purchased                                                                          |                      |   |                  |   |            |  
| | Goodwill                                                                                                       | 1                    |   | (1               | ) |           |  
| | Intangible assets                                                                                              | 3                    |   | 5                |   | 8          |  
| | Property, plant and equipment                                                                                  | 1                    |   |                 |   | 1          |  
| | Deferred tax liabilities                                                                                       |                     |   | (3               | ) | (3         | )
| | Inventories                                                                                                    | 16                   |   | 2                |   | 18         |  
| | Trade and other receivables                                                                                    | 16                   |   |                 |   | 16         |  
| | Cash and cash equivalents                                                                                      | 21                   |   |                 |   | 21         |  
| | Trade and other payables                                                                                       | (16                  | ) | 8                |   | (8         | )
| | Provisions for liabilities
         and charges(i)                                                             | (4                   | ) | (26              | ) | (30        | )
| |                                                                                                                | 38                   |   | (15              | ) | 23         |  
| |                                                                                                                |                      |   |                  |   |            |  
| | Provisional goodwill                                                                                           |                      |   |                  |   | 104        |  
| | Total
      consideration                                                                                      |                      |   |                  |   | 127        |  
| |                                                                                                                |                      |   |                  |   |            |  
| | Satisfied
      by:                                                                                            |                      |   |                  |   |            |  
| | Ordinary shares purchased
      for cash (including the purchase of certain outstanding Amstrad share options) |                      |   |                  |   | 88         |  
| | Ordinary shares purchased
      by the issue of Loan Notes                                                     |                      |   |                  |   | 37         |  
| | Directly attributable
      costs                                                                              |                      |   |                  |   | 2          |  
| |                                                                                                                |                      |   |                  |   |            |  
| | Net cash
      outflow arising on the purchase of Amstrad                                                      |                      |   |                  |   |            |  
| | Cash paid                                                                                                      |                      |   |                  |   | 90         |  
| | Cash and cash equivalents
      purchased                                                                      |                      |   |                  |   | (21        | )
| |                                                                                                                |                      |   |                  |   | 69         |  
| |                                                                                                                |                      |   |                  |   |            |  

|(i) | The fair value of provisions
      for liabilities and charges includes both the fair value of acquired provisions
      and contingent liabilities, see note 21.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

The Loan Notes were issued during the period as part consideration for the purchase of Amstrad and are repayable at the option of the note holders either on 31 March or on 30 September in any year until 30 September
2017 when the Loan Notes are fully redeemable. Under the terms of the Loan Notes the Group pays floating six month LIBOR minus 1.000% until 29 September 2012, after this date the Group will pay floating six month LIBOR minus 0.500% . The coupon is
payable semi-annually.

For the period between the
  date of purchase and 30 June 2008, Amstrad contributed £9 million to the
  Groups revenue, £17 million profit to the Groups loss before
  tax and a reduction of 1.0 pence in loss per share. Had the Group taken control
  of Amstrad on the first day of the period, Group revenue for the period would
  have been £4,954 million, Group loss for the year would have been £127
  million and Group basic loss per share would have been 7.3 pence. Goodwill includes
  the value that the Group is expecting to generate from the cost synergies of
  integrating the design and supply chain operations of Amstrad and the work force
  in place. Goodwill has been determined provisionally because the Group cannot
  be certain that all assets, liabilities and contingent liabilities have been
  identified. Initial accounting for the goodwill will be completed within 12
  months of the purchase date.



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30. Transactions
  with related parties and major shareholders
  a) Entities with joint control or significant influenceThe Group conducts business
  transactions with companies that are part of the News Corporation group (News
  Corporation), a major shareholder: 2008
    
    2007
    
    2006£m
    
    £m
    
    £mSupply
      of services by the Group
      36
    
      18
    
      21Purchases
      of goods or services by the Group
    (202
    )
    (195
    )
    (175
    )Amounts
      owed by related parties to the Group
    6
    
    1
    
    1Amounts
      owed to related parties by the Group
    (32
    )
    (36
    )
    (31
    ) Services
  supplied to News CorporationDuring the year, the
  Group supplied programming, telephony, airtime, transmission, marketing, consultancy
  services and set top boxes to News Corporation. Purchases
  of goods and services from News CorporationDuring the year, the
  Group purchased programming, digital equipment, smartcards and encryption services,
  set-top box technologies, advertising, IT services and rental premises from
  News Corporation companies. On 18 December 2006, the Group purchased the freehold interest in a commercial property from News International Limited for cash consideration of £5 million. The purchase will facilitate and support the
Groups property development plans. In March and April 2003, News Corporation Finance Trust II, in which News Corporation, directly or indirectly, owns all of the beneficial interests in the assets of the trust, issued and sold 0.75% Beneficial Unsecured
Exchangeable Securities (BUCS), in a private placement to certain institutions. Each BUCS is exchangeable on or after 2 April 2004 for the value of reference shares, which initially consist of 77.09 ordinary shares of the
Company for each US$1,000 original liquidation preference of BUCS. The BUCS may also be tendered for redemption on 15 March 2010, 15 March 2013 or 15 March 2018 for payment of the adjusted liquidation preference, which may be paid, at the
election of the trust, in cash, ordinary shares of the Company, preferred American Depositary Shares of News Corporation representing the preferred limited voting ordinary shares of News Corporation, or a combination thereof. News Corporation and
News America have agreed to indemnify the Group and the Groups directors, officers, agents and employees against certain liabilities arising out of or in connection with the BUCS. In November 1996, News Corporation, through subsidiaries, issued Exchangeable Trust Originated Preferred Securities (Exchangeable TOPrS), in a private placement to certain institutions. The
Exchangeable TOPrS are exchangeable for certain other securities of subsidiaries of News Corporation, including warrants entitling the holders to purchase the Companys ordinary shares, or American Depositary Shares representing the
Companys ordinary shares, from News America. The aggregate number of the Companys ordinary shares subject to such warrants is 7,052,127. Upon the exercise of a warrant, News America has the right to elect to pay the holder in cash, in
ordinary shares or American Depositary Shares, or any combination thereof. The warrants are redeemable at the option of News America, on or after 12 November 2001, and expire on 12 November 2016. News Corporation and News America have agreed to
indemnify the Group and the Groups directors, officers, agents and employees against certain liabilities arising out of or in connection with the Exchangeable TOPrS. News Corporation has entered into an agreement with the Group pursuant to which it has been agreed that, for so long as News Corporation directly or indirectly holds an interest of 30% or more in the Group, News
Corporation will not engage in the business of satellite broadcasting in the UK or Ireland. Purchase
  of subsidiary from News CorporationOn 22 November 2006,
  the Group acquired the entire issued share capital of News Optimus for cash
  consideration of £4 million resulting in goodwill of £4 million. Prior
  to that date, News Optimus was a wholly-owned subsidiary of News International
  Limited, which is, in turn, a wholly-owned subsidiary of News International
  Holdings Limited. The ultimate parent company of News International Holdings
  Limited is News Corporation.


Purchase
  of associate interest from News CorporationOn 12 December 2007
  the Group completed the sale of 100% of the entire issued share capital of BSkyB
  Nature Limited, the investment holding company for the Groups 50% interest
  in the NGC-UK Partnership for consideration of 21% interests in both NGC Network
  International LLC and NGC Network Latin America LLC. On consolidation the Group
  recognised a gain of £67 million which has been disclosed separately within
  the consolidated income statement. b) Joint ventures
  and associatesTransactions between the
  Company and its subsidiaries, which are related parties, have been eliminated
  on consolidation and are not disclosed in this note. Transactions between the
  Group and its joint ventures and associates are disclosed below.Transactions between the
  company and its subsidiaries, joint ventures and associates are disclosed in
  the Companys separate financial statements. 2008
      
      2007
      
      2006£m
      
      £m
      
      £mSupply of
        services by the Group
      16
      
      15
      
      14Purchases
        of goods or services by the Group
      (53
      )
      (49
      )
      (46
      )Amounts owed
        by joint venturesand associates
        to the Group
      28
      
      25
      
      23Amounts owed
        to joint venturesand associates
        by the Group
      (3
      )
      (3
      )
      (5
      ) Revenue is primarily generated from the provision of transponder capacity, marketing, airtime sales and support services. Purchases represent fees payable for channel carriage. Amounts owed by joint ventures and
associates include £18 million (2007: £17 million) relating to loan funding. These loans bear interest at rates of between three month LIBOR plus 0.45% and six month LIBOR plus 1.5% . The maximum amount of loan funding outstanding in total
from joint ventures and associates during the year was £18 million (2007: £17 million). The Group took out a number of forward exchange contracts with counterparty banks during the period on behalf of two joint ventures: The History Channel (UK) and Chelsea Digital Media Limited. On the same dates as
these forward contracts were entered into, the Group entered into equal and opposite contracts with the joint ventures in respect of these forward contracts. The Group was not exposed to any of the net gains or losses on these forward contracts. The face value of forward exchange contracts that had not matured as at 30 June 2008 was £5 million (2007: £5
million). During the year, US$6 million (2007: US$13 million; 2006: US$13 million) was paid to the joint ventures upon maturity of forward exchange contracts and US$2 million (2007: US$1 million; 2006: nil)
was received from joint ventures upon maturity of forward exchange contracts. During the year, £3 million (2007: £7 million; 2006: £7 million) was received from the joint ventures upon maturity of forward exchange contracts, and £1 million (2007: nil) was paid to the joint
ventures upon maturity of forward exchange contracts. On 30 June 2006, the Group increased its shareholding in MyKindaPlace Limited (MKP) from 49% to 100%. Prior to that date, the directors of MKP had included a close family member of two Directors
of the Company. c) Other transactions
  with related partiesDuring the year Amstrad
  agreed to pay compensation to Sky Italia (a related party of the Group) in relation
  to a high level of subscriber product returns. The value of this compensation
  is estimated to be £7 million and a provision of £1.6 million (2007:
  nil) remains at 30 June 2008 in relation to this. A close family member of two
  Directors of the Company who served during the year has a controlling interest
  in Shine Limited (Shine), in which the Group has an 8% (2007: 3%)
  equity shareholding. During the year, the Group acquired a further 8% (24,366
  shares) of the issued share capital of Shine from 3i Group plc for a cash consideration
  of £7 million. The Group also participated in a rights issue to maintain




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|Consolidated
        financial statements
|-----------------------------------------
|continued                                
|                                         
|                                         

Notes to the
    consolidated financial statementscontinued 30. Transactions
with related parties and major shareholders(continued)
its
equity stake, acquiring 3,676 shares for a cash consideration of £1 million.
Subsequent to this,  CPE Holdings Incorporated exercised their call option to
purchase 7,730 shares from the Group for a consideration of £2.2 million,
which resulted in a reduction in the Groups equity shareholding from 11%
to 8%. During the year, the Group  incurred programming and production costs
for television of £5 million (2007: £3 million; 2006: £10 million)
from Shine. At 30 June 2008 there is an outstanding amount of less than £1
million (2007: nil; 2006: nil) due to
Shine.


A close family member of two Directors of the Company runs Freud Entertainment
Limited, which has provided external support to the press and publicity activities
of the Group during the year amounting to £1
million (2007: £1 million; 2006: £1 million). At 30 June 2008 and 30
June 2007, there were no outstanding amounts due to or from Freud Entertainment
Limited. In addition to the foregoing, the Group has engaged in a number of transactions
with companies of which some of the Companys Directors are also directors. d) Key managementThe Group has
a related party relationship with the Directors of the Group. At 30 June 2008,
there were 15 (2007: 14; 2006: 15) members of key management all of whom were
Directors of the Company. Key management
compensation is disclosed in note 8b.




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|94                 |  | British Sky Broadcasting
        Group plc
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31. Group investmentsThe significant investments of the Company which principally affect the consolidated results and total assets of the Group are as follows:

| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | ------------------------------------------------- | ------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                   | Country of incorporation/ |  | Description and proportion                                                                       |  |                                                                                                                                                    
| | Name                                              | operation                 |  | of shares held (%)                                                                               |  | Principal activity                                                                                                                                 
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Subsidiaries:                                     |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Direct holdings of the Company                    |                           |  |                                                                                                  |  |                                                                                                                                                    
| | British Sky Broadcasting Limited                  | England and Wales         |  | 10,002,002 ordinary shares of £1
each (100%)(i)                                                  |  | Operation of pay television broadcasting in theUK
    and Ireland                                                                                  
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Sky Television Limited                            | England and Wales         |  | 13,376,982 ordinary shares of £1 each (100%)                                                     |  | Holding company                                                                                                                                    
| | British Interactive Broadcasting Holdings Limited | England and Wales         |  | 651,960 ordinary shares of £1 each (100%)                                                        |  | The transmission of interactive services                                                                                                           
| | BSkyB Investments Limited                         | England and Wales         |  | 100 ordinary shares of £1 each (100%)                                                            |  | Holding company                                                                                                                                    
| | BSkyB Finance UK plc                              | England and Wales         |  | 50,000 ordinary shares of £1 each (100%)                                                         |  | Finance company                                                                                                                                    
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Subsidiaries:                                     |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Indirect holdings of the Company                  |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Sky Subscribers Services Limited                  | England and Wales         |  | 3 ordinary shares of £1 each (100%)                                                              |  | The provision of ancillary functions supporting the
    pay television broadcasting, residential broadband
    and telephone operations of theGroup
| | Sky Holdings Limited                              | England and Wales         |  | 600 ordinary shares of £1 each (100%)                                                            |  | Holding company                                                                                                                                    
| | Sky In-Home Service Limited                       | England and Wales         |  | 1,576,000 ordinary shares of £1 each (100%)                                                      |  | The supply, installation and maintenance ofsatellite
    television receiving equipment                                                            
| | BSkyB Publications Limited                        | England and Wales         |  | 2 ordinary shares of £1 each (100%)                                                              |  | The supply of magazines                                                                                                                            
| | British Sky Broadcasting SA                       | Luxembourg                |  | 12,500 ordinary shares of £12 each (100%)                                                        |  | Satellite transponder leasing                                                                                                                      
| | Sky Broadband SA                                  | Luxembourg                |  | 310 ordinary shares of £100 each (100%)                                                          |  | Provision of broadband and telephony services                                                                                                      
| | Sky Interactive Limited                           | England and Wales         |  | 3 ordinary shares of £1 each (100%)                                                              |  | The provision of interactive television services                                                                                                   
| | Easynet Group Limited                             | England and Wales         |  | 121,308,490 ordinary shares of £0.04 each (100%)                                                 |  | Holding company                                                                                                                                    
| | Sky Ventures Limited                              | England and Wales         |  | 912 ordinary shares of £1 each (100%)                                                            |  | Holding company                                                                                                                                    
| | 365 Media Group plc                               | England and Wales         |  | 151,970,072 ordinary shares of £0.01 each (100%)                                                 |  | Holding company                                                                                                                                    
| | Amstrad Satellite Products Limited                | England and Wales         |  | 7 ordinary shares of £1 each (100%)                                                              |  | The design, development, marketing anddistribution
    of satellite products                                                                       
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Joint ventures and associates:                    |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Nickelodeon UK Limited                            | England and Wales         |  | 104 B Shares of £0.01 each (40%)                                                                 |  | The transmission of childrens
    televisionchannels                                                                                              
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | The History Channel (UK)                          | England and Wales         |  | 50,000 A Shares of £1 each (50%)                                                                 |  | The transmission of history, biography, crimeand
    investigation television programming                                                          
| | Paramount UK(ii),(iii)                            | England and Wales         |  | Partnership interest (25%)                                                                       |  | The transmission of general entertainmentcomedy
    channels                                                                                       
| | Australian News Channel Pty Limited               | Australia                 |  | 1 ordinary share of AUS$1 (33.33%)                                                               |  | The transmission of news and businesschannels                                                                                                      
| | NGC Network International LLC                     | United States of America  |  | Partnership interest (21%)                                                                       |  | The transmission of natural history andadventure
    channels                                                                                      
| | NGC Network Latin America LLC                     | United States of America  |  | Partnership interest (21%)                                                                       |  | The transmission of natural history andadventure
    channels                                                                                      
| | MUTV Limited(iv)                                  | England and Wales         |  | 800 B Shares of £1 each (33.33%)                                                                 |  | The transmission, production and
    marketing ofthe
    Manchester United football channel                                                        
| | Attheraces Holdings Limited(iii)                  | England and Wales         |  | 1,500 ordinary shares of £1
    each (47.50%),20
    Recoupment Shares of £0.01 each             |  | The transmission of a horse racing channeland
    related on-line activities                                                                       
| | Chelsea Digital Media Limited                     | England and Wales         |  | 42,648 B Shares of £0.01 each
    (35%) and 7 millionredeemable
    preference shares of £1 each |  | The transmission, production and marketing of the
    Chelsea Football Club football channel andwebsite                                            
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    
| | Investments:                                      |                           |  |                                                                                                  |  |                                                                                                                                                    
| | ITV(iii)                                          | England and Wales         |  | 696,046,825 ordinary shares of £0.10 each (17.9%)                                                |  | The transmission of free-to-air channels                                                                                                           
| | BSkyB Guernsey Limited(v)                         | Guernsey                  |  | 1,346 ordinary shares of £1 each (1%)                                                            |  | Finance company                                                                                                                                    
| |                                                   |                           |  |                                                                                                  |  |                                                                                                                                                    

|     
|-----
|Notes
|(i)  
|(ii) 
|(iii)
|(iv) 
|(v)  



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        Sky Broadcasting Group plc |  | 95
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        Report 2008                

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|Consolidated
        financial statements
|-----------------------------------------
|continued                                
|                                         
|                                         

Notes to the
    consolidated financial statementscontinued

32. Guarantor statementsSupplemental condensed consolidating balance sheets as at 30 June 2008

| |                                                                |         |   |              |   |               |  |               |   |              |  
| | -------------------------------------------------------------- | ------- | - | ------------ | - | ------------- |  | ------------- | - | ------------ | -
| |                                                                | Company |   | Guarantor    |   | Non-guarantor |  | Consolidation |   | Group and    |  
| |                                                                | only    |   | subsidiaries |   | subsidiaries  |  | adjustments   |   | subsidiaries |  
| |                                                                | £m      |   | £m           |   | £m            |  | £m            |   | £m           |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Non-current assets                                             |         |   |              |   |               |  |               |   |              |  
| | Goodwill                                                       |        |   |             |   | 852           |  |              |   | 852          |  
| | Intangible assets                                              |        |   | 226          |   | 77            |  |              |   | 303          |  
| | Property, plant and equipment                                  | 22      |   | 428          |   | 265           |  | 7             |   | 722          |  
| | Investments in subsidiary undertakings under the equity method | 694     |   | 1,385        |   | 81            |  | (2,160        | ) |             |  
| | Investments in joint ventures and associates                   |        |   |             |   | 114           |  |              |   | 114          |  
| | Available-for-sale investments                                 |        |   |             |   | 338           |  |              |   | 338          |  
| | Deferred tax assets                                            |        |   | 20           |   | 6             |  | (3            | ) | 23           |  
| | Trade and other receivables                                    |        |   | 20           |   |              |  | (1            | ) | 19           |  
| | Derivative financial assets                                    | 67      |   | 13           |   |              |  | (67           | ) | 13           |  
| |                                                                | 783     |   | 2,092        |   | 1,733         |  | (2,224        | ) | 2,384        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Current assets                                                 |         |   |              |   |               |  |               |   |              |  
| | Inventories                                                    |        |   | 221          |   | 93            |  | (4            | ) | 310          |  
| | Trade and other receivables                                    | 2,790   |   | 3,289        |   | 4,064         |  | (9,577        | ) | 566          |  
| | Short-term deposits                                            |        |   | 185          |   |              |  |              |   | 185          |  
| | Cash and cash equivalents                                      |        |   | 604          |   | 28            |  |              |   | 632          |  
| | Derivative financial assets                                    |        |   | 5            |   |              |  |              |   | 5            |  
| |                                                                | 2,790   |   | 4,304        |   | 4,185         |  | (9,581        | ) | 1,698        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Total assets                                                   | 3,573   |   | 6,396        |   | 5,918         |  | (11,805       | ) | 4,082        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Current liabilities                                            |         |   |              |   |               |  |               |   |              |  
| | Borrowings                                                     | 301     |   |             |   | 37            |  |              |   | 338          |  
| | Trade and other payables                                       | 2,086   |   | 5,359        |   | 3,515         |  | (9,666        | ) | 1,294        |  
| | Current tax liabilities                                        | 27      |   | 124          |   |              |  |              |   | 151          |  
| | Provisions                                                     |        |   | 10           |   | 17            |  |              |   | 27           |  
| | Deferred tax liabilities                                       | 3       |   |             |   |              |  | (3            | ) |             |  
| | Derivative financial liabilities                               | 69      |   | 14           |   |              |  |              |   | 83           |  
| |                                                                | 2,486   |   | 5,507        |   | 3,569         |  | (9,669        | ) | 1,893        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Non-current liabilities                                        |         |   |              |   |               |  |               |   |              |  
| | Borrowings                                                     | 1,093   |   | 1,782        |   | 61            |  | (828          | ) | 2,108        |  
| | Trade and other payables                                       |        |   | 20           |   | 93            |  | (46           | ) | 67           |  
| | Provisions                                                     |        |   | 4            |   | 18            |  |              |   | 22           |  
| | Derivative financial liabilities                               | 162     |   | 65           |   |              |  | (67           | ) | 160          |  
| |                                                                | 1,255   |   | 1,871        |   | 172           |  | (941          | ) | 2,357        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Total liabilities                                              | 3,741   |   | 7,378        |   | 3,741         |  | (10,610       | ) | 4,250        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Shareholders (deficit) equity                                 | (168    | ) | (982         | ) | 2,177         |  | (1,195        | ) | (168         | )
| |                                                                |         |   |              |   |               |  |               |   |              |  
| | Total liabilities and shareholders (deficit) equity           | 3,573   |   | 6,396        |   | 5,918         |  | (11,805       | ) | 4,082        |  
| |                                                                |         |   |              |   |               |  |               |   |              |  

See notes to supplemental guarantor statements



|                   |  |                                           
|------------------ |  | ------------------------------------------
|                   |  |                                           
|96                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

---



Back to Contents

|
|
|

Supplemental
condensed consolidating balance sheetsas at 30 June 2007

| |                                                                |         |  |              |   |               |  |               |   |              | 
| | -------------------------------------------------------------- | ------- |  | ------------ | - | ------------- |  | ------------- | - | ------------ | 
| |                                                                | Company |  | Guarantor    |   | Non-guarantor |  | Consolidation |   | Group and    | 
| |                                                                | only    |  | subsidiaries |   | subsidiaries  |  | adjustments   |   | subsidiaries | 
| |                                                                | £m      |  | £m           |   | £m            |  | £m            |   | £m           | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Non-current assets                                             |         |  |              |   |               |  |               |   |              | 
| | Goodwill                                                       |        |  |             |   | 741           |  |              |   | 741          | 
| | Intangible assets                                              |        |  | 191          |   | 70            |  |              |   | 261          | 
| | Property, plant and equipment                                  | 23      |  | 395          |   | 243           |  | 9             |   | 670          | 
| | Investments in subsidiary undertakings under the equity method | 1,336   |  | 754          |   | 108           |  | (2,198        | ) |             | 
| | Investments in joint ventures and associates                   |        |  |             |   | 34            |  |              |   | 34           | 
| | Available-for-sale investments                                 |        |  | 2            |   | 795           |  |              |   | 797          | 
| | Deferred tax assets                                            |        |  | 11           |   | 43            |  |              |   | 54           | 
| | Derivative financial assets                                    | 89      |  |             |   |              |  | (89           | ) |             | 
| |                                                                | 1,448   |  | 1,353        |   | 2,034         |  | (2,278        | ) | 2,557        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Current assets                                                 |         |  |              |   |               |  |               |   |              | 
| | Inventories                                                    |        |  | 291          |   | 93            |  |              |   | 384          | 
| | Trade and other receivables                                    | 299     |  | 4,058        |   | 4,130         |  | (7,963        | ) | 524          | 
| | Short-term deposits                                            |        |  |             |   | 15            |  |              |   | 15           | 
| | Cash and cash equivalents                                      |        |  | 211          |   | 224           |  |              |   | 435          | 
| | Derivative financial assets                                    |        |  | 5            |   |              |  |              |   | 5            | 
| |                                                                | 299     |  | 4,565        |   | 4,462         |  | (7,963        | ) | 1,363        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Total assets                                                   | 1,747   |  | 5,918        |   | 6,496         |  | (10,241       | ) | 3,920        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Current liabilities                                            |         |  |              |   |               |  |               |   |              | 
| | Borrowings                                                     |        |  |             |   | 16            |  |              |   | 16           | 
| | Trade and other payables                                       | 424     |  | 4,669        |   | 4,268         |  | (8,066        | ) | 1,295        | 
| | Current tax liabilities                                        |        |  | 144          |   |              |  |              |   | 144          | 
| | Provisions                                                     |        |  | 4            |   | 4             |  |              |   | 8            | 
| | Derivative financial liabilities                               |        |  | 36           |   |              |  |              |   | 36           | 
| |                                                                | 424     |  | 4,853        |   | 4,288         |  | (8,066        | ) | 1,499        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Non-current liabilities                                        |         |  |              |   |               |  |               |   |              | 
| | Borrowings                                                     | 1,018   |  | 1,223        |   | 60            |  | (287          | ) | 2,014        | 
| | Trade and other payables                                       |        |  | 28           |   | 87            |  | (31           | ) | 84           | 
| | Provisions                                                     |        |  | 6            |   | 12            |  |              |   | 18           | 
| | Derivative financial liabilities                               | 258     |  | 89           |   |              |  | (89           | ) | 258          | 
| |                                                                | 1,276   |  | 1,346        |   | 159           |  | (407          | ) | 2,374        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Total liabilities                                              | 1,700   |  | 6,199        |   | 4,447         |  | (8,473        | ) | 3,873        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Shareholders equity (deficit)                                 | 47      |  | (281         | ) | 2,049         |  | (1,768        | ) | 47           | 
| |                                                                |         |  |              |   |               |  |               |   |              | 
| | Total liabilities and shareholders equity (deficit)           | 1,747   |  | 5,918        |   | 6,496         |  | (10,241       | ) | 3,920        | 
| |                                                                |         |  |              |   |               |  |               |   |              | 

See notes to supplemental guarantor statements



|                                           |  |   
|------------------------------------------ |  | --
|                                           |  |   
|British Sky Broadcasting
        Group plc |  | 97
|Annual Report 2008                        

---



Back to Contents

|Consolidated
        financial statements
|-----------------------------------------
|continued                                
|                                         
|                                         

Notes to the
    consolidated financial statementscontinued

32. Guarantor statements(continued)Supplemental condensed consolidating statements of operationsfor
the year ended 30 June 2008

| |                                                      |         |   |              |   |               |   |               |   |              |  
| | ---------------------------------------------------- | ------- | - | ------------ | - | ------------- | - | ------------- | - | ------------ | -
| |                                                      | Company |   | Guarantor    |   | Non-guarantor |   | Consolidation |   | Group and    |  
| |                                                      | only    |   | subsidiaries |   | subsidiaries  |   | adjustments   |   | subsidiaries |  
| |                                                      | £m      |   | £m           |   | £m            |   | £m            |   | £m           |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Revenue                                              | 136     |   | 4,270        |   | 1,409         |   | (863          | ) | 4,952        |  
| | Operating expense                                    | (7      | ) | (3,785       | ) | (1,326        | ) | 890           |   | (4,228       | )
| | Operating profit                                     | 129     |   | 485          |   | 83            |   | 27            |   | 724          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Share of results of joint ventures and associates    |        |   |             |   | 15            |   |              |   | 15           |  
| | Share of (losses) profits of subsidiary undertakings | (1,334  | ) | (537         | ) | 75            |   | 1,796         |   |             |  
| | Investment income                                    | 1,208   |   | 129          |   | 268           |   | (1,558        | ) | 47           |  
| | Finance costs                                        | (104    | ) | (217         | ) | (122          | ) | 266           |   | (177         | )
| | (Loss) profit on disposal of investment              |        |   | (500         | ) | 82            |   | 485           |   | 67           |  
| | Impairment of available-for-sale investment          |        |   |             |   | (616          | ) |              |   | (616         | )
| | (Loss) profit before tax                             | (101    | ) | (640         | ) | (215          | ) | 1,016         |   | 60           |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Taxation                                             | (26     | ) | (126         | ) | (35           | ) |              |   | (187         | )
| | Loss for the year                                    | (127    | ) | (766         | ) | (250          | ) | 1,016         |   | (127         | )
| |                                                      |         |   |              |   |               |   |               |   |              |  

See notes to supplemental guarantor statements

Supplemental condensed
consolidating statements of operationsfor the year ended 30 June 2007

| |                                                      |         |   |              |   |               |   |               |   |              |  
| | ---------------------------------------------------- | ------- | - | ------------ | - | ------------- | - | ------------- | - | ------------ | -
| |                                                      | Company |   | Guarantor    |   | Non-guarantor |   | Consolidation |   | Group and    |  
| |                                                      | only    |   | subsidiaries |   | subsidiaries  |   | adjustments   |   | subsidiaries |  
| |                                                      | £m      |   | £m           |   | £m            |   | £m            |   | £m           |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Revenue                                              | 132     |   | 4,183        |   | 1,068         |   | (832          | ) | 4,551        |  
| | Operating expenses                                   | (1      | ) | (3,516       | ) | (1,048        | ) | 829           |   | (3,736       | )
| | Operating profit                                     | 131     |   | 667          |   | 20            |   | (3            | ) | 815          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Share of results of joint ventures and associates    |        |   |             |   | 12            |   |              |   | 12           |  
| | Share of (losses) profits of subsidiary undertakings | (122    | ) | (13          | ) | 43            |   | 92            |   |             |  
| | Investment income                                    | 614     |   | 101          |   | 90            |   | (759          | ) | 46           |  
| | Finance costs                                        | (91     | ) | (143         | ) | (86           | ) | 171           |   | (149         | )
| | Profit before tax                                    | 532     |   | 612          |   | 79            |   | (499          | ) | 724          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Taxation                                             | (33     | ) | (203         | ) | 11            |   |              |   | (225         | )
| | Profit for the year                                  | 499     |   | 409          |   | 90            |   | (499          | ) | 499          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  

See notes to supplemental guarantor statements

Supplemental condensed
consolidating statements of operationsfor the year ended 30 June 2006

| |                                                      |         |   |              |   |               |   |               |   |              |  
| | ---------------------------------------------------- | ------- | - | ------------ | - | ------------- | - | ------------- | - | ------------ | -
| |                                                      | Company |   | Guarantor    |   | Non-guarantor |   | Consolidation |   | Group and    |  
| |                                                      | only    |   | subsidiaries |   | subsidiaries  |   | adjustments   |   | subsidiaries |  
| |                                                      | £m      |   | £m           |   | £m            |   | £m            |   | £m           |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Revenue                                              | 118     |   | 3,841        |   | 785           |   | (596          | ) | 4,148        |  
| | Operating expenses                                   | (1      | ) | (3,129       | ) | (735          | ) | 594           |   | (3,271       | )
| | Operating profit                                     | 117     |   | 712          |   | 50            |   | (2            | ) | 877          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Share of results of joint ventures and associates    |        |   |             |   | 12            |   |              |   | 12           |  
| | Share of (losses) profits of subsidiary undertakings | (464    | ) | 24           |   | 17            |   | 423           |   |             |  
| | Investment income                                    | 1,021   |   | 56           |   | 35            |   | (1,060        | ) | 52           |  
| | Finance costs                                        | (88     | ) | (116         | ) | (36           | ) | 97            |   | (143         | )
| | Profit on disposal of joint venture                  |        |   | 2            |   |              |   | (2            | ) |             |  
| | Profit before tax                                    | 586     |   | 678          |   | 78            |   | (544          | ) | 798          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  
| | Taxation                                             | (35     | ) | (152         | ) | (60           | ) |              |   | (247         | )
| | Profit for the year                                  | 551     |   | 526          |   | 18            |   | (544          | ) | 551          |  
| |                                                      |         |   |              |   |               |   |               |   |              |  

See notes to supplemental guarantor statements



|                   |  |                                           
|------------------ |  | ------------------------------------------
|                   |  |                                           
|98                 |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

---



Back to Contents

Supplemental condensed
consolidating statements of cash flowfor the year ended 30 June 2008

| |                                                                     |         |   |              |   |               |   |               |   |              |  
| | ------------------------------------------------------------------- | ------- | - | ------------ | - | ------------- | - | ------------- | - | ------------ | -
| |                                                                     | Company |   | Guarantor    |   | Non-guarantor |   | Consolidation |   | Group and    |  
| |                                                                     | only    |   | subsidiaries |   | subsidiaries  |   | adjustments   |   | subsidiaries |  
| |                                                                     | £m      |   | £m           |   | £m            |   | £m            |   | £m           |  
| |                                                                     |         |   |              |   |               |   |               |   |              |  
| | Cash flows from operating activities                                |         |   |              |   |               |   |               |   |              |  
| | Cash generated from (utilised in) operations                        |        |   | 1,502        |   | (534          | ) | 29            |   | 997          |  
| | Interest received                                                   |        |   | 34           |   | 9             |   |              |   | 43           |  
| | Taxation paid                                                       |        |   | (163         | ) |              |   |              |   | (163         | )
| | Net cash from (used in) operating activities                        |        |   | 1,373        |   | (525          | ) | 29            |   | 877          |  
| |                                                                     |         |   |              |   |               |   |               |   |              |  
| | Cash flows from investing activities                                |         |   |              |   |               |   |               |   |              |  
| | Dividends received from joint ventures and associates               |        |   | 11           |   |              |   |              |   | 11           |  
| | Net funding to joint ventures and associates                        |        |   | (6           | ) |              |   |              |   | (6           | )
| | Purchase of property, plant and equipment                           |        |   | (132         | ) | (83           | ) |              |   | (215         | )
| | Purchase of intangible assets                                       |        |   | (111         | ) | (13           | ) |              |   | (124         | )
| | Purchase of available-for-sale investments                          |        |   | (6           | ) |              |   |              |   | (6           | )
| | Purchase of subsidiary (net of cash and cash equivalents purchased) |        |   | (72          | ) |              |   |              |   | (72          | )
| | Proceeds from the sale of subsidiaries                              |        |   |             |   | 3             |   |              |   | 3            |  
| | (Increase) decrease in short-term deposits                          |        |   | (185         | ) | 15            |   |              |   | (170         | )
| | Net cash used in investing activities                               |        |   | (501         | ) | (78           | ) |              |   | (579         | )
| |                                                                     |         |   |              |   |               |   |               |   |              |  
| | Cash flows from financing activities                                |         |   |              |   |               |   |               |   |              |  
| | Proceeds from borrowings                                            |        |   | 383          |   |              |   |              |   | 383          |  
| | Repayment of borrowings                                             |        |   | (16          | ) |              |   |              |   | (16          | )
| | Repayment of obligations under finance leases                       |        |   | (1           | ) |              |   |              |   | (1           | )
| | Proceeds from disposal of shares in ESOP                            | 22      |   |             |   |              |   |              |   | 22           |  
| | Purchase of own shares for ESOP                                     |        |   | (45          | ) |              |   |              |   | (45          | )
| | Interest paid                                                       |        |   | (165         | ) |              |   |              |   | (165         | )
| | Dividends paid to shareholders                                      |        |   | (280         | ) |              |   |              |   | (280         | )
| | Loans (to) from Group companies                                     | (22     | ) | (355         | ) | 406           |   | (29           | ) |             |  
| | Net cash (used in) from financing activities                        |        |   | (479         | ) | 406           |   | (29           | ) | (102         | )
| |                                                                     |         |   |              |   |               |   |               |   |              |  
| | Effect of foreign exchange rate movements                           |        |   |             |   | 1             |   |              |   | 1            |  
| | Net increase (decrease) in cash and cash equivalents                |        |   | 393          |   | (196          | ) |              |   | 197          |  
| |                                                                     |         |   |              |   |               |   |               |   |              |  
| | Cash and cash equivalents at the beginning of the year              |        |   | 211          |   | 224           |   |              |   | 435          |  
| | Cash and cash equivalents at the end of the year                    |        |   | 604          |   | 28            |   |              |   | 632          |  
| |                                                                     |         |   |              |   |               |   |               |   |              |  

See notes to supplemental guarantor statements



|                                           |  |   
|------------------------------------------ |  | --
|                                           |  |   
|British Sky Broadcasting
        Group plc |  | 99
|Annual Report 2008                        

---



Back to Contents

|Consolidated financial
    statements
|-------------------------------------
|continued                            
|                                     

Notes to the consolidated financial statementscontinued

32. Guarantor statements(continued)Supplemental condensed
consolidating statements of cash flowfor the year ended 30 June 2007

| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | ------------------------------------------------------------------ | ------- | - | ------------ | - | ------------- | - | ------------- | - | ------------ | -
| |                                                                    | Company |   | Guarantor    |   | Non-guarantor |   | Consolidation |   | Group and    |  
| |                                                                    | only    |   | subsidiaries |   | subsidiaries  |   | adjustments   |   | subsidiaries |  
| |                                                                    | £m      |   | £m           |   | £m            |   | £m            |   | £m           |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash flows from operating activities                               |         |   |              |   |               |   |               |   |              |  
| | Cash generated from (utilised in) operations                       |        |   | 1,127        |   | (36           | ) | (84           | ) | 1,007        |  
| | Interest received                                                  |        |   | 27           |   | 19            |   |              |   | 46           |  
| | Taxation paid                                                      |        |   | (128         | ) |              |   |              |   | (128         | )
| | Net cash from (used in) operating activities                       |        |   | 1,026        |   | (17           | ) | (84           | ) | 925          |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash flows from investing activities                               |         |   |              |   |               |   |               |   |              |  
| | Dividends received from joint ventures and associates              |        |   | 9            |   |              |   |              |   | 9            |  
| | Net funding to joint ventures and associates                       |        |   | (3           | ) |              |   |              |   | (3           | )
| | Purchase of property, plant and equipment                          |        |   | (136         | ) | (156          | ) |              |   | (292         | )
| | Purchase of intangible assets                                      |        |   | (42          | ) | (22           | ) |              |   | (64          | )
| | Purchase of available-for-sale investments                         |        |   | (947         | ) |              |   |              |   | (947         | )
| | Purchase of subsidiary, net of cash and cash equivalents purchased |        |   | (104         | ) |              |   |              |   | (104         | )
| | Decrease in short-term deposits                                    |        |   | 298          |   | 334           |   |              |   | 632          |  
| | Net cash (used in) from investing activities                       |        |   | (925         | ) | 156           |   |              |   | (769         | )
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash flows from financing activities                               |         |   |              |   |               |   |               |   |              |  
| | Proceeds from borrowings                                           |        |   | 295          |   |              |   |              |   | 295          |  
| | Repayment of borrowings                                            |        |   | (189         | ) | (3            | ) |              |   | (192         | )
| | Proceeds from disposal of shares in ESOP                           | 37      |   |             |   |              |   |              |   | 37           |  
| | Purchase of own shares for ESOP                                    |        |   | (76          | ) |              |   |              |   | (76          | )
| | Purchase of own shares for cancellation                            | (16     | ) | (198         | ) |              |   |              |   | (214         | )
| | Interest paid                                                      |        |   | (146         | ) | (8            | ) |              |   | (154         | )
| | Dividends paid to shareholders                                     |        |   | (233         | ) |              |   |              |   | (233         | )
| | Loans (to) from Group companies                                    | (21     | ) | (128         | ) | 65            |   | 84            |   |             |  
| | Net cash (used in) from financing activities                       |        |   | (675         | ) | 54            |   | 84            |   | (537         | )
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Effect of foreign exchange rate movements                          |        |   |             |   |              |   |              |   |             |  
| | Net (decrease) increase in cash and cash equivalents               |        |   | (574         | ) | 193           |   |              |   | (381         | )
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash and cash equivalents at the beginning of the year             |        |   | 785          |   | 31            |   |              |   | 816          |  
| | Cash and cash equivalents at the end of the year                   |        |   | 211          |   | 224           |   |              |   | 435          |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  

See notes to supplemental guarantor statements



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|100                |  | British Sky Broadcasting
        Group plc
|Annual Report 2008

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Supplemental condensed
consolidating statements of cash flowfor the year ended 30 June 2006

| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | ------------------------------------------------------------------ | ------- | - | ------------ | - | ------------- | - | ------------- | - | ------------ | -
| |                                                                    | Company |   | Guarantor    |   | Non-guarantor |   | Consolidation |   | Group and    |  
| |                                                                    | only    |   | subsidiaries |   | subsidiaries  |   | adjustments   |   | subsidiaries |  
| |                                                                    | £m      |   | £m           |   | £m            |   | £m            |   | £m           |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash flows from operating activities                               |         |   |              |   |               |   |               |   |              |  
| | Cash generated from operations                                     | 32      |   | 746          |   | 133           |   | 93            |   | 1,004        |  
| | Interest received                                                  |        |   | 31           |   | 12            |   |              |   | 43           |  
| | Taxation paid                                                      |        |   | (172         | ) |              |   |              |   | (172         | )
| | Net cash from operating activities                                 | 32      |   | 605          |   | 145           |   | 93            |   | 875          |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash flows from investing activities                               |         |   |              |   |               |   |               |   |              |  
| | Dividends received from joint ventures and associates              |        |   |             |   | 7             |   |              |   | 7            |  
| | Net funding to joint ventures and associates                       |        |   |             |   | (2            | ) |              |   | (2           | )
| | Purchase of property, plant and equipment                          |        |   | (135         | ) | (34           | ) |              |   | (169         | )
| | Purchase of intangible assets                                      |        |   | (38          | ) | (5            | ) |              |   | (43          | )
| | Purchase of subsidiary, net of cash and cash equivalents purchased |        |   | (350         | ) | 141           |   |              |   | (209         | )
| | Increase in short-term deposits                                    |        |   | (297         | ) | (156          | ) |              |   | (453         | )
| | Net cash used in investing activities                              |        |   | (820         | ) | (49           | ) |              |   | (869         | )
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash flows from financing activities                               |         |   |              |   |               |   |               |   |              |  
| | Proceeds from issue of Guaranteed Notes                            |        |   | 397          |   | 617           |   |              |   | 1,014        |  
| | Proceeds from disposal of shares in ESOP                           | 13      |   |             |   |              |   |              |   | 13           |  
| | Purchase of own shares for ESOP                                    |        |   | (17          | ) |              |   |              |   | (17          | )
| | Purchase of own shares for cancellation                            | (406    | ) | (2           | ) |              |   |              |   | (408         | )
| | Interest paid                                                      |        |   | (100         | ) | (5            | ) |              |   | (105         | )
| | Dividends paid to shareholders                                     |        |   | (191         | ) |              |   |              |   | (191         | )
| | Loans from (to) Group companies                                    | 335     |   | 558          |   | (800          | ) | (93           | ) |             |  
| | Net cash (used in) from financing activities                       | (58     | ) | 645          |   | (188          | ) | (93           | ) | 306          |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Effect of foreign exchange rate changes                            |        |   | 1            |   |              |   |              |   | 1            |  
| | Net (decrease) increase in cash and cash equivalents               | (26     | ) | 431          |   | (92           | ) |              |   | 313          |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  
| | Cash and cash equivalents at the beginning of the period           | 26      |   | 354          |   | 123           |   |              |   | 503          |  
| | Cash and cash equivalents at the end of the period                 |        |   | 785          |   | 31            |   |              |   | 816          |  
| |                                                                    |         |   |              |   |               |   |               |   |              |  

See notes to supplemental guarantor statements

Notes to supplemental guarantor statementsFrom
time to time, the Company may issue debt securities that are registered with
the Securities and Exchange Commission (SEC), and which are guaranteed, on a full and unconditional basis, by
certain of the Companys 100% owned subsidiaries. At 30 June 2008, five of the Companys subsidiaries, British Sky Broadcasting Limited (BSkyB Limited) Sky Subscribers Services Limited
(SSSL), BSkyB Investments Limited (BSkyB Investments), BSkyB Publications Limited (BSkyB Publications) and BSkyB Finance UK plc (BSkyB Finance UK), were
joint and several guarantors of the Companys registered debt securities. In February 1999, the Company issued US$600 million of 6.875% Guaranteed Notes repayable in February 2009. In July 1999, the Company issued US$650 million and
£100 million of bonds repayable in July 2009 at rates of 8.200% and 7.750%, respectively. On 31 January 2007, under the terms of the debt securities indentures, BSkyB Investments became an acceding guarantor to the Companys
registered debt securities. On 3 May 2007, BSkyB Publications and BSkyB Finance UK became acceding guarantors to the Companys
registered debt securities. As a result, in the supplemental income statement
and supplemental cash flow statement for the year ended 30 June 2006, BSkyB Investments,
BSkyB Publications and BSkyB Finance UK were transferred from non-guarantor subsidiaries
to guarantor subsidiaries.

Supplemental condensed consolidating financial information for the guarantors
is prepared in accordance with the Groups IFRS accounting policies applied
in the year ended 30 June 2008, as described in note 1, except to the extent
that, for the purposes of the supplemental combining presentation of the guarantor
statements, investments in subsidiaries are accounted for by their parent company
under the equity method of accounting. Under the equity method, earnings of subsidiary
undertakings are reflected in the parent company as share of profits of
subsidiary undertakings in the income statement and as investments
in subsidiary undertakings under the equity
method in the balance sheet, as required by the SEC.

This supplemental financial information should be read in conjunction with the
consolidated financial statements.



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|British
        Sky Broadcasting Group plc |  | 101
|Annual
        Report 2008                

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Group financial record  unauditedConsolidated resultsBelow
is selected financial information for the Group under IFRS as at and for each
of the four years ended
  30 June 2008, derived either from the audited consolidated financial statements
  included in this Annual Report
or from the Groups historical Annual Reports.

| |                                                                      |  |              |    |              |   |              |   |              |  
| | -------------------------------------------------------------------- |  | ------------ | -- | ------------ | - | ------------ | - | ------------ | -
| |                                                                      |  | Year ended   |    | Year ended   |   | Year ended   |   | Year ended   |  
| |                                                                      |  | 30 June 2008 |    | 30 June 2007 |   | 30 June 2006 |   | 30 June 2005 |  
| | Consolidated Income Statement                                        |  | £m           |    | £m           |   | £m           |   | £m           |  
| |                                                                      |  |              |    |              |   |              |   |              |  
| | Retail subscription                                                  |  | 3,769        |    | 3,406        |   | 3,157        |   | 2,974        |  
| | Wholesale subscription                                               |  | 181          |    | 208          |   | 224          |   | 219          |  
| | Advertising                                                          |  | 328          |    | 352          |   | 342          |   | 329          |  
| | Sky Bet                                                              |  | 44           |    | 47           |   | 37           |   | 32           |  
| | Installation, hardware and service                                   |  | 276          |    | 212          |   | 131          |   | 128          |  
| | Other                                                                |  | 354          |    | 326          |   | 257          |   | 160          |  
| | Revenue                                                              |  | 4,952        |    | 4,551        |   | 4,148        |   | 3,842        |  
| |                                                                      |  |              |    |              |   |              |   |              |  
| | Operating
      expense(i)                                           |  | (4,228       | )  | (3,736       | ) | (3,271       | ) | (3,020       | )
| | Operating profit                                                     |  | 724          |    | 815          |   | 877          |   | 822          |  
| |                                                                      |  |              |    |              |   |              |   |              |  
| | Share of results of joint ventures and associates                    |  | 15           |    | 12           |   | 12           |   | 14           |  
| | Investment income                                                    |  | 47           |    | 46           |   | 52           |   | 29           |  
| | Finance costs                                                        |  | (177         | )  | (149         | ) | (143         | ) | (87          | )
| | Profit on disposal of joint venture                                  |  | 67           |    |             |   |             |   | 9            |  
| | Impairment of available-for-sale investment                          |  | (616         | )  |             |   |             |   |             |  
| | Profit before tax                                                    |  | 60           |    | 724          |   | 798          |   | 787          |  
| |                                                                      |  |              |    |              |   |              |   |              |  
| | Taxation                                                             |  | (187         | )  | (225         | ) | (247         | ) | (209         | )
| | (Loss) profit for the year                                           |  | (127         | )  | 499          |   | 551          |   | 578          |  
| |                                                                      |  |              |    |              |   |              |   |              |  
| | Net profit (loss) recognised directly in equity                      |  | 187          |    | (124         | ) | (38          | ) | (13          | )
| | Total recognised income and expense for the year                     |  | 60           |    | 375          |   | 513          |   | 565          |  
| |                                                                      |  |              |    |              |   |              |   |              |  
| | (Loss) earnings per share from (loss) profit for the year (in pence) |  |              |    |              |   |              |   |              |  
| | Basic                                                                |  | (7.3         | )p | 28.4         | p | 30.2         | p | 30.2         | p
| | Diluted                                                              |  | (7.3         | )p | 28.2         | p | 30.1         | p | 30.2         | p
| | (Loss) earnings per ADS from (loss) profit for the year (in pence)   |  |              |    |              |   |              |   |              |  
| | Basic                                                                |  | (29.2        | )p | 113.6        | p | 120.8        | p | 120.8        | p
| | Diluted                                                              |  | (29.2        | )p | 112.8        | p | 120.4        | p | 120.8        | p
| | Dividends per share                                                  |  |              |    |              |   |              |   |              |  
| | Dividends declared per share (in pence)                              |  | 16.8         | p  | 15.5         | p | 12.2         | p | 9.0          | p
| | Dividends declared per share (in cents)                              |  | 33.6         | ¢  | 30.2         | ¢ | 21.8         | ¢ | 16.7         | ¢
| | Dividends declared per ADS (in pence)                                |  | 67.0         | p  | 62.0         | p | 48.8         | p | 36.0         | p
| | Dividends declared per ADS (in cents)                                |  | 134.5        | ¢  | 121.0        | ¢ | 87.0         | ¢ | 67.0         | ¢
| |                                                                      |  |              |    |              |   |              |   |              |  

| |                                                              |  |              |  |              |  |              |  |              | 
| | ------------------------------------------------------------ |  | ------------ |  | ------------ |  | ------------ |  | ------------ | 
| |                                                              |  |              |  |              |  |              |  |              | 
| |                                                              |  | Year ended   |  | Year ended   |  | Year ended   |  | Year ended   | 
| |                                                              |  | 30 June 2008 |  | 30 June 2007 |  | 30 June 2006 |  | 30 June 2005 | 
| | Consolidated Cash Flow Statement                             |  | £m           |  | £m           |  | £m           |  | £m           | 
| |                                                              |  |              |  |              |  |              |  |              | 
| | Cash and cash equivalents                                    |  | 632          |  | 435          |  | 816          |  | 503          | 
| | Purchase of plant, property, equipment and intangible assets |  | 339          |  | 356          |  | 212          |  | 241          | 
| |                                                              |  |              |  |              |  |              |  |              | 

| |                                         |  |              |   |              |   |              |   |              |  
| | --------------------------------------- |  | ------------ | - | ------------ | - | ------------ | - | ------------ | -
| |                                         |  |              |   |              |   |              |   |              |  
| |                                         |  | 30 June 2008 |   | 30 June 2007 |   | 30 June 2006 |   | 30 June 2005 |  
| | Consolidated Balance Sheet              |  | £m           |   | £m           |   | £m           |   | £m           |  
| |                                         |  |              |   |              |   |              |   |              |  
| | Non-current assets                      |  | 2,384        |   | 2,557        |   | 1,504        |   | 1,093        |  
| | Current assets                          |  | 1,698        |   | 1,363        |   | 2,283        |   | 1,363        |  
| | Total assets                            |  | 4,082        |   | 3,920        |   | 3,787        |   | 2,456        |  
| | Current liabilities                     |  | (1,893       | ) | (1,499       | ) | (1,547       | ) | (1,150       | )
| | Non-current liabilities                 |  | (2,357       | ) | (2,374       | ) | (2,119       | ) | (1,119       | )
| | Net assets                              |  | (168         | ) | 47           |   | 121          |   | 187          |  
| |                                         |  |              |   |              |   |              |   |              |  
| | Capital stock(ii)                       |  | 2,313        |   | 2,313        |   | 2,333        |   | 2,371        |  
| | Number of shares in issue (in millions) |  | 1,753        |   | 1,753        |   | 1,791        |   | 1,868        |  
| |                                         |  |              |   |              |   |              |   |              |  



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|102                |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|Consolidated
    financial statements
|-------------------------------------
|continued                            
|                                     
|                                     

| |                                                  |  |              |  |                |  |              |  |              | 
| | ------------------------------------------------ |  | ------------ |  | -------------- |  | ------------ |  | ------------ | 
| |                                                  |  | Year ended   |  | Year ended     |  | Year ended   |  | Year ended   | 
| |                                                  |  | 30 June 2008 |  | 30 June 2007   |  | 30 June 2006 |  | 30 June 2005 | 
| | Statistics                                       |  |              |  | (In thousands) |  |              | 
| |                                                  |  |              |  |                |  |              |  |              | 
| | Distribution of Sky Channels                     |  |              |  |                |  |              |  |              | 
| | DTH homes                                        |  | 8,980        |  | 8,582          |  | 8,176        |  | 7,787        | 
| | Cable homes(iii)                                 |  | 1,248        |  | 1,259          |  | 3,898        |  | 3,872        | 
| | Total Sky pay homes                              |  | 10,228       |  | 9,841          |  | 12,074       |  | 11,659       | 
| |                                                  |  |              |  |                |  |              |  |              | 
| | DTT homes(iv)                                    |  | 9,200        |  | 9,139          |  | 6,402        |  | 5,178        | 
| |                                                  |  |              |  |                |  |              |  |              | 
| | Broadband homes                                  |  | 1,628        |  | 716            |  |             |  |             | 
| | Sky Talk homes                                   |  | 1,241        |  | 526            |  |             |  |             | 
| |                                                  |  |              |  |                |  |              |  |              | 
| | Average number of full-time equivalent employees |  | 14,145       |  | 13,087         |  | 11,216       |  | 9,958        | 
| |                                                  |  |              |  |                |  |              |  |              | 

|Notes
|-----
|(i)  
|(ii) 
|(iii)
|(iv) 

Factors which materially affect the comparability of the selected financial dataAvailable-for-sale investmentAt
30 June 2008, we recorded an impairment loss of £616 million in the carrying value of our equity investment in ITV. For further details see note 6 to the Consolidated financial
statements  Impairment of available-for-sale investment.

Business combinationsDuring
fiscal 2008, we completed the acquisition of Amstrad plc (Amstrad). The results of this acquisition were consolidated from the date on which control passed to the Group (5 September
2007). For further details see note 29 to the Consolidated financial statements  Purchase
of subsidiaries.

During fiscal 2007, we completed the acquisition of 365 Media Group plc (365
Media). The results of this acquisition were consolidated from the date
on which control passed to the Group (23
January 2007).

During fiscal 2006, we completed the acquisition of Easynet Group plc (Easynet).
The results of this acquisition were consolidated from the date on which control
passed to the Group (6 January
2006).

Disposal of joint ventureOn
12 December 2007, the Group sold its 100% stake in BSkyB Nature Limited, the
investment holding company for the Groups 50% interest in the NGC-UK Partnership. As consideration for the disposal, the Group
received 21% interests in both NGC Network International LLC and NGC Network Latin America LLC (in effect, 21% of National Geographic Channels television operations outside the US). The Group recognised a profit on disposal of £67
million.

Exchange ratesA
significant portion of our liabilities and expenses associated with the cost
of programming acquired from US film licensors is denominated in US dollars.
For a discussion of the impact of exchange rate movements on our financial condition
and results of operations see note 23 to the Consolidated financial statements  Derivatives
and other financial instruments.

Since any dividends are declared in pounds sterling, exchange rate fluctuations
will affect the US dollar equivalent of cash dividends receivable by holders
of ADSs.



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|British
      Sky Broadcasting Group plc |  | 103
|Annual
      Report 2008                

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|Shareholder
    information
|---------------------------
|                           
|                           
|                           

Share informationOur sole outstanding class of voting securities is ordinary shares with a nominal value of 50p. Our ordinary shares are admitted to the Official List of the London Stock Exchange
and our ADSs are listed on the New York Stock Exchange. The principal trading
market for our ordinary shares is the London Stock Exchange. The Bank of New
York Mellon is the depositary of the American Depositary Receipts, which evidence
the ADSs. RegistrarsEquiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Telephone 0871 384 2091
Overseas +44 121 415 7567 ADR depositaryThe Bank of New York
Mellon
Investor Services
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
Telephone (US) 1-888-BNY-ADRSTelephone (International)
+1 (212) 815-3700
www.adrbny.com Shareholder enquiriesAll administrative
enquiries relating to unregistered shareholders, such as notification of change
of address or the loss of a share certificate, should be made to Equiniti Limited,
whose address is given above. ADS holders should contact The Bank of New York
Mellon if they have a query relating to their holding. Shares onlineThe Company provides
a range of shareholder information online at www.sky.com/corporate. Shareholders
can access and view their shareholding and update their details at www.shareview.co.uk. Electronic shareholder communicationAt
the Companys AGM in November 2007 the Company gained shareholder approval
to adopt changes in the law governing electronic communication. This allows the
Company to use its corporate website as the main way to communicate with shareholders,
sending out Annual Reports
only to those who have opted to receive a paper copy. The Board regards this as a positive step for both the Company and shareholders.
It will reduce our impact on the environment, minimise waste and reduce costs.
It will also enable stakeholders to keep updated with developments at Sky as
they happen by accessing our website. Shareholders who have opted to receive shareholder communications in paper form
are encouraged to receive these electronically in future by registering at www.shareview.co.uk.
Shareholders can also change their instructions at any time by contacting Equiniti
Limited. DividendsShareholders can
have their dividends paid directly into a UK bank or building society account
with the tax voucher sent direct to their registered address. Please contact
Equiniti Limited for a dividend mandate
form. During the financial year the Company introduced a new consolidated tax voucher
service for those shareholders who have chosen to receive dividends directly
into their bank account. A single consolidated tax voucher will be mailed by
the end of November each year, to coincide with the final dividend payment. Full
details are available at www.sky.com/corporate.


Overseas dividend paymentsA service has
been established to provide shareholders in over 30 countries worldwide with
the opportunity to receive their dividends in their local currency. For a small
flat-rate fee, shareholders can have their dividends automatically converted
from Sterling and paid into their nominated bank account, normally within five
working days of the dividend payment date. For further details, please contact
Equiniti Limited on +44 121 415 7567. Dividend Reinvestment PlanThe Company operates
a Dividend Reinvestment
Plan (DRIP) which enables shareholders to buy the Companys
shares on the London stock market with their cash dividend. Further information
about the DRIP is available from Equiniti Limited. The helpline number is 0871
384 2268 from inside the UK and +44 121 415 7173 from overseas. ShareGiftShareholders who
only have a small number of shares whose value makes it uneconomic to sell them
may wish to consider donating them to charity through ShareGift, the independent
charity share donation scheme (registered charity no. 1052686). Further information
about ShareGift may be obtained from Equiniti Limited or from ShareGift on 020
7337 0501 or at www.sharegift.org. There are no implications for capital gains
tax purposes (no gain or loss) on gifts of shares to charity and it is also possible
to claim income tax relief. Shareholder fraudFraud is on the increase
and many shareholders are targeted every year. If you have any reason to believe
that you may have been the target of a fraud, or attempted fraud in relation
to your shareholding, please contact Equiniti Limited immediately. To reduce
the risk of fraud happening
to you please see our list of preventing shareholder fraud tips on
our website at www.sky.com/corporate. Share price informationThe
Companys share price can be found on the Companys corporate website
at www.sky.com/corporate and it also appears in the financial columns of the
national press under the prefix BSkyB. ADS holders can access the latest ADS price at www.nyse.com or by visiting the
Bank of New York Mellons website,
www.adrbny.com. The following tables set forth for the periods indicated the highest and lowest
middle market quotations for the ordinary shares as derived from the Daily Official
List of the London Stock Exchange and the highest and lowest sales prices of
the ADSs as reported on the New York Stock Exchange composite tape. Shares
	
	ADSs(i)(pence)
	
	($)High
	
	Low
	
	High
	
	LowFiscal year ended 30 June2004
	
	776
	
	5841/2
	
	596/25
	
	4013/502005
	
	625
	
	4651/2
	
	4633/100
	
	3339/502006
	
	579
	
	4781/2
	
	4249/100
	
	334/52007
	
	6631/2
	
	5171/2
	
	5299/100
	
	3747/502008
	
	7131/2
	
	465
	
	587/10
	
	3633/50




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|                   |  |                                         
|104                |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|Shareholder information
|-----------------------
|continued              
|                       
|                       

Share informationcontinued Shares
    
      ADSs(i)(pence)
    
    ($)High
    
    Low
    
    High
    
    LowFiscal year ended 30
      June2007First Quarter
    569
    
    5171/2
    
    4361/100
    
    3747/50Second Quarter
    5601/2
    
    519
    
    4267/100
    
    4071/100Third Quarter
    570
    
    523
    
    453/5
    
    411/100Fourth Quarter
    6631/2
    
    5611/2
    
    5299/100
    
    4443/1002008First Quarter
    7131/2
    
    6351/2
    
    587/10
    
    5129/50Second Quarter
    696
    
    588
    
    5719/100
    
    4711/20Third Quarter
    610
    
    506
    
    481/20
    
    4081/100Fourth Quarter
    5801/2
    
    465
    
    4549/50
    
    3633/50 Shares
    
      ADSs(i)(pence)
    
    ($)High
    
    Low
    
    High
    
    LowMonth ended31 January 2008
    610
    
    506
    
    481/20
    
    4081/10029 February 2008
    5961/2
    
    539
    
    477/25
    
    4179/10031 March 2008
    566
    
    5241/2
    
    453/100
    
    4223/10030 April 2008
    5801/2
    
    5361/2
    
    4549/50
    
    4237/10031 May 2008
    548
    
    516
    
    4329/50
    
    401/530 June 2008
    5461/2
    
    465
    
    4279/100
    
    3633/50 (i)
      Each ADS represents four
        ordinary shares (up until 23 December 2002, each ADS represented six ordinary
        shares). Prior year ADS figures in the above tables have been restated
        to reflect this change in ratio. Major shareholdersThe following table
  sets forth, as of 30 July 2008, the amount and percentage of ordinary shares
  owned by each shareholder, including our Directors and Officers as a group,
  known to us to own more than 3% (directly and indirectly) of our ordinary shares. Identity of
      person or group
    Amount
      owned
    
    Percent
      of classNews UK Nominees
        Limited(i)
    686,021,700
    
    39.14Brandes Investment
        Partners L.P.(ii)
    56,867,820
    
    3.12The Capital
        Group Companies, Inc.(ii)
    55,977,854
    
    3.10Legal &
        General Group plc(ii)
    53,183,483
    
    3.03 (i)
      Direct holding which
        is subject to restrictions on its voting rights (please see Memorandum
        and Articles of Association  Alteration of share capital on
        page 108 to 109.(ii)
    Indirect holding. At 30 July 2008, 39.14% of the Companys shares are held by News UK Nominees Limited, a company incorporated under the laws of England and Wales which is an indirect wholly owned subsidiary of News Corporation.
According to News Corporations Quarterly Report on Form 10-Q for the period ended 31 March 2008 filed with the SEC on 8 May 2008, as a result of Rupert Murdochs ability to appoint certain members of the Board of Directors of the
corporate trustee of the Murdoch Family Trust, which beneficially owns 0.9% of News Corporations Class A Common Stock and 37.2% of its Class B Common Stock, Rupert Murdoch may be deemed to be a beneficial owner of the shares beneficially owned
by the Murdoch Family Trust. Rupert Murdoch, however, disclaims any beneficial ownership of those shares. Also, Rupert Murdoch beneficially owns an additional 1.3% of News Corporations Class A Common Stock and 1.3% of its Class B Common Stock.
Thus, Rupert Murdoch may be deemed to beneficially own in the aggregate 2.2% of News Corporations Class A Common Stock and 38.6% of its Class B Common Stock.


There has been no significant change in the percentage ownership held by any major shareholders during the past three years, except for the following: On 13 September 2005, News Corporation notified us that its interest in our shares had increased to 37.00% . On 12 May 2007 News Corporation further notified us that its interest in our shares had increased to 38.02% .
On 26 September 2006 News Corporation further notified us that its interest in our shares had increased to 39.03% . These increases were as a result of the Companys share buy-back programme. As at 27 September 2006, the date of the last share
repurchase by the Company under the share buy-back programme, News Corporation had a 39.14% interest in our shares. The number of shares held by News Corporation remains unchanged. On 2 February 2006 Brandes Investment Partners L.P. notified us that it had a 3.12% interest in our shares. On 6 April 2006 The Capital Group Companies, Inc. notified us that it had a 3.10% interest in our shares. On 4 October 2007, Legal & General Group plc notified us that it had a 3.03% interest in our shares. On 19 April 2006, Janus Capital Management LLC (Janus) notified us that it had a 3.86% interest in our shares. On 5 March 2007, Janus notified us that it no longer had a notifiable interest in
our shares as its holding had decreased below 3%. On 7 March 2007, Janus further notified us that its interest in our shares had increased to 3.07% . On 1 July 2008, Janus notified us that it no longer had a notifiable interest in our shares as its
holding had decreased below 3%. Franklin Resources, Inc. notified us of the following changes in its interest in our shares: PercentageDate notified
    ownership11 July
      2005
    9.01
    %2 February
      2006
    10.09
    %23 May
      2006
    9.98
    %21 June
      2006
    10.00
    % On 2 March 2007 Franklin Resources, Inc. notified us that under the Financial Services Authoritys Disclosure and Transparency Rules (DTR) it was no longer subject to a notification
obligation as it had been able to claim an exemption from the requirement to aggregate its holdings with those of its subsidiaries and it holds less than 3% of the Companys issued share capital. Franklin Resources, Inc. further informed us
that Templeton Global Advisors Limited (Templeton), a wholly owned subsidiary of Franklin Resources Inc., had a 6.04% interest in our shares and that it is subject to a notification obligation under the DTR on the basis that
as a discretionary manager it is an indirect shareholder. On 14 May 2007, Franklin Resources Inc. further notified us that Templetons interest in our shares had decreased to 5.89% . On 5 September 2007, Franklin Resources Inc. notified us that
it no longer had a notifiable interest in our shares as its holding had decreased below 5%. Templeton qualifies as an investment firm under the Markets in Financial Instruments Directive and therefore, in accordance with the Disclosure and
Transparency Rules, it does not have a disclosure obligation when the voting rights attached to its shareholding in the Company do not exceed 5%. On 4 May 2006 Harris Associates L.P. notified us that it had a 3.03% interest in our shares. On 30 May 2007, Harris Associates L.P notified us that it no longer had a notifiable interest in our shares as its holding
had decreased below 3%. On 2 August 2005, Barclays
  PLC notified us that its interest in our shares had increased to 4.15% . On
  29 June 2006, Barclays PLC further notified us that its interest in our shares
  had decreased to 3.85% . On 22 November 2006, Barclays PLC notified us that
  it no longer had a notifiable interest in our shares as its holding had decreased
  below 3%. On 23 November 2006, Barclays notified us that its interest in our
  shares had increased to 3.05% . On 4 December 2006 Barclays PLC notified us
  that it no longer had a notifiable interest in our shares as its holding had
  decreased below 3%.




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On 26 June 2006, Fidelity notified
  us that it had a 3.06% interest in our shares. On 17 August 2006, Fidelity notified
  us that it no longer had a notifiable interest in our shares as its holding
  had decreased below 3%. Major shareholders have the same voting rights as all other shareholders. A voting agreement dated 21 September 2005 was entered into between the Company, BSkyB Holdco Inc, News Corporation and News UK Nominees Limited
which became unconditional on 4 November 2005 and caps News UK Nominees Limited voting rights at any general meeting at 37.19% . The provisions of the voting agreement cease to apply on the first to occur of a number of circumstances which include
the date on which a general offer is made by an independent person (as defined in the voting agreement) for the ordinary share capital of the Company. The Employee Share Ownership Plan (ESOP) was established to satisfy awards made to participants of the Companys employee share plans. The trustees of the ESOP have waived the right to
dividends payable in respect of the shares held by it, except to the extent of 0.0001% of the dividend payable on each share. At 30 June 2008, the ESOP had an interest in 6,201,575 of the Companys ordinary shares. On 28 July 2008, 10,515,229 ADSs were held of record by 19 holders in the US and 23,371 ordinary shares were held of record by 69 US persons. Financial
  calendarResults for the financial
  year ending 30 June 2009 will be published:
  Q1 October 2008
  Q2 January 2009
  Q3 April 2009
  Q4 August 2009 The Sky
  websiteThe Sky website
    at www.sky.com details the Companys product offering and provides a
    link to the Companys corporate website where investor and media information
    can be accessed. Companys
  registered office:Grant Way
  IsleworthMiddlesex TW7 5QD
  Telephone 0870 240 3000
  Overseas +44 20 7705 3000 Company
  registration number2247735 Chartered
  Accountants and Independent Registered Public Accounting FirmDeloitte & Touche
  LLP
  Stonecutter Court
  1 Stonecutter Street
  London EC4A 4TR Principal
  bankersRoyal Bank of Scotland
  St. Andrews Square
  Edinburgh EH2 2YB SolicitorsHerbert Smith LLP
  Exchange House
  Primrose Street
  London EC2A 2HS Exchange
  ratesA significant portion

  of our liabilities and expenses associated with the cost of programming acquired
  from US film licensors is denominated in US dollars. For a discussion of the
  impact of exchange rate movements on our financial condition and


results of operations, see note 23 of the consolidated financial statements Derivatives and other financial instruments. Since any dividends we declare are declared in pounds sterling, exchange rate fluctuations will affect the US dollar equivalent of cash dividends receivable by holders of ADSs. The following table sets forth, for the periods indicated, information concerning the noon buying rates provided by the Federal Reserve Bank of New York for pounds sterling expressed in US dollars per
£1.00. Month
    High
    
    LowDecember
      2007
    2.0658
    
    1.9774January
      2008
    1.9895
    
    1.9515February
      2008
    1.9923
    
    1.9405March
      2008
    2.0311
    
    1.9823April
      2008
    1.9994
    
    1.9627May
      2008
    1.9818
    
    1.9451June
      2008
    1.9938
    
    1.9467 Year
        ended 30 June
      Period
        end
      
      Average
      (i)
      High
      
      Low2004
      1.8126
      
      1.7491
      
      1.9045
      
      1.57282005
      1.7930
      
      1.8596
      
      1.9482
      
      1.77332006
      1.8491
      
      1.7808
      
      1.8911
      
      1.71382007
      2.0063
      
      1.9463
      
      2.0063
      
      1.82032008
      1.9906
      
      2.0105
      
      2.1104
      
      1.9405 (i)
    The average rate is calculated
      by using the average of the noon buying rates on the last day of each month
      during the relevant year. On 28 July 2008, the noon buying rate was US$1.9943 per £1.00. Memorandum
  and Articles of AssociationThe following summarises
  certain provisions of the Companys Memorandum and Articles of Association
  and applicable English Law. The summary is qualified in its entirety by reference
  to the Companys Articles of Association, the Companies Act 1985 of Great
  Britain (the 1985 Act) and the Companies Act 2006 of Great Britain
  (the 2006 Act) together the Acts. The 2006 Act is being
  brought into force and the 1985 Act is being repealed in stages between January
  2007 and October 2009. Information on where shareholders
  can inspect copies of the Memorandum and Articles of Association is provided
  under Documents on display below. Objects
  and purposesSky is incorporated
  under the name British Sky Broadcasting Group plc and is registered in England
  and Wales with registered number 2247735. The Memorandum of Association of the
  Company provides that the Companys principal object is to carry on the
  business of direct broadcasting by satellite and to carry out the other objects
  more particularly set out in Clause 4 of the Memorandum of Association of the
  Company. DirectorsThe Companys
  Articles of Association provide for a Board of Directors, consisting of not
  fewer than three Directors, who shall manage the business and affairs of the
  Company. The quorum for meetings of the Directors is currently three Directors.
  The Directors may delegate any of their powers to a committee which must consist
  of one or more Directors, and a majority of the members of a committee shall
  be Directors. The quorum at a meeting of any committee shall be two Directors. The Articles of Association
  place a general prohibition on a Director voting in respect of any contract
  or arrangement in which he has a material interest other than by virtue of his
  interest in shares in the Company. However, in the absence of some other material
  interest not indicated below, a Director is entitled to vote and to be counted




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Memorandum and
  Articles of Associationcontinued in a quorum for the purpose of any vote relating to a resolution concerning the following matters: (i)
    the giving of any guarantee,
      security or indemnity to him in respect of money lent to, or obligations
      incurred by him at the request of, or for the benefit of, the Company or
      any of its subsidiaries;(ii)
    the giving of any guarantee,
      security or indemnity to a third party in respect of a debt or obligation
      of the Company or any of its subsidiaries for which he himself has assumed
      responsibility in whole or in part under a guarantee or indemnity or by
      the giving of security;(iii)
    any proposal concerning
      an offer of any shares or debentures or other securities of or by the Company
      for subscription, purchase or exchange in which offer he is, or is to be,
      interested as a participant in the underwriting or sub-underwriting thereof;(iv)
    any proposal concerning
      a superannuation fund or retirement benefits scheme which has been approved
      by, or is subject to, and conditional upon approval by the Board of the
      HMRC for taxation purposes;(v)
    any arrangement for the
      benefit of employees of the Company or any of its subsidiaries including
      but not limited to, an employees share scheme which has been approved by,
      or is subject to and conditional upon approval by, the Board of the HMRC
      for taxation purposes and which does not accord to any Directors any privilege
      not accorded to the employees to whom the arrangement relates; and(vi)
    any proposal concerning
      the purchase or maintenance of insurance for the benefit of Directors or
      persons who include Directors. The 1985 Act requires a Director of a company who is in any way interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the Directors of the company. The
definition of interest now includes the interests of spouses, children, companies and trusts. The Articles also specifically provide that a Director is to be treated as interested in a matter the subject of a resolution if it
relates to a transaction or arrangement with a person or body corporate of or in which he is an officer, employee, shareholder, consultant, advisor, representative or otherwise interested. Any question as to the right of a Director to vote,
including whether he has a material interest in a material matter the subject of a resolution, may be decided by a resolution of the majority of those Directors who do not have a like interest to the Director or Directors in question. No person shall be disqualified
    from being appointed or reappointed as a Director and no Director shall be
    requested to vacate that office by reason of his attaining the age of seventy
    or any other age. Remuneration of Non-Executive Directors shall be determined in the aggregate by resolution of the shareholders. Remuneration of executive Directors is determined by the remuneration committee. This committee is made up
of independent Non-Executive Directors. There is no requirement of share ownership for a Directors qualification. Directors
  appointment and removalThe Directors and
  the Company (by Ordinary Resolution) may appoint a person who is willing to
  act as a Director, either to fill a vacancy or as an additional Director. A
  Director appointed by the Directors shall retire at the next AGM and will put
  himself forward to be reappointed by the shareholders. At each AGM, there shall retire from office by rotation: (i)
      all Directors of the
        Company who are subject to retirement by rotation who held office at the
        time of the two preceding AGMs and who did not retire by rotation at either
        of them; and


(ii)
    such additional
      number of Directors as shall, when aggregated with the number of Directors
      retiring under paragraph (i) above, equal either one third of the number
      of Directors, in circumstances where the number of Directors is three or
      a multiple of three, or in all other circumstances, the whole number which
      is nearest to but does not exceed one-third of the number of Directors (the
      Relevant Proportion) provided that:(a)
    the provisions of this
      paragraph (ii) shall only apply if the number of Directors retiring under
      paragraph (i) above is less than the Relevant Proportion; and(b)
    subject to the provisions
      of the Acts and to the relevant provisions of these Articles, the Directors
      to retire under this paragraph (ii) shall be those who have been longest
      in office since their last appointment or reappointment, but as between
      persons who became or were last reappointed Directors on the same day those
      to retire shall (unless they otherwise agree among themselves) be determined
      by lot. Borrowing
  powersThe Directors shall
  restrict the borrowings of the Company and exercise all powers of control exercisable
  by the Company in relation to its subsidiary undertakings so as to secure (as
  regards subsidiary undertakings so far as by such exercise they can secure)
  that the aggregate principal amount outstanding of all money borrowed by the
  Group (excluding amounts borrowed by any member of the Group from any other
  member of the Group), shall not at any time, save with the previous sanction
  of an ordinary resolution of the Company, exceed an amount equal to the higher
  of (i) £1.5 billion and (ii) an amount equal to four times the aggregate
  turnover of the Group as shown in the then latest audited consolidated profit
  and loss accounts of the Group. Dividend
  rightsHolders of the Companys
  ordinary shares may by ordinary resolution declare dividends but no such dividend
  shall exceed the amount recommended by the Directors. If, in the opinion of
  the Directors, the profits of the Company available for distribution justify
  such payments, the Directors may, from time to time, pay interim dividends on
  the shares of such amounts and on such dates and in respect of such periods
  as they think fit. The profits of the Company available for distribution and
  resolved to be distributed shall be apportioned and paid proportionately to
  the amounts paid up on the shares during any portion of the period in respect
  of which the dividend is paid. No dividend shall be paid otherwise than out of profits available for distribution as specified under the provisions of the Acts. Any dividend unclaimed after a period of twelve years from the date of declaration of such dividend shall be forfeited and shall revert to the Company. Voting rightsThe Articles of
    Association provide that subject to any rights or restrictions attached to
    any shares, on a show of hands every member present in person or by proxy
    shall have one vote, and on a poll every member shall have one vote for every
    share of which he is a holder. On a poll votes may be given either personally
    or by proxy or (in the case of a corporate member) by a duly authorised representative. A shareholder entitled to
    attend and vote at a general meeting may appoint one or more proxies to attend
    and vote instead of him. If a member appoints more than one proxy he must
    specify the number of shares which each proxy is entitled to exercise rights
    over. A proxy need not be a shareholder of the Company. Holders of the Companys
    ordinary shares do not have cumulative voting rights. Details of a voting agreement
    that the Company entered into with News UK Nominees Limited, dated 21 September
    2005, is detailed in Alteration of share capital on page 108 to
    109. Winding-upIf the Company commences
  liquidation, the liquidator may, with the sanction of an extraordinary resolution
  of the Company and any other sanction required by the Acts and the Insolvency
  Act 1986:




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(i)
	divide among the members in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and, for that purpose, set such values as he deems fair upon any
property to be divided and determine how the division shall be carried out between the members; and(ii)
	vest the whole or any part of the assets in trustees upon such trusts for the benefit of members as the liquidator shall think fit, but no member shall be compelled to accept any share or other assets upon which there is any liability. RedemptionNone of the shares
of the Company has been issued on the basis that it may be redeemed or is liable
to be redeemed at the option of the shareholders or the Company. The Company
is therefore under no obligation to create a sinking fund or redemption reserve.
However, subject to the provisions of the Statutes, the Company may purchase
any of its own shares (including any redeemable shares). Further capital callsThe Directors may
only make calls upon the members in respect of amounts unpaid on the shares (whether
in respect of nominal value or premium). Variation of rightsSubject to the Acts,
the rights attached to any class of shares may (unless otherwise provided by
the terms of the issue of shares of that class) be varied with the consent in
writing of the holders of three-quarters in nominal value of the issued shares
of the class or with the sanction of an extraordinary resolution passed at a
separate general meeting of the holders of the shares of the class (but not otherwise)
and may be so varied either whilst the Company is a going concern or during,
or in contemplation of, a winding-up. At every such separate general meeting
the necessary quorum shall be at least two persons holding or representing by
proxy at least one-third in nominal value of the issued shares of the class (but
so that at any adjourned meeting any holder of shares of the class present in
person or by proxy shall be a quorum). General meetingsThe Directors may
call an annual general meeting or a general meeting and give at least such minimum
period of notice as is prescribed under the Acts. The notice shall specify the
place, the date and the time of the meeting and the general nature of the business
to be transacted, and in the case of an annual general meeting shall specify
the meeting as such. Two persons entitled to vote upon the business to be transacted
shall be a quorum. Subject to any terms as to voting upon which any shares may be issued and to
the provisions of the Articles, every member present in person or by proxy shall
have one vote on a show of hands and on a poll every member present in person
or by proxy shall have one vote for each share of which he is the holder. No
member shall be entitled to vote in respect of any share held by him if any call
or other sum payable by him to the Company remains unpaid. If a member or any person appearing to be interested in shares has been duly
served with a notice under Section 793 of the 2006 Act and is in default for
the prescribed period in supplying to the Company information thereby required,
unless the Directors otherwise determine, the member shall not be entitled to
vote at any general or class meeting of the Company in respect of the shares
in relation to which the default occurred. Limitations on non-resident or foreign shareholdersEnglish law and the
Memorandum and Articles of Association of the Company treat those persons who
hold shares and are neither UK residents nor nationals in the same way as UK
residents or nationals. They are free to own, vote on and transfer any shares
they hold. Transfer of sharesAny member may transfer
all or any of his shares by instrument of transfer in the usual common form or
in any other form which the Directors may approve. The


instrument of transfer of a share shall be signed by or on behalf of the transferor
and, except in the case of fully-paid shares, by or on behalf of the transferee. Where any class of shares is for the time being a participating security, title
to shares of that class which are recorded as being held in uncertificated form,
may be transferred by the relevant system concerned. The Directors may in their
absolute discretion and without giving any reason refuse to register any transfer
of shares (not being fully paid shares). The Directors may also refuse to register
a transfer of shares unless the instrument of
transfer: (i)
	is lodged at the transfer office accompanied by the relevant share certificate(s);(ii)
	is in respect of only one class of share; and(iii)
	is in favour of not more than four persons jointly. The Directors of the Company may refuse to register the transfer of a share in uncertificated form to a person who is to hold it thereafter in certificated form in any case where the Company is entitled to refuse (or
is excepted from the requirements) under the Uncertificated Securities Regulations 2001 to register the transfer; and they may refuse to register any such transfer in favour of more than four transferees. The Directors may refuse to register any
transfer if it is their opinion that such transfer would or might (i) prejudice the Groups right to hold, be awarded or granted or have renewed or extended, any licence granted under the Broadcasting Acts, or (ii) give rise to or cause a
variation to be made to, or a revocation or determination of, any such licence by Ofcom. If the Directors determine following registration of a transfer of shares: (i)
	and following consultation with Ofcom that, inter alia, by reason of the interest of a person in any shares of the Company transferred, Ofcom may vary, revoke, determine or refuse to award, grant, renew or extend a
licence granted under the Broadcasting Acts; or(ii)
	that any person has an interest in the shares of the Company which, inter alia, makes the Company a disqualified person under the Broadcasting Acts or which contravenes, or would cause a contravention of, any of the
restrictions set out in Parts III, IV or V of Schedule 2 to the Broadcasting Act 1990, as amended by the Communications Act, or any order, direction or notice made pursuant to the Broadcasting Acts or Communications Act or such other restrictions as
may be applied by Ofcom from time to time to disqualify certain persons or bodies from having interests in such a licence or to restrict the accumulation of interests in relevant services as defined in Schedule 2 to the Broadcasting Act 1990, as
amended by the Communications Act; the Directors shall be entitled to serve
written notice (a Disposal Notice) on the relevant transferee in
respect of the shares transferred stating that they have so determined, specifying
their grounds in general terms and calling for the disposal of such transferred
shares as are specified in the Disposal Notice within 21 days of the date of
such notice or such longer period as the Directors may consider reasonable and
which they may extend. If the Disposal Notice is not complied with to the satisfaction
of the Directors, they shall, so far as they are able, dispose of the relevant
shares for the best price reasonably obtainable in all the circumstances. In
addition, a member who has been served with a Disposal Notice shall not, with
effect from the expiration of such period as the Directors shall specify in such
notice (not being longer than 30 days from the date of service of the notice),
be entitled to receive notice of, or to attend or vote at, any general meeting
of the Company by reason of his holding the shares specified in the Disposal
Notice. Alteration of share capitalThe authorised share
capital of the Company currently consists of 3,000,000,000 ordinary shares of
50p each. The Company may from time to time by ordinary resolution: (i)
	increase its share capital by such sum to be divided into shares of such amounts as the resolution shall prescribe;




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Memorandum and Articles of Associationcontinued (ii)
	consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;(iii)
	cancel any shares which, at the date of the passing of the resolution, have not been taken, or agreed to be taken, by any person and diminish the amount of its capital by the amount of the shares so cancelled;
or(iv)
	sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the Memorandum of Association (subject, nevertheless, to the provisions of the Statutes). Subject to the provisions of the Acts, the Company may reduce its share capital redemption reserve, share premium account or other undistributable reserve in any way. At the AGM of the Company held on 4 November 2005, shareholders approved a special
resolution allowing the Company to buy-back up to 92,000,000 ordinary shares
in the market, which was approximately 5% of the issued share capital of the
Company at 27 September 2005. At the same AGM, shareholders approved an ordinary
resolution in relation to Rule 9 of the City Code of Takeovers and Mergers (the City
Code) which waived the compulsory bid obligation that arises for News UK
Nominees Limited when the Company repurchases shares under the authority granted
by the special resolution detailed above. Under Rule 9 of the City Code, any
person who acquires shares which, taken together with the shares already held
by him or acquired by persons acting in concert with him, carry 30% or more of
the voting rights in a company which is subject to the City Code is normally
required to make a general offer to all of the remaining shareholders to acquire
their shares. Similarly, when any person or persons acting in concert already
hold 30% or more but less than 50% of the voting rights in such a company, a
general offer will normally be required to be made if any further shares are
acquired. An offer under Rule 9 must be in cash at the highest price paid within
the preceding 12 months for any shares acquired in the Company by the person
required to make the offer or any person acting in concert with him. The holding
of News UK Nominees Limited as at the date of the AGM was 686,021,700 ordinary
shares, representing 37.19% of the voting rights in the Company. If the compulsory
bid obligation under Rule 9 had not been waived and the Company had repurchased
shares under the authority granted by the special resolution detailed above and,
at the time, the voting rights attributable to the aggregate holding of News
UK Nominees Limited had continued to exceed 30% of the voting rights of the Company
or, if, in the meantime, its holding had fallen below this level and, as a result
had increased to 30% or more of such voting rights, News UK Nominees Limited
would have been required to make a cash offer for the issued shares of the Company
which it did not already own. The Panel agreed to waive the compulsory bid obligation
arising in respect of a repurchase by the Company of its shares subject to approval
of the ordinary resolution on a poll, subsequently received at the AGM, from
shareholders independent of News
UK Nominees Limited. The waiver in this ordinary resolution, which is valid only
for so long as the authority granted pursuant to the special resolution detailed
above remains in force, applies only in respect of increases in the percentage
interest of News UK Nominees Limited resulting from market purchases by the Company
of its own shares and not in respect of other increases in its holding. In addition, in pursuing a buy-back authority, the Board considered that it was
appropriate that the Company conditionally entered into a voting agreement with
News UK Nominees Limited, dated 21 September 2005, which would limit the exercise
of its voting rights to 37.19% . The voting agreement was conditional on the
buy-back proposals being approved by shareholders and therefore became unconditional
on 4 November 2005. As at 27 September 2006, the Company had purchased, and subsequently cancelled,
92,000,000 ordinary shares of 50p each under this authority for a consideration
of £493 million. The holding of News UK Nominees Limited, following the
exercise of the authority, increased from 37.19% to 39.14% of the Companys
issued share capital. The authority expired on 3 November 2006 and the Directors
did not seek its renewal.


Issue of sharesSubject to the provisions
of the Statutes relating to authority, pre-emption rights and otherwise and of
any resolution of the Company passed in general meeting, all unissued shares
shall be at the disposal of the Directors and they may allot (with or without
conferring a right to renunciation), grant options over, or otherwise dispose
of them to such persons, at such times and on such terms as they think proper. Disclosure of interests
in the Companys sharesThere are no provisions
in the Articles whereby persons acquiring, holding or disposing of a certain
percentage of the Companys shares are required to make disclosure of their
ownership percentage, although there are such requirements under the Disclosure
and Transparency Rules (specifically DTR 5) which form part of the Listing Rules
which are enforced by the United Kingdoms
Financial Services Authority. Under Section 793 of the 2006 Act, the Company may by notice in writing require
a person that the Company knows or has reasonable cause to believe is or was
during the preceding three years interested in the
Companys shares to indicate whether or not that is correct and, if that
person does or did hold an interest in the Companys shares, to provide
certain information as set out in the 2006 Act. There are additional disclosure obligations under Rule 3 of the Substantial Acquisitions
Rules where a person acquires 15% or more of the voting rights of a listed company
or when an acquisition increases his holding of shares or rights over shares
so as to increase his voting rights beyond that level by a whole percentage point.
Notification in this case should be to the Company, the Panel on Takeovers and
Mergers and the UK Listing Authority through one of its approved regulatory information
services no later than twelve noon on the business day following the date of
the acquisition. The City Code on Takeovers and Mergers also contains strict disclosure requirements
with regard to dealings in the securities of an offeror or offeree company on
all parties to a takeover and also to their respective associates during the
course of an offer period. Exchange controlsThere are no UK government
laws, decrees, regulations or other legislation which restrict or which may affect
the import or export of capital, including the availability of cash and cash
equivalents for use by us or the remittance of dividends, interest and other
payments to non-resident holders of our securities, except as otherwise described
in the Memorandum and Articles of Association  Dividend rights section
above, and the Taxation section below. Under English law (and the Companys Memorandum and Articles of Association),
persons who are neither residents nor nationals of the UK may freely hold, vote
and transfer ordinary shares in the same manner as UK
residents or nationals. TaxationThis section summarises
basic UK and US tax consequences of the acquisition, ownership and disposition
of shares and ADSs by a US Holder. For purposes of this summary,
a US Holder is a beneficial owner of shares or ADSs who is (i) an
individual who is a citizen or resident of the US for US income tax purposes,
(ii) a corporation organised under the laws of the US or any state thereof or
the District of Columbia, (iii) a domestic partnership, (iv) an estate the income
of which is subject to US federal income taxation regardless of its source, or
(v) a trust if a court within the US is able to exercise primary supervision
over the administration of the trust and one or more US persons have the authority
to control all substantial decisions of the trust. However, in the case of a
partnership, estate or trust, this discussion applies only to the extent such
entitys income is taxed to the entity or its partners or beneficiaries
on a net income basis under US tax law. This summary is based (i) upon current
UK law and UK HMRC practice, (ii) upon the US Internal Revenue Code, Treasury
Regulations, cases and Internal Revenue Service rulings, all of which are subject
to change, possibly with retroactive effect, (iii) upon the UK-US Income Tax
Convention currently in effect (the Treaty), and (iv) in part upon
representations of The Bank of New York (the Depositary) and assumes
that each obligation provided for in or otherwise contemplated by the Deposit
Agreement dated as of December 2002, among the Company, the Depositary, and the
holders from time to time of the ADSs of
the Company (the Deposit Agreement), and any related agreement will
be performed in accordance with their respective terms.




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      Group plc |  | 109
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The summary of UK tax consequences relates to the material aspects of the UK taxation position of US Holders and does not address the tax consequences to a US Holder (i) that is resident (or, in the case of an
individual, ordinarily resident) in the UK for UK tax purposes, (ii) whose holding of shares or ADSs is effectively connected with a permanent establishment in the UK through which such US Holder carries on business activities or, in the case of an
individual who performs independent personal services, with a fixed base situated therein, or (iii) that is a corporation which alone or together with one or more associated companies, controls directly or indirectly, 10% or more of the voting stock
of the Company. The discussion set forth below is only a general summary and does not purport to be a technical analysis nor a description of all possible tax consequences. The summary of US tax consequences may not completely or accurately describe
tax consequences to all US Holders. For example, special rules may apply to US
Holders of stock representing 10% or more of the total combined voting power
of the Company, US expatriates, insurance companies, tax-exempt organisations,
banks and other financial institutions, persons subject to the alternative minimum
tax, securities broker-dealers, traders in securities that elect to mark-to-market,
and persons holding their shares or ADSs as part of a straddle, hedging or conversion
transaction, among others. Tax consequences to each US Holder will depend upon the particular facts and
circumstances of each such holder. Accordingly, each person should consult with
his own professional advisor with respect to the tax consequences of his ownership
and disposition of shares or ADSs. This summary does not discuss any tax rules
other than UK tax and US federal income tax rules. The UK and US tax authorities
and courts are not bound by this summary and may disagree
with its conclusions. US Holders of ADSs will be treated as owners of the shares underlying the ADSs.
Accordingly, except as noted, the UK and US tax consequences discussed below
apply equally to US Holders of ADSs and shares. Taxation of distributionsUnder current UK
taxation legislation, no tax is withheld from dividend payments by the Company
and generally no UK tax is payable by US Holders who are not resident or ordinarily
resident for tax purposes in the UK on
dividends declared on the shares. US Holders who are not resident or ordinarily resident for tax purposes in the
UK with no other source of UK income and no liability to UK tax are not required
to file a UK income tax return. For US federal income tax purposes, the gross amount of any distribution made
by the Company to a US Holder with respect to any shares or ADSs held by the
US Holder generally will be includable in the income of the US Holder as dividend
income to the extent that such distribution is paid out of the Companys
current or accumulated earnings and profits as determined under US federal income
tax principles (subject to the discussion below under US passive foreign
investment company rules). Dividends will generally constitute foreign
source passive income for foreign tax credit purposes. The dividend
income generally will not be eligible for the dividends received deduction allowed
to corporations. If the amount of any distribution exceeds the Companys
current and accumulated earnings and profits as so computed, such excess first
will be treated as a tax-free return of capital to the extent of
the US Holders tax basis in its shares or ADSs, and thereafter as gain
from the sale or exchange of property. Dividends received by a non-corporate US Holder before 1 January 2011, with respect
to such US Holders shares or ADSs that constitute qualified dividend income,
will be subject to a reduced rate of US federal taxation provided that such US
Holders shares or ADSs are held by such US holder for more than 60 days
during the 121-day period beginning 60 days before the ex-dividend date and the
US holder meets other holding period requirements. Dividends paid by the Company
with respect to Ordinary Shares or ADSs generally will be qualified dividend
income. Any non-US withholding tax with respect to a dividend may be used as a credit
against a US Holders US federal income tax liability, subject to certain
conditions and limitations.


The amount of any dividend paid in non-US currency will be equal to the US dollar
value of such currency on the date the dividend is included in income, regardless
of whether the payment is in fact converted into US dollars. A US Holder will
generally be required to recognise US source ordinary income or loss when such
US Holder sells or disposes of non-US currency. The US Holder will have a tax
basis in this non-US currency equal to the US dollar value of the currency on
the date the dividend is included in the US Holders income. This foreign
currency gain or loss will generally be US source ordinary income or loss. Taxation of capital gainsUS Holders who are
not resident or ordinarily resident for tax purposes in the UK will not be liable
for UK tax on capital gains realised on the disposal of their ADSs or shares
unless they carry on a trade in the UK through a branch, agency or permanent
establishment, or a profession or vocation in the UK through a branch or agency
and such ADSs or shares are used, held or acquired for the purposes of the trade,
profession, vocation, branch, agency or permanent establishment. An individual
US Holder who has ceased to be resident and ordinarily resident in the UK for
tax purposes for a period of less than five years, and who disposes of his or
her shares or ADSs during that period, may be liable on his or her return to
the UK to UK capital gains tax on any chargeable gain realised. The surrender
of ADSs in exchange for shares should not usually give rise to UK corporation
tax, or US or UK capital gains tax. In general, for US federal income tax purposes, a US Holder will recognise capital
gain or loss if such US Holder sells or exchanges shares or ADSs, provided that
such shares or ADSs are capital assets in the hands of such US Holder (subject
to the discussion below under US passive foreign investment company rules).
Any gain or loss will generally be US source gain or loss. For an individual,
any capital gain will generally be subject to US federal income tax at preferential
rates if the individual has held the shares or ADSs for more than one year. US passive foreign investment company rulesThe Company believes
that it will not be treated as a passive foreign investment
company (PFIC) for US federal income tax purposes for the current
taxable year or for future taxable years. However, an actual determination of
PFIC status is factual and cannot be made until the close of the applicable taxable
year. The Company will be a PFIC for any taxable year in which either: (i)
	75% or more of its gross income is passive income; or(ii)
	its assets that produce passive income or that are held for the production of
passive income amount to at least 50% of the value of its total assets on average. For purposes of this test, the Company will be treated as directly owning its
proportionate share of the assets, and directly receiving its proportionate share
of the gross income, of each corporation in which the Company owns, directly
or indirectly, at least 25% of the value of the shares of such corporation. If the Company were to become a PFIC, the tax applicable to distributions on
shares or ADSs and any gains a US Holder recognises on disposition of shares
or ADSs may be less favourable to such US Holder. Accordingly, each person should
consult with his own professional advisor regarding the PFIC rules. Inheritance and gift taxesAn individual who
is domiciled in the US for the purposes of the United Kingdom-United States Estate
and Gift Tax Convention (the Estate Tax Treaty) and who is not a
national of the UK for the purposes of the Estate Tax Treaty will generally not
be subject to UK inheritance tax in respect of the shares or ADSs on the individuals
death or on a gift of the shares or ADSs during the individuals lifetime
provided that any applicable US federal gift or estate tax liability is paid,
unless the shares or ADSs are part of the business property of a permanent establishment
in the UK of an enterprise or pertain to a fixed base in the UK of an individual
used for the performance of independent personal services. Where the ADSs or
shares have been placed in trust by a settlor who, at time of settlement, was
a US Holder, the ADSs or shares will generally not be subject to UK inheritance
tax if at the time when the settlement was made the settlor was domiciled in
the United States and was not a national of the United Kingdom for the purposes
of the Estate Tax
Treaty. In the exceptional case




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      Group plc
|Annual Report 2008

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|Shareholder information
|-----------------------
|continued              
|                       
|                       

Memorandum and
  Articles of Associationcontinued where the shares are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate Tax Treaty generally provides for the tax paid in the UK to be credited against tax paid in the US or for tax
paid in the US to be credited against tax payable in the UK based on priority rules set out in that Treaty. UK stamp
  duty and stamp duty reserve taxA transfer for value of the shares will generally be subject to UK ad valorem
  stamp duty, normally at the rate of 0.5% of the amount or value of the consideration
  given for the transfer, rounded up (if necessary) to the nearest multiple of
  £5. Stamp duty is normally a liability of the purchaser. An agreement to transfer shares or any interest therein for money or moneys worth will normally give rise to a charge to stamp duty reserve tax (SDRT) at the rate of 0.5% of the amount or
value of the consideration for the shares or interest therein (with no rounding up or down). However, if a duly stamped instrument of transfer of the shares is executed in pursuance of the agreement and duly produced within six years of the date on
which the agreement for sale is made (or, if the agreement is conditional, the date on which the condition is satisfied) any SDRT paid is generally repayable with interest, and otherwise the SDRT charge is cancelled. SDRT is in general payable by
the purchaser. The UK Finance Act 1996 (amending the UK Finance Act 1986) makes it clear that (contrary to previous UK HMRC practice) SDRT will be levied in respect of agreements to transfer chargeable securities (which include shares) even where a
person not resident in the UK buys chargeable securities from another non-resident and the transaction is carried out outside the UK. Stamp duty or SDRT charges at the rate of 1.5% (in the case of both stamp duty and SDRT) of the amount or value of the consideration, or in some circumstances, the value of the shares, may arise on a transfer of shares
to the Depositary or the Custodian of the Depositary or to certain persons providing a clearance system (or their nominees or agents) and will usually be payable by the Depositary or such other persons. It is possible for persons operating clearance
services to make an election to HMRC subject to certain conditions, pursuant to which, instead of the 1.5% stamp duty or SDRT charge applying on entry as described above, a 0.5% SDRT charge would apply to transfers of securities made within the
system. In accordance with the terms of the Deposit Agreement, any tax or duty payable by the Depositary or the Custodian of the Depositary on any subsequent deposit of shares will be charged by the Depositary to the holder of
the ADS or any deposited security represented by the ADS. No UK stamp duty will be payable on the acquisition or transfer of an ADS or beneficial ownership of an ADS, provided that the ADS and any separate instrument of transfer or written agreement to transfer remains at all
times outside the UK, and provided further that any instrument of transfer or written agreement to transfer is not executed in the UK. An agreement to transfer ADSs will not give rise to a liability for SDRT. Any transfer for value of the underlying shares represented by ADSs (which will exclude a transfer from the Custodian of the Depositary or the Depositary to an ADS holder on a cancellation of the ADSs), may give rise
to a liability to UK stamp duty. The amount of UK stamp duty payable is generally calculated at the rate of 0.5% of the amount or value of the consideration on a transfer from the Custodian of the Depositary to a US Holder or registered holder of an
ADS, rounded up (if necessary) to the nearest multiple of £5. Proposed changes in Finance Bill 2008 provide that no UK stamp duty will be payable upon cancellation of the ADS where the instrument of transfer was executed after 12 March 2008 and
not stamped before 19 March 2008. US information
  reporting and backup withholdingDividend payments
  on the shares or ADSs and proceeds from the sale, exchange or other disposition
  of the shares or ADSs may be subject to information reporting to the Internal
  Revenue Service and possible US backup withholding at a rate of 28%. US federal
  backup withholding generally is imposed on specified payments to persons that
  fail to furnish required information. Backup withholding will not apply to a
  holder who furnishes a correct taxpayer identification number or certificate
  of foreign status and


makes any other required certification, or who is otherwise exempt from backup withholding. Any US persons required to establish their exempt status generally must file Internal Revenue Service Form W-9, Request for
Taxpayer Identification Number and Certification. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a US Holders US federal income tax liability. A US Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information. Documents
  on displayCertain documents
    referred to in this Annual Report can be inspected at our registered office
    at Grant Way, Isleworth, Middlesex, TW7 5QD, England, during normal business
    hours on Monday to Friday (public holidays excepted). Shareholders attending
    the Companys AGM will also have the opportunity to inspect certain documents
    as detailed in the Notice of AGM from 15 minutes prior to the meeting until
    its conclusion. A copy of the Notice of AGM can be downloaded from the Companys
    corporate website at www.sky.com/corporate. We are subject to the periodic reporting and other informational requirements of the US Securities Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Copies of
reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C., 20549. The public may obtain
information regarding the SECs Public Reference Room by calling the SEC at 1-202-551-8090. Our public filings with the SEC are also available on the website maintained by the SEC at www.sec.gov. Material
  modifications to the rights of security holders and use of proceedsThe constituent instruments
  defining the rights of holders of ordinary shares have not been materially modified. Pursuant to the terms of the Deposit Agreement, The Bank of New York, as Depositary, has agreed to notify holders of ADSs of all actions of the Company in which shareholders of ordinary shares are entitled to exercise
voting rights, thus facilitating the exercise of voting rights by holders of ADSs. The address of The Bank of New York is 101 Barclay Street, New York, New York, 10286.




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      Group plc |  | 111
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|Glossary
    of terms
|---------------------
|                     
|                     
|                     

|Useful
      Definitions               |  | Description                                                                                                                                                                                                                                                                                                                                                        
|-------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|365 Media                              |  | 365 Media Group plc                                                                                                                                                                                                                                                                                                                                                
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|ADS                                    |  | American Depositary Share
      (each ADS currently represents four ordinary shares of BSkyB)                                                                                                                                                                                                                                                                      
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Bonus channel                          |  | A channel provided to
      a subscriber in addition to one or more subscription channels, but at no
      incremental cost to the subscriber                                                                                                                                                                                                                      
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|BSkyB or the Company                   |  | British Sky Broadcasting
      Group plc                                                                                                                                                                                                                                                                                                                           
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Churn                                  |  | The number of DTH subscribers
      over a given period that terminate their subscription in its entirety, net
      of former subscribers who reinstate their subscription in that period (where
      such reinstatement is within a twelve month period of the termination of
      their original subscription), expressed as a percentage of total subscribers
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|DSL                                    |  | Digital Subscriber Line                                                                                                                                                                                                                                                                                                                                            
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|DTH                                    |  | Direct-to-Home: the transmission
      of satellite services with reception through a minidish. The Group also
      retails certain Sky Channels to a limited number of DSL subscribers (references
      throughout to DTH subscribers include DSL subscribers)                                                                                                
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|DTT                                    |  | Digital Terrestrial Television:
      digital signals delivered to homes through a conventional aerial, converted
      through a set-top box or integrated digital television set                                                                                                                                                                                 
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|EPG                                    |  | Electronic Programme Guide                                                                                                                                                                                                                                                                                                                                         
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|ESOP                                   |  | Employee Share Ownership
      Plan                                                                                                                                                                                                                                                                                                                                
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Fiscal year or fiscal                  |  | Refers to the twelve months
      ended on the Sunday nearest to 30 June of the given year                                                                                                                                                                                                                                                                         
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Freeview                               |  | The free DTT offering
      available in the UK                                                                                                                                                                                                                                                                                                                    
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|The Group                              |  | BSkyB and its subsidiary
      undertakings                                                                                                                                                                                                                                                                                                                        
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|HD                                     |  | High Definition Television                                                                                                                                                                                                                                                                                                                                         
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|IFRS                                   |  | International Financial
      Reporting Standards                                                                                                                                                                                                                                                                                                                  
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|IP                                     |  | Internet Protocol: the
      mechanism by which data packets may be routed between computers on a network                                                                                                                                                                                                                                                          
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|LLU                                    |  | Local Loop Unbundling:
      a process by which BTs exchange lines are physically disconnected
      from BTs network and connected to other operators networks.
      This enables operators other than BT to use the BT local loop to provide
      services to customers                                                                                     
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Minidish                               |  | Satellite dish required
      to receive digital satellite television                                                                                                                                                                                                                                                                                              
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Multiroom                              |  | Installation of an additional
      set-top box in the household of an existing subscriber                                                                                                                                                                                                                                                                         
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Ofcom                                  |  | UK Office of Communications                                                                                                                                                                                                                                                                                                                                        
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Premium Channels                       |  | The Sky Premium Channels
      and the Premium Sky Distributed Channels                                                                                                                                                                                                                                                                                            
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Premium Sky Distributed
      Channels |  | Disney Cinemagic, MUTV,
      Chelsea TV and Music Choice Extra. Until 23 July 2006, FilmFour (including
      the FilmFour multiplex channels, FilmFour +1 and FilmFour
      Weekly) was a Premium Sky Distributed Channel. From 23 July 2006,
      FilmFour has been broadcast as a free-to-air channel                                                    
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|PVR                                    |  | Personal Video Recorder:
      satellite decoder which utilises a built-in hard disk drive to enable viewers
      to record without videotapes, pause live television and record one programme
      while watching another                                                                                                                                       
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|RCF                                    |  | Revolving Credit Facility                                                                                                                                                                                                                                                                                                                                          
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Set-top box                            |  | Digital satellite reception
      equipment                                                                                                                                                                                                                                                                                                                        
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Sky                                    |  | British Sky Broadcasting
      Group plc and its subsidiary undertakings                                                                                                                                                                                                                                                                                           
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Sky+                                   |  | Skys fully-integrated
      Personal Video Recorder (PVR) and satellite decoder                                                                                                                                                                                                                                                                                   
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Sky+ HD                                |  | High Definition box with
      PVR functionality, formerly known as Sky HD                                                                                                                                                                                                                                                                                         
|                                       |  |                                                                                                                                                                                                                                                                                                                                                                    
|Sky Active                             |  | The brand name for Skys
      transactional interactive television services, including e-mail/messaging,
      games, betting, shopping, banking, travel services and ticket sales                                                                                                                                                                                



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|112                |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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|Glossary
      of terms
|-----------------------
|continued              
|                       
|                       

|Sky Basic
      Channels          |  | Sky One, (and its simulcast
      version, Sky One HD), Sky Two, Sky Three, Sky News, Sky Travel, Sky Real
      Lives (and its multiplex versions, Sky Real Lives +1 and Sky Real Lives
      2), Sky Sports News, Sky Arts (including its simulcast version, Sky Arts
      HD) (all references to Sky Channels relating to periods prior to 4 March
      2005 exclude Sky Arts), Sky Vegas, Sky Poker.com, Flaunt, Bliss (which was
      named The Amp until 2 March 2006) and Scuzz. Flaunt, Bliss and
      Scuzz were disposed of by the Group on 31 December 2006
|--------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky Bet                           |  | Skys betting services,
      provided through set-top boxes, the internet and via phone                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky box office                    |  | Our pay-per-view service
      offering movies, sporting events and concerts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky Channels                      |  | Television channels wholly
      owned by the Group, being the Sky Basic Channels and Sky Premium Channels                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky Distributed Channels          |  | Television channels owned
      and broadcast by third parties, retailed by the Group to DTH viewers                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky Premium Channel
      Package |  | DTH subscription package
      which includes one or more of the Sky Premium Channels                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky Premium Channels              |  | Sky Movies Pack 1 (Sky
      Movies Comedy, Sky Movies Classic, Sky Movies Modern Greats, Sky Movies
      Family and Sky Movies Screen 1 (and its HD simulcast)), Pack 2 (Sky Movies
      Action/Thriller, Sky Movies Indie, Sky Movies SciFi/Horror, Sky Movies Drama
      and Sky Movies Screen 2 (and its HD simulcast)) and Bonus Channels (Sky
      Movies Premiere (and its HD simulcast) and Sky Movies Premiere +1), Sky
      Sports 1, Sky Sports 2, Sky Sports 3 and Sky Sports Xtra (and the HD simulcasts
      of Sky Sports 1-3)                         
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Sky Talk                          |  | Home telephony service
      provided exclusively for Sky digital subscribers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|SMATV                             |  | Satellite Master Antenna
      Television                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|SMPF                              |  | Shared Metallic Path Facility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Transponder                       |  | Communication devices
      on satellites which send programming signals to minidishes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Viewing share                     |  | Number of people viewing
      a channel as a percentage of total viewing audience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|WAN                               |  | Wide Area Network: Companies
      link networks at different sites over the internet to form a secure WAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|                                         |  |    
|---------------------------------------- |  | ---
|                                         |  |    
|British
      Sky Broadcasting Group plc |  | 113
|Annual
      Report 2008                

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|Form 20-F
    cross reference guide
|-----------------------------------
|                                   
|                                   
|                                   

The information in this document that is referred to below shall be deemed to be part of the Annual Report on Form 20-F for 2008 that has been filed with the Securities and Exchange Commission. This information is the
only information that is intended to be filed or incorporated by reference into any filing made by the Company under applicable US securities laws.

| |      |  |                                                         |                                                                                |      | 
| | ---- |  | ------------------------------------------------------- | ------------------------------------------------------------------------------ | ---- | 
| | Item |  | Form 20-F caption                                       | Location in this document                                                      | Page | 
| |      |  |                                                         |                                                                                |      | 
| | 1    |  | Identity of directors, senior management and advisers   | Not applicable                                                                 | n/a  | 
| |      |  |                                                         |                                                                                |      | 
| | 2    |  | Offer statistics and expected timetable                 | Not applicable                                                                 | n/a  | 
| |      |  |                                                         |                                                                                |      | 
| | 3    |  | Key information                                         |                                                                                |      | 
| | A    |  | Selected financial data                                 | Group financial record                                                         | 102  | 
| |      |  |                                                         | Shareholder Information  Exchange rates                                       | 106  | 
| | B    |  | Capitalization and indebtedness                         | Not applicable                                                                 | n/a  | 
| | C    |  | Reason for the offer and use of proceeds                | Not applicable                                                                 | n/a  | 
| | D    |  | Risk factors                                            | Risk factors                                                                   | 19   | 
| |      |  |                                                         |                                                                                |      | 
| | 4    |  | Information on the Company                              |                                                                                |      | 
| | A    |  | History and development of the Company                  | The business, its objectives and its strategy                                  | 5    | 
| | B    |  | Business overview                                       | The business, its objectives and its strategy                                  | 5    | 
| |      |  |                                                         | Government regulation                                                          | 21   | 
| | C    |  | Organizational structure                                | Consolidated financial statements  Note 31 Group investments                | 95   | 
| | D    |  | Property, plants and equipment                          | Property                                                                       | 38   | 
| |      |  |                                                         |                                                                                |      | 
| | 4A   |  | Unresolved staff comments                               | No unresolved staff comments                                                   | n/a  | 
| |      |  |                                                         |                                                                                |      | 
| | 5    |  | Operating and financial review and prospects            |                                                                                |      | 
| | A    |  | Operating results                                       | Financial review                                                               | 29   | 
| |      |  |                                                         | Financial and operating review                                                 | 30   | 
| |      |  |                                                         | Government regulation                                                          | 21   | 
| | B    |  | Liquidity and capital resources                         | Financial and operating review  Liquidity and capital resources               | 33   | 
| | C    |  | Research and development, patents and licenses, etc     | Financial and operating review  Research and development                      | 36   | 
| | D    |  | Trend information                                       | Financial and operating review  Trends and other information                  | 35   | 
| | E    |  | Off-balance sheet arrangements                          | Financial and operating review  Off-balance sheet arrangements                | 36   | 
| | F    |  | Tabular disclosure of contractual obligations           | Financial and operating review  Tabular disclosure of contractual obligations | 35   | 
| | G    |  | Safe harbor                                             | Forward looking statements                                                     | 1    | 
| |      |  |                                                         |                                                                                |      | 
| | 6    |  | Directors, senior management and employees              |                                                                                |      | 
| | A    |  | Directors and senior management                         | Board of Directors and senior management                                       | 39   | 
| | B    |  | Compensation                                            | Report on Directors remuneration                                              | 46   | 
| | C    |  | Board practices                                         | Report on Directors remuneration  8. Service agreements, 9. Non-Executive    |      | 
| |      |  |                                                         | Directors                                                                      | 46   | 
| |      |  |                                                         | Corporate governance report  Board Committees                                 | 43   | 
| | D    |  | Employees                                               | Board of Directors and senior management  Employees                           | 41   | 
| |      |  |                                                         | Consolidated financial statements  Note 8 Employee benefits and key          |      | 
| |      |  |                                                         | management compensation                                                       | 68   | 
| | E    |  | Share ownership                                         | Report on Directors remuneration  11. Share interests                        | 50   | 
| |      |  |                                                         | Report on Directors remuneration  13. LTIP, 14. Sharesave Scheme options     | 52   | 
| |      |  |                                                         |                                                                                |      | 
| | 7    |  | Major shareholders and related party transactions       |                                                                                |      | 
| | A    |  | Major shareholders                                      | Shareholder information  Major shareholders                                   | 105  | 
| | B    |  | Related party transactions                              | Financial and operating review  Related party transactions                    | 36   | 
| |      |  |                                                         | Consolidated financial statements  Note 30 Transactions with related         |      | 
| |      |  |                                                         | parties and major shareholders                                                | 93   | 
| | C    |  | Interests of experts and counsel                        | Not applicable                                                                 | n/a  | 
| |      |  |                                                         |                                                                                |      | 
| | 8    |  | Financial information                                   |                                                                                |      | 
| | A    |  | Consolidated statements and other financial information | Auditors
      reports                                                        | 56   | 
| |      |  |                                                         | Consolidated financial statements                                              | 57   | 
| |      |  |                                                         | Financial and operating review  Trends and other information                  | 35   | 
| | B    |  | Significant changes                                     | None                                                                           | n/a  | 
| |      |  |                                                         |                                                                                |      | 



|                   |  |                                         
|------------------ |  | ----------------------------------------
|                   |  |                                         
|114                |  | British Sky Broadcasting
      Group plc
|Annual Report 2008

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Back to Contents

|Form 20-F cross reference
    guide
|-----------------------------------
|continued                          
|                                   
|                                   
|                                   

| |      |  |                                                                  |                                                                              |      | 
| | ---- |  | ---------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---- | 
| | Item |  | Form 20-F caption                                                | Location in this document                                                    | Page | 
| |      |  |                                                                  |                                                                              |      | 
| | 9    |  | The offer and listing                                            |                                                                              |      | 
| | A    |  | Offer and listing details                                        | Shareholder information  Share price information                            | 104  | 
| | B    |  | Plan of distribution                                             | Not applicable                                                               | n/a  | 
| | C    |  | Markets                                                          | Shareholder information  Share information                                  | 104  | 
| | D    |  | Selling shareholders                                             | Not applicable                                                               | n/a  | 
| | E    |  | Dilution                                                         | Not applicable                                                               | n/a  | 
| | F    |  | Expenses of the issue                                            | Not applicable                                                               | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 10   |  | Additional information                                           |                                                                              |      | 
| | A    |  | Share capital                                                    | Not applicable                                                               | n/a  | 
| | B    |  | Memorandum and Articles of Association                           | Shareholder information  Memorandum and Articles of Association             | 106  | 
| | C    |  | Material contracts                                               | The business, its objectives and its strategy  Significant agreements       | 17   | 
| |      |  |                                                                  | Report on Directors remuneration                                            | 46   | 
| | D    |  | Exchange controls                                                | Shareholder information  Exchange controls                                  | 109  | 
| | E    |  | Taxation                                                         | Shareholder information  Taxation                                           | 109  | 
| | F    |  | Dividends and paying agents                                      | Not applicable                                                               | n/a  | 
| | G    |  | Statement by experts                                             | Not applicable                                                               | n/a  | 
| | H    |  | Documents on display                                             | Shareholder information  Documents on Display                               | 111  | 
| | I    |  | Subsidiary information                                           | Not applicable                                                               | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 11   |  | Quantitative and qualitative disclosures about market risk       | Consolidated financial statements  Note 23 Derivatives and other financial |      | 
| |      |  |                                                                  | instruments                                                                 | 79   | 
| |      |  |                                                                  | Forward looking statements  safe harbour                                    | 1    | 
| |      |  |                                                                  |                                                                              |      | 
| | 12   |  | Description of securities other than equity securities           | Not applicable                                                               | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 13   |  | Defaults, dividend arrearages and delinquencies                  | Not applicable                                                               | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 14   |  | Material modifications to
    the rights of security holders and | Shareholder information  Material modifications to the rights of security   |      | 
| |      |  | use of proceeds                                                  | holders and use of proceeds                                                  | 111  | 
| |      |  |                                                                  |                                                                              |      | 
| | 15   |  | Controls and procedures                                          | Corporate governance report                                                  | 41   | 
| |      |  |                                                                  | Auditors
      reports                                                      | 56   | 
| |      |  |                                                                  |                                                                              |      | 
| | 15T  |  | Controls and procedures                                          | Not applicable                                                               | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 16A  |  | Audit committee financial expert                                 | Corporate governance report  Audit Committee                                | 44   | 
| |      |  |                                                                  |                                                                              |      | 
| | 16B  |  | Code of ethics                                                   | Corporate governance report  Corporate policies                             | 41   | 
| |      |  |                                                                  |                                                                              |      | 
| | 16C  |  | Principal accountant fees and services                           | Consolidated financial statements  Note 7 Profit before taxation          | 67   | 
| |      |  |                                                                  | Corporate governance report  Use of external auditors                       | 45   | 
| |      |  |                                                                  |                                                                              |      | 
| | 16D  |  | Exemptions from the listing standards for audit committees       | None                                                                         | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 16E  |  | Purchases of equity securities
    by the issuer and affiliated  | Consolidated financial statements  Note 25 Reconciliation of shareholders |      | 
| |      |  | purchasers                                                       | equity  Purchase of own shares for cancellation and capital redemption     |      | 
| |      |  |                                                                  | reserve                                                                      | 88   | 
| |      |  |                                                                  |                                                                              |      | 
| | 17   |  | Financial statements                                             | Not applicable                                                               | n/a  | 
| |      |  |                                                                  |                                                                              |      | 
| | 18   |  | Financial statements                                             | Auditors
      reports                                                      | 56   | 
| |      |  |                                                                  | Consolidated financial statements                                            | 57   | 
| |      |  |                                                                  |                                                                              |      | 
| | 19   |  | Exhibits                                                         | Filed with the SEC                                                           |      | 
| |      |  |                                                                  |                                                                              |      | 



|                                         |  |    
|---------------------------------------- |  | ---
|                                         |  |    
|British Sky Broadcasting
      Group plc |  | 115
|Annual Report 2008                      

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SIGNATURES

The registrant
  hereby certifies that it meets all of the requirements for filing on Form 20-F
  and that it has duly caused and authorised the undersigned to sign this annual
  report on its behalf.

BRITISH SKY
  BROADCASTING GROUP PLC



| | BY: | ANDREW
      GRIFFITH        
| | --- | -----------------------------
| |     | ANDREW
      GRIFFITH        
| |     | Chief
      Financial Officer

Date: 1 August
  2008

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EXHIBITSThe following exhibits are filed as part of this Annual
  Report on Form 20-F

|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                       |  | Exhibit No.In         | 
|------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | 
|Number                          |  |                                                                                                                                                                                                                                                                                                                                                                                                       |  | Document              | 
|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                       |  | Incorporated
      By | 
|                                |  | Description                                                                                                                                                                                                                                                                                                                                                                                           |  | Reference             | 
|1                               |  | Memorandum
      and Articles of Association                                                                                                                                                                                                                                                                                                                                                          |  | *                     | 
|2.1                             |  | Specimen share certificate                                                                                                                                                                                                                                                                                                                                                                            |  | 2(i)                  | 
|2.2                             |  | Form of Indenture, dated
      as of 15 September 1996, among the Company, as the Issuer,
      and British Sky Broadcasting Limited and Sky Subscribers Services
      Limited, as Initial Guarantors, and The Bank of New York, asTrustee, relating to Guaranteed Debt Securities                                                                                                                   |  | 4.1(ii)               | 
|2.3                             |  | Form of Indenture, dated
      as of 2 July 1999, among the Company, as the Issuer,
      and British Sky Broadcasting Limited and Sky Subscribers Services
      Limited, as Initial Guarantors, and The Bank of New York, as
      Trustee,relating to 7.75% Notes
      due 2009 and 8.20% Notes due 2009                                                                                          |  | 10.2 (iii)            | 
|2.4                             |  | Form of Indenture, dated
      as of 21 October 2005, among the Company,British Sky Broadcasting Limited, and Sky Subscribers Services Limited,
      asInitial Guarantors, BSkyB Finance
      UK plc, as the Issuer, and The Bank ofNew York, as Trustee, relating to 5.625% Senior Unsecured Notes due 2015 6.500% Senior Unsecured Notes due 2035 and 5.750% Senior
      UnsecuredNotes due 2017 |  | 2.4(iv)               | 
|2.5                             |  | First Supplemental Indenture
      dated as of January 31, 2007 and SecondSupplemental Indenture dated as of May 3, 2007 to the Indenture dated as
      of21 October 2005                                                                                                                                                                                                                            |  | 2.5 (v)               | 
|2.6                             |  | First Supplemental Indenture
      dated as of January 31, 2007 and SecondSupplemental Indenture dated as of May 3, 2007 to the Indentures dated asof 2 July 1999 and 21 October 2005                                                                                                                                                                                                                 |  | 2.6 (v)               | 
|2.7                             |  | First Supplemental Indenture
      dated as of January 31, 2007 and SecondSupplemental Indenture dated as of May 3, 2007 to the Indenture dated as
      of15 September 1996                                                                                                                                                                                                                          |  | 2.7 (v)               | 
|2.8                             |  | Trust Deed relating to
      the BSkyB Finance UK plc and British SkyBroadcasting Group plc £1,000,000,000 Euro Medium Term NoteProgramme                                                                                                                                                                                                                                                             |  | 2.8 (v)               | 
|2.9                             |  | Indenture dated as of 15 February 2008 among the Company, as the Issuer,
      and Britsh Sky Broadcasting Limited, BSkyB Finance UK plc, BSkyB Investments
      Limited, BSkyB Publications Limited and Sky Subscribers Services Limited,
      as Initial Guarantors, and The Bank of New York, as Trustee, relating to
      6.10% Senior Unsecured Notes due 2018                                |  | *                     | 
|4.1                             |  | Agreement dated 3 November
      2004 with respect to a £1,000,000,000Revolving Credit Facility among British Sky Broadcasting Group plc, asborrower, Barclays Bank plc, as agent, and others                                                                                                                                                                                                         |  | 4.1(vi)               | 
|4.2                             |  | Service agreement dated 25 June 2008 with the Chief Executive Officer                                                                                                                                                                                                                                                                                                                                 |  | *                     | 
|4.3                             |  | Service agreement dated 25 June 2008 with the Chief Financial Officer                                                                                                                                                                                                                                                                                                                                 |  | *                     | 
|4.4                             |  | Rules
      of the British Sky Broadcasting Group Long-Term Incentive Plan                                                                                                                                                                                                                                                                                                                            |  | *                     | 
|4.5                             |  | Rules
      of the British Sky Broadcasting Group Management Long-Term Incentive Plan                                                                                                                                                                                                                                                                                                                 |  | *                     | 
|8                               |  | List
      of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                            |  | *                     | 
|11                              |  | Code of Ethics                                                                                                                                                                                                                                                                                                                                                                                        |  | 11 (vii)              | 
|12.1                            |  | Certification
      of the Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                           |  | *                     | 
|12.2                            |  | Certification
      of the Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                           |  | *                     | 
|13                              |  | Certification
      pursuant to 18 U.S.C. Section 1350,pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                      |  | *                     | 
|15                              |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                      |  | *                     | 
|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                       | 
|*Filed electronically herewith. |  |                                                                                                                                                                                                                                                                                                                                                                                                       | 
|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                       | 

|(i)   | Incorporated by reference to the Annual Report on Form 20-F of British Sky
    Broadcasting Groupplc for the fiscal year ended 30 June 2001 filed with the SEC on 1 October
    2001.             
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                   
|(ii)  | Incorporated by reference to the Registration Statement on Form F-3, SEC
    File No. 333-5538, asfiled with the SEC on 2 October 1996.                                                           
|      |                                                                                                                                                                                                   
|(iii) | Incorporated
        by reference to the Annual Report on Form 20-F of British Sky Broadcasting
        Groupplc for the fiscal year ended 30 June 1999 filed with the SEC on 27 October
    1999.
|      |                                                                                                                                                                                                   
|(iv)  | Incorporated
        by reference to the Annual Report on Form 20-F of British Sky Broadcasting
        Groupplc for the fiscal year ended 30 June 2006 filed with the SEC on 31 July
    2006.   
|      |                                                                                                                                                                                                   
|(v)   | Incorporated by reference to the Annual Report on Form 20-F of British Sky
    Broadcasting Groupplc for the fiscal year ended 30 June 2007 filed with the SEC on 27 July
    2007.               
|      |                                                                                                                                                                                                   
|(vi)  | Incorporated by reference to the Annual Report on Form 20-F of British Sky
    Broadcasting Groupplc for the fiscal year ended 30 June 2005 filed with the SEC on 7 October
    2005.             
|      |                                                                                                                                                                                                   
|(vii) | Incorporated
        by reference to the Annual Report on Form 20-F of British Sky Broadcasting
        Groupplc for the fiscal year ended 30 June 2003 filed with the SEC on 5 December
    2003.
|      |                                                                                                                                                                                                   

---