The MT Interview: Jeremy Darroch of BSkyB

BSkyB's CEO insists life is sweet: customer numbers are up, the BBC's on the back foot and the desire to innovate and evolve is as strong as ever.

by Matthew Gwyther
Last Updated: 09 Oct 2013

MT first came across Jeremy Darroch in the spring of 2007. We'd been summoned out west to Osterley for a rare audience with his boss, James Murdoch, BSkyB's CEO, the young heir apparent to the News Corp global empire. While Murdoch had a preparatory cigarette on the balcony, I was hurried along a corridor at New Horizon Court. Darroch, then Sky's finance director, was in his big office staring intently at his screen. He looked up with a careworn and slightly melancholic mien. A lot has happened to both Darroch and Murdoch since then: mostly good for the former, not so great for the latter.

Darroch has a reputation for being close to Murdoch, a bright, thorough and trusted lieutenant who tempered some of his energetic boss's schemes and excesses. Legend had it that together they'd dreamt up the brazen December 2006 raid on ITV shares on the back of a fag packet: the dynamic duo rustled up £940m for 18% of the company in three days flat and finally stymied Richard Branson's chance of ever being a bigtime player in British television. One version of the story has it that consiglieri Darroch had advised 15% of ITV would have been enough to do the trick without arousing the unwelcome attention of the Competition Commission. But James really wanted Branson out for the count and biting the dust.

Darroch's no swashbuckling media type. Having studied economics at Hull University business school, he arrived at Sky in 2004 from Dixons, where he had been FD. Before that he had enjoyed 12 years at Procter & Gamble, finishing as European finance director for its healthcare business. It's likely he would have risen higher at P&G and not returned to the UK, but his wife, Rachel, was a GP in Surrey - which she remains - and they wanted to come back with their small children. How much less interesting his life might have been shifting Pampers, Pantene Pro V and Pringles...

Neither P&G nor Dixons is filled with pussycats, but News Corp businesses the world over are run with a balls-out ferocity together with an ingenuity and sense of purpose that leaves many aghast. (You could argue that what happened at the News of the World originated in a desperation never to displease the boss, never to come second and always to get one over the competition. Even within the same newspaper.)

From early on, the culture at Sky was bolshie, paranoid and sharp-elbowed - it had to be. It had the weight of the British media establishment against it and it is easy to forget in the early 1990s Sky very nearly went under, taking News Corp with it. One person who worked on the people side of the business before James's arrival says: 'It was run by brutal, horrible individuals. Effing and blinding. Coming from outside, it shocked me.'

James, together with Darroch, changed the outlook and culture at Sky beyond recognition. Externally, they changed it from a one-product, pay-TV broadcaster shifting set-top boxes to a triple-play, multiplatform communications operator, offering TV with new technology such as high definition, telephony and broadband. Internally, their management practices were far more enlightened and 21st century. They looked carefully at employee engagement, were one of the first to climb aboard the CSR bandwagon with any sincerity and became class leaders in carbon reduction.

Then suddenly, in classic, capricious style, James was shifted by his father to run the whole of the News Corp business in Europe, including, fatefully, the News of the World. Darroch became the first internal candidate in Sky's then 18-year history to get the top job. If his predecessor got the job through blue-blooded entitlement, the same could hardly be said of Darroch, whose father was a tax manager and grandfather a Northumbrian miner.

It was observed very early on that the mild-mannered and collegiate Darroch was very 'un-Sky'. This he remains. Darroch is a popular and highly capable leader, much liked inside and outside the organisation. He's a well-remunerated one, too. Last year he earned £2.68m, including a £1.7m bonus. He was in charge when BSkyB won MT's Most Admired Company award in 2009, the youngest company ever to win the accolade. Ben Fenton, chief media correspondent of the FT, says Darroch is 'easily one of the most impressive CEOs of any company I cover in Europe'. Allan Leighton, a Sky non-executive director, now stepping down after 12 years, is no less admiring: 'He is a top-flight guy. He's completely confident but without arrogance. He's unassuming, focused but pragmatic and phlegmatic. He and James were a great partnership.'

Darroch isn't melancholic, it's just his face doesn't naturally exude happiness. In his soft north-east accent he is thoughtful and measured in his responses, only glancing at his PR man for advice when I ask him how he voted at the last election (no dice there). Most importantly, he's a man who seriously enjoys what he's doing. 'One of the things I like about this job is how interesting it remains. It is so varied. First thing in the morning I can be discussing aspects of broadband telephony and by the end of the day I'm in a meeting about a new Sky1 comedy strand. It's not a business that you have to push. It's not "hard work" because it's so fizzing with ideas, if anything, I have to hold it back.'

And he puts in the hours without going mad, leaving the house at 7.15 and departing the office between six and seven. He spends most Sundays at home in Surrey reading work stuff.

The last year, however, has not been plain sailing. Rupert and James Murdoch wanted to buy the whole company and the proposed takeover became a massive, interminable punch-up, with Murdoch-haters coming out of the woodwork in droves. Other media owners - from the BBC, through to the Guardian and Associated Newspapers, which owns the Daily Mail - joined forces in an attempt to derail the bid. Then, of course, came the Millie Dowler phone-hacking revelations and James Murdoch's involvement in the scandal. The whole bid came crashing down.

Darroch clearly loathes all the politics and regulation that comes with the UK media and notes it's a dangerous distraction from keeping the show on the road. He'd love just to be able to run his interesting and highly successful business. But that's not the way it can ever be. He is stuck with it.

So how had the past year been? The whole episode must have been hugely disruptive as the soap opera played out.

'We needed not to get distracted. We had a great plan to execute with the launch of Sky Atlantic, building our entertainment portfolio and Sky On The Go, not to mention the challenges of the general economic environment. I just said to my team: 'This doesn't change anything. One day we'll all wake up and either someone will have paid an awful lot of money for us or a bunch of other people will have turned down a lot of money for us. And it didn't distract us. We got on with it and, amid all that noise, the business went from strength to strength.'

He claims, with a straight face, that he didn't mind whether the bid succeeded or not. 'I was entirely agnostic. It remained my job as CEO to deliver for all our shareholders. News Corp didn't talk to me about its business plan for the company. But it wouldn't have been very different whichever way it went. Success is outside the company not inside. You cannot ever forget that we deliver for customers and they have a choice.'

But, come on, he must have imagined how it may have all panned out? Had he pictured himself by an LA pool one day running Fox? 'No. I always resist all of those things. Pointless speculating. Anyway, I really enjoy what I do here.'

Leighton, incidentally, also thinks it didn't matter which way the bid went. 'My sense was that it would have been fine if it had fallen either way. The point is that Sky is one of the great British business successes of all time. You shouldn't forget that.'

One could argue that had the bid succeeded it would not have been to Darroch's advantage. A lot would probably have changed. He would have been even less his own boss and an amalgamation with Sky Italia and Sky Deutschland - both lesser businesses - would have been inevitable. Did he really want Rupert endlessly on the phone, as he was to Andy Coulson?

The end of the bid came very suddenly. On 13 July Darroch got a phone call from James Murdoch and News Corp COO Chase Carey explaining the game was up, just before Darroch, also a Marks & Spencer non-exec, was about to enter the M&S AGM. 'Yes,' says fellow M&S non-exec Martha Lane Fox - another big Darroch fan - who watched him nervously looking at his BlackBerry, 'he was pretty busy that day.'

You don't get far asking Darroch about his emotions but how did he feel at that point? 'I didn't feel too much to tell the truth. It's like the tension surrounding things when we bid for the Premier League rights with a billion pounds at stake - you just deal with events. You put your game face on. The very next day we had a big get-together of our top 150 managers which was fortuitous. I just told them - it's back in our hands. Let's forget it. Let's celebrate what we've achieved because none of this puts anything to do with our strategy or performance into question. Let's push on.'

This is all very well, but the whole episode must have been highly destabilising and continues to be now. What about all the members of staff who, whatever they thought about being a 100% Murdoch organisation, had been quietly working out the size of their windfall if the share price had gone to £9 or even more? That was an attractive bonus to which they had to kiss goodbye.

Exactly where the company is now and what its prospects are continue to divide people. Just after its annual results were announced at the end of July, the 19 leading analysts who followed the company put their target at anything between 650p and 999p a share. (At the time of writing, the share price sits at 679p, after a year-high of 850p on 4 July, which fell 150p within days as the hacking scandal swirled around the company.)

Shareholders in BSkyB have always had a rollercoaster of a ride and a number of them are a bit queasy. First, they, too, were eagerly awaiting payday if and when the News Corp bid finally went through after numerous regulatory delays. The vile stench emanating from the News of the World lair in Wapping put paid to this juicy liquidity moment and, immediately the bid was withdrawn, the share price fell back. So an annoying pre-bid Murdoch Discount went to being a wild Murdoch Premium and then back to a discount again. Blame for this is put at the Murdochs' door. But, at the same time, with 40% of the stock, News Corp remains a major shareholder, which prevents anyone else from stepping in. It's bid-proof.

Second, the influence of News Corp must have been diminished by events. In the current political climate - with a government no longer cowed by the Sun and the prime minister no longer taking calls from the Sun King - a further tightening of the rules about foreign ownership of media organisations could mean a further dilution of News Corp's shareholding. And News Corp has its own disgruntled shareholders.

So some shareholders are cross, and at the forthcoming November AGM there could be a bumpy ride for the company chairman, which might, in turn, put Darroch in a dicey position.

So has Sky been reputationally damaged by the Wapping phone-hacking? 'What happened at the News of the World was appalling and unacceptable,' says Darroch. 'But we are a separate company - we have a common shareholder but we're very different. We're very clear about our standards and our behaviour. As a leader, it just reinforces to me how vital values are. Sky has got 17,000 people but I can't sit down and write a rulebook for every one of them. So our values and our culture are there to help with difficult decisions.'

This is basically true. They are hyper-competitive at Sky but culturally light years away from tabloid hacks and PIN numbers, an old, inky media world they regard with some disdain. It's interesting that when Sky had its own mini-scandal earlier this year about sexist banter by sports presenters Andy Gray and Richard Keys, they were shown the door pretty rapidly. 'Their behaviour was so far across the line of what was acceptable, they had to leave,' says Darroch.

And what of his chairman and close colleague James, soon to appear again in front of members of the House of Commons to explain himself? 'James, first as CEO and then chairman, has been involved with Sky during the most sustained period of success we've ever known. He should take his credit for that. If you see anyone with whom you work closely in trouble you want him to come through the tough patch. He's my colleague and we support him. As far as things are in our control, we will do all we can to support him.'

It's hard to underestimate the mess in which James Murdoch now finds himself. Coulson is said to be expecting to receive four years, even from a relative fair-minded judge. But, chat, speculation and prison sentences aside, what remains at Sky are the fundamentals, which are pretty impressive. Since 2007, when Darroch became CEO, revenue has risen from £4.6bn to £6.6bn. Free cash flow - what Rupert Murdoch more than anything else was desperate to get his hands on - has risen from £454m to £869m and is predicted to reach £1.3bn by 2013. Customers are up from 8.8 million in 2008 to over that magic target of 10 million, and the money they are spending - the average revenue per user (Arpu) - is up from £421 annually to £535.

The organisation is ramping up the production of its own shows and has just spent a cool £230m on a new, state-of-the-art, eco-studio complex at Osterley. 'That is the great thing about our model,' says Darroch. 'We can make an arts programme featuring opera from the Met that will only be watched by 60,000 people. I don't have to worry about the average viewing share of the population. Just that our customers enjoy it as part of our service.'

The endless war with the BBC goes on, but now Sky has the upper hand. The BBC is suffering from harsh budget cuts, which it handled in a hamfisted manner, and poor morale. Sky News' coverage of the two big events of the summer - the UK riots and the Libyan insurgency - wiped the floor with its old adversary. And Sky has muscled in to share coverage of Formula One because the Beeb cannot afford the huge cost alone any more. It's even pinched the blessed David Attenborough and then won a Bafta with his Flying Monsters show.

But threats continue from all over. Just after MT met him, Darroch was faced with the 'pub landlady' ruling from the European Court of Justice, which appeared to threaten Sky's basic business model - making shed-loads of cash from Premiership football - as the European judges said she could show games at her Red, White and Blue establishment in Portsmouth using a hookie Greek pay-TV card.

This is a complex copyright issue which now needs to be decided by the UK courts, but Sky appears relatively relaxed about it.

One senior News Corp insider noted: 'You could look at this as implying not that Sky is too big but that it's too small. Over the long term and as the ways in which people watch programmes change it could be that Sky needs to bid for pan-European rights across many devices. It's complicated but not seismic.'

If Sky has a problem it's perception-based. There remain elements of society for whom it is as unloved as Tesco. It needs to grow with more emotional intelligence into the role of being the biggest gorilla in the room. It cannot play the role forever of being the bantamweight outsider, constantly jabbing at the British media establishment and pretending it's always the challenger. At telephony rival Talk Talk they refer to Sky as 'The Death Star' and it's happy to live up to the image: James Murdoch has a life-sized model of Darth Vader outside his office. Sky is the crowned monarch of UK media and needs to accept the role with grace and maturity, although with a Murdoch in its chair this is never going to be easy. Darroch doesn't go with this.

'The day we become an incumbent is the day we've lost,' Darroch retorts. 'As we've grown bigger we accept that we have increased responsibilities and we will increase our contribution to the communities in which we live and operate. But the day we become an incumbent and stop changing is a very bad one. That is the essence of where we came from and why we were formed. That challenger mindset still works for us.'

He may be confusing incumbency with complacency. Darroch cannot sit still because change and growth are Sky's lifeblood. 'We can't offer the same things. There's a reason why some households reject Sky Sports. And if you keep on offering the same thing you'll run out of road. We just need to offer different things. We have a constant restlessness and desire to improve.'

Can he win over the Guardian-reading chatterati? 'Yes. We can and we want to. That's why, for example, we sponsor the Hay Festival. Nobody was expecting that and we did a good job. You just need to decouple media conversation - especially conversation about media - from the real conversation with our customers. Our business speaks to the heart of British family life. In Manchester and Newcastle not just in London. And our job is to create more converts.' There's mild- mannered Northumbrian zealotry for you.

FOUR CHALLENGES FACING DARROCH

  • Keep plenty of clear blue reputational water between his organisation and other parts of the News Corp empire
  • Work out how to get the liberal chatterati to love Sky as much as its customers do
  • Persuade the 50% of the UK's population who don't take it that pay TV - plus maybe some Sky broadband and a phone - is for them
  • Find the next big thing after HD and 3D

DARROCH IN A MINUTE

1962
Born in Northumberland. Schooled in Alnwick and read economics at Hull University business school
1983
Studies accountancy with Deloitte, then joins Procter & Gamble, where he stays for 12 years, finishing as European FD for the healthcare business
2000
Joins Dixons Group as retail finance director and becomes group finance director of DSG International plc
2004 Joins BSkyB as finance director
2007 Becomes chief executive
2009
Sky wins MT's Most Admired Company award

2011

News Corp bid for 100% ownership of Sky is dropped following phone-hacking scandal.

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