Murdoch furore couldn't have come at a worse time for 'BSkyB'

BSkyB is in fine fettle. Or at least it would be if you were able to separate the savaged reputation of its biggest shareholder, News Corporation, from its underlying numbers.

After its early loss-making years, the satellite broadcasting business has evolved into one of the British media industry's biggest commercial successes, with more than 10.5m customers and pounds 1bn in annual profits.

Canny investments in technology have fuelled that upward trajectory, many of them instigated by James Murdoch, who was chief executive of BSkyB before he moved to News International and became mired in the News of the World phone-hacking scandal that later became his undoing.

BSkyB's sophisticated "set-top" boxes were the first to allow viewers to automatically record whole series of programmes in one go. The company also bought up Premier League rights, snatched American ratings hits such as Glee and Mad Men from rival broadcasters, and launched a dedicated Formula One channel.

Meanwhile, a far-sighted decision to offer broadband and telephone services alongside its television offer has helped to sustain BSkyB's growth and effectively remodel it as a utility company.

Never has this been more important for BSkyB. In terms of customer numbers, its television business is growing at less than a third of the rate it did in the last financial year, but by selling those customers broadband and telephone services, it has sustained the momentum of its revenue growth.

"It is an absolute poster child for how a communications business should be run. It has become interwoven in how people run their lives," said Paul Richards, an analyst at Numis Securities.

However, the phone-hacking scandal and News Corp's contentious 39pc stake in BSkyB has not so much blotted the broadcaster's copy book, as upended a whole ink well over it.

Ofcom, Britain's broadcasting regulator, has the power to take away BSkyB's licence to air television if it doesn't think the company's directors or controlling shareholders are "fit and proper". This measure has only forced a broadcaster off air once in the past, but Ofcom's steady flow of pronouncements on the subject suggest it has the appetite to flex its muscles again.

On Tuesday, MPs said News Corp was guilty of "wilful blindness" and that Rupert Murdoch was "not fit" to run an international company. If Ofcom reaches the same conclusion, News Corp could be forced to sell its entire stake or watch BSkyB, the broadcaster it tried to take over last summer, go off air.

Meanwhile, BSkyB will have to weigh up the prospect of an unknown quantity buying News Corp's stake (Apple, Google and Time Warner Group have all been tipped as contenders) against increasing its debt so that it can buy back the shares itself.

The timing couldn't be worse. Whatever its past successes, BSkyB is facing a wave of new threats and needs to retain a flexible balance sheet to help it fight them.

The broadcaster is facing a major strategic affront from a new generation of pay-per-view operators, such as the American giant Netflix which launched in the UK in January.

BSkyB's chief executive Jeremy Darroch has always argued that the company is well-protected in the economic downturn because hard-pressed families regard its satellite television service as a cheap alternative to going out.

However, those same families might regard Netflix, Amazon's LoveFilm, or the forthcoming YouView, as more inviting options still. BSkyB knows it, and has unveiled plans for its own service offering people a chance to watch Sky content on a piecemeal basis without any upfront fees.

Analysts are wary. "If the pricing is too attractive, it will cannibalise its [existing customer] base, and if it's not attractive enough, they won't stop customers going to Netflix," says Will Smith at Jefferies.

An even more pressing threat is the battle for Premier League football rights. BSkyB has made these top-tier games the foundation of its business for the past 20 years, but this could be shaken if the Middle Eastern broadcaster Al Jazeera mounts a rival bid or ESPN tries to get its hands on more matches.