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SBD Global/June 15, 2012/Media
BSkyB, BT Face Fallout With Dropping Shares From Premier League Deal
Published June 15, 2012
VITAL TO SKY? In London, Clark & Burrell wrote that the BSkyB deal was "hailed as a crucial strategic coup for the company" (INDEPENDENT, 6/14). London-based Peel Hunt analyst Patrick Yau said, "It speaks to how important Premier League rights are to the Sky model. Sky has become synonymous with coverage of the league, so to maintain its position, it was prepared to pay as much as it did." In London, Browning & Panja cited a source familiar with the matter saying that BSkyB "won't pass on the additional costs" to its more than 10 million subscribers. The source added that the broadcaster will pay for the increased rights fee by cutting operational costs and slowing spending on other programming. Yau said that BSkyB will "need to save" an additional £140M ($217M) (BLOOMBERG, 6/14). Also in London, Graham Hiscott noted the "size of the deal, and the scale of the increase, has led to fears armchair fans will foot the bill through higher package prices." Sky said that it was "too early to say how much it would charge for the new football packages" from '13 onward. The broadcaster is "likely to face the choice of either raising prices or cutting costs elsewhere" (DAILY MIRROR, 6/14).
PROOF OF A COMPETITIVE MARKET: Sanford C. Bernstein analysts Robin Bienenstock and Claudio Aspesi noted that BSkyB's new rights fee marks a 40% increase over the previous rights deal, or more than twice the consensus expectation of around 15-20% among analysts. They argued it is a sign of a U.K. pay TV market that "is indeed becoming more competitive." Aspesi said that BSkyB not only had to pay up, but also BT was able to land nearly half of the most attractive soccer games every season. Aspesi said, "It is both a shocking sticker price and a loss of valuable rights to BT -- the one company which represents a long term threat to Sky." He said of Sky, "The world is getting more complicated for them after today" (HOLLYWOOD REPORTER, 6/14). In London, Nick Fletcher noted analysts had "mixed views on the outcome." Numis analyst Paul Richards was "generally positive" and said, "The price paid was materially above our and consensus expectations. We retain our positive stance." Liberum Capital analyst Ian Whittaker said the deal was a bad sign for Sky: "BT's entry is unwelcome as (a) 18 of its 38 matches are first choice (b) it has its own platform, unlike ESPN had and (c) also unlike ESPN, it has strong brand recognition" (GUARDIAN, 6/14).
BT SEEKING PAYOFF: In N.Y., Daniel Thomas noted analysts have interpreted the move "as a turning point" for BT," which has spent several years following a "safety-first strategy based on cost cutting and returning cash to shareholders." Analysts have also said that it is a "gamble that spending money on TV rights" will pay off with a sharp increase in customers for a service that has "struggled to match the lofty ambitions" expressed at its '07 launch. BT CEO Ian Livingston said that previous Premier League rights holders, such as ESPN, "gained more than a million customers." Analysts at Citi estimate that BT would need 2.5 million TV subscribers just "to break even," assuming a monthly price of £10 ($15). Livingston said that BT Vision customers will be able to interact more fully with games, while appealing to the occasional football fan unwilling to buy into a BSkyB package. Livingston: "People want to see football but not spend £40-£50 ($62-$78) a month." BT will not be "bidding for other sports as aggressively." Livingston said, "It's a football focused channel. That will be the core of it" (FINANCIAL TIMES, 6/14) In London, Clark & Burrell wrote that BT's move shows how "crucial the sport has become to attracting new customers." The company has been "disappointed that the availability of Sky Sports channels through BT packages hasn't brought in more customers, prompting it to secure its own matches" (INDEPENDENT, 6/14). REUTERS noted BT is spending £2.5B ($3.9B) on "rolling out its fast, fibre broadband across Britain and sees the deal as a way of driving take-up of its BT Vision television offering," which currently has 700,000 customers. Other companies have struggled to make a success of Premier League deals (REUTERS, 6/14). In London, Blitz & Thomas noted BT will offer the matches to its pay-TV customers over a new interactive sports channel. Livingston said BT would hold discussions with all “serious players” about re-selling the matches on a wholesale basis. BT will also offer the matches to pubs and clubs on a commercial basis (FINANCIAL TIMES, 6/14). ADVANCED TELEVISION's Nick Snow noted BT has joined in the "mad house of Premier League rights." Whatever the "stunning innovations involved" to win the rights, it is "only 38 games." For anyone who wants to watch the league "that’s not enough." The only way to gain subs is to "virtually give it away as a loss leader," and the Premier League is "too smart to contractually let them do that and undermine the perceived value of the product" (ADTV, 6/14).
PLAYERS TO BENEFIT: In London, Paul Kelso wrote the implications of the deal are numerous, but "one unavoidable certainty is that the biggest winners will be the players." Market-leading wages have been the "key driver in attracting the best global talent to England, and it would be delusional to expect that to change now." A deal "so far in excess of straitened economic norms is testament to the negotiating brilliance and commercial vision" of Premier League CEO Richard Scudamore. But it will be a challenge to Scudamore's ability to persuade his clubs to spend the windfall wisely. With huge income comes "questions of responsibility, and it is not obvious that football will provide the right answers" (TELEGRAPH, 6/14). In N.Y., Mike Ozanian wrote the deal comes "at the perfect time" for teams. The Premier League doles out 50% of its domestic TV revenue equally among all clubs, 25% is distributed based on final standings and the remainder based on how often a team's matches were actually broadcast (FORBES, 6/14). In London, Damien Gayle wrote Premier League footballers have "come under fire in recent years for their extravagant lifestyles and huge pay deals, and the latest injection of cash into the competition will likely inflate salaries even further" (DAILY MAIL, 6/13). Also in London, Matt Scott notes leading clubs' "annual incomes will grow by more than" $46.6M each, with player "wages and transfer fees likely to soar." Scudamore was "keen to stress his hope that ESPN ... will retain a relationship with the League with deals in overseas territories." Scott notes if similar growth is "achieved in the overall value of overseas rights, the League stands to earn" a total of $2.8B a year from broadcasting, almost 2 1/2 times more than it earned in the '09-10 season (TELEGRAPH, 6/13). The BBC's James Pearce notes EPL clubs are "set for a windfall," and players will "no doubt reap the rewards as well." The concern from fans "will be over who's going to fund this dramatic rise in rights fees." Supporters will "fear that it will be them through increased subscriptions" (BBC, 6/13). REUTERS adds the deal is a "welcome windfall" for the clubs, many of whom are "losing large sums of money as higher revenues fuel a wage spiral" (REUTERS, 6/14).