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Volume 21 No. 1
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BT bets big on sports

But will consumers play along?

British Telecom executives are making a $1.5 billion bet that they can expand their telephone and broadband businesses by giving away sports TV channels.

The company surprised the British media establishment in June 2012 by putting forth a massive $383 million per year bid to pick up one of the English Premier League’s television packages. It will produce those games for three new sports channels that launched Aug. 1.

Marc Watson, CEO of BT's TV Group, is dangling a big carrot in front of consumers: free sports channels and EPL coverage if they buy BT's broadband service.
Photo by: Getty Images
And the company plans to give those channels to anyone who buys broadband service from BT — even if they take video from a rival platform.

“If you’re a customer that takes Sky today and Sky Sports today, but you come to us for broadband, we’ll add our sports channels to your package automatically for free,” said Marc Watson, CEO of BT’s TV Group. “In return for that, we think we’ll get more business in broadband and more business in our telephone business.”

Before BT made its move to acquire EPL rights, ESPN tried to become a big player in the British market. It took over the EPL rights deal from Setanta and was starting to build a nice business when BT swooped in and picked up the EPL rights package.

ESPN could not compete with BT’s bid, knowing that BT was depending on revenue from its other businesses to fund it — an ironic role reversal to the U.S. market where ESPN has spent the past decade using dual revenue from carriage fees and advertising to outbid broadcasters.

Outbid on the EPL, ESPN sold its TV business to BT, licensed its name to one of the channels, and started operating as a digital news and information business.

“It’s a one-sport country,” ESPN President John Skipper said. “If you don’t have the English Premier League,

you’re out of business.”

BT has three sports channels: BT Sport 1, BT Sport 2 and ESPN. BT licensed ESPN’s brand for an undetermined length of time. ESPN likely will take its brand back in a couple of years, a source said.

BT will share EPL rights with British satellite operator BSkyB, which is spending an average of $1.18 billion per year over the next three years for the rights to 116 matches per year.

Before investing in sports, BT conducted market research that found British consumers would pick a distributor based on the sports programming they provide. “When we speak to customers and ask them what is important when they are choosing their telecoms provider, the first thing they say is that they like bundles — they like to buy products in bundles, with one bill and a single provider,” Watson said. “The second thing they say is that within that bundle, TV is a very important part in choosing where to go. The third thing they say is that within TV, the thing that is more important than anything else is sport.”

Early numbers look promising. During the company’s first-quarter conference call, BT announced that it had signed 500,000 subscribers to the new sports channels. And just days before the start of the EPL Season, BT reached a deal to make its new sports offering available to customers of Virgin Media, which brought BT about two million households who have Virgin’s XL package.

Still, some question whether BT’s strategy will work. Only 1 percent of people who use Britain’s free-to-air digital TV service, Freeview, say they are likely to subscribe to BT, according to London-based media analyst Chris Forrester. Sky has responded to BT’s plans with a massive advertising campaign across all media. And on the ad front, limited demand from advertisers has forced BT to offer shorter-term packages.

BT has used billboards to tout its new sports television service.
Photo by: Getty Images
BSkyB has been the dominant pay-TV provider in the United Kingdom since its launch in the early 1990s. It owns both the distribution channel and programming, making it difficult for programmers like ESPN to make inroads in the market. That’s what makes BT’s launch so interesting, as it also owns distribution.

“This is a game of deep pockets, and indeed the only real gainers are the soccer rights owners,” Forrester said. “Sky’s subscriber backbone is solid enough, and it is successfully broadening its appeal with non-sport activity such as its Sky Arts offering. However, its profitable bottom line is certainly under more pressure than ever and some analysts have put ‘sell’ notes on Sky’s stock.”

While BT is focused on acquiring as many sports rights as it can, its executives remain mindful that the sports channels exist to drive the company’s other businesses.

“Three companies have come in and tried to launch sports channels on their own, just channels, and three have effectively failed in succession,” Watson said, referring to ITV Sport, Setanta and ESPN. “One of the reasons is that they can only sell the channel. In this market, that’s tricky. In this market, you need to be able to sell more products to customers than just content. We can do that. We can sell the channel and broadband and telephony.”

BT is spending a lot to pick up sports rights and show that it’s serious about being a player in the British sports media market. BT took over the broadcast center at Olympic Park, where the company will produce its sports programming and shoot shoulder programming.

It’s BT’s collection of sports rights — enough to fill three channels — that has been most impressive, particularly in soccer. In addition to the EPL, BT bought rights to the top leagues in France, Germany and Italy, plus pro soccer leagues in the U.S. (MLS) and Australia (A-League). It also bought rights to club rugby in the U.K., MotoGP, the UFC and the WTA. Through its ESPN deal, BT has rights to U.S. sports like Major League Baseball and college basketball.

But it’s the EPL deal that most excites Watson. BT’s package calls for a game every Saturday around lunchtime during the EPL season. During the 38-week season, BT will have the first pick of games 18 times.

“These are games that are the real market movers,” Watson said. “They are the games that everyone wants to watch and they’re the games that can drive serious business for you. No one has had that before except for Sky, who built a very good business on the back of having those games in the past.”