Market Insight

BT and BSkyB spark 70 per cent hike in Premier League rights

June 13, 2012

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

Want to learn more?
Have an expert contact you.

Incumbent UK telco BT has acquired exclusive live rights to the Premier League for the first time under the new contract starting in the 2013/14 season. BSkyB has retained most of the key rights, buying five of the seven packages on offer with BT taking the other two, though at high cost: the combined value of contracts for live rights will go up from £591m a season to £1.006bn, a 70 per cent hike. ESPN, which currently shares domestic rights with BSkyB, was left empty-handed.

BT has previously owned near-live rights to the league, and since 2008 it has retailed Sky Sports 1 and 2 to subscribers of its BT Vision hybrid DTT/IPTV service. However, with exclusive rights to 39 Premier league matches a season from August 2013, BT now plans to launch its own 'football-focused channel' which will be distributed over BT's network and other platforms. BT is paying £246m a season for its two packages.

BSkyB will pay £760m a season for the rights to 116 live matches a year, compared to the £541m it is paying for 115 matches a year under the present contract, ending in 2012/13.

The new contract represents a massive windfall for the Premier League and its 20 member clubs, with the value of domestic live rights increasing from £4.3m to £6.5m a match. The BBC has already renewed its contract for free-to-air highlights rights, but most international rights are still to be awarded.

BT's investment in live rights and the massive incremental increase in the contract have taken many observers by surprise. These include this writer, who opined earlier this year that there was unlikely to be a significant uplift in the value of the new domestic contracts for the Premier League or the Bundesliga. This opinion was informed by various factors, including the low possibility of new bidders like Al Jazeera, Apple and Google emerging, the muted league rights auctions in France and Italy, and the overall macroeconomic climate.

In the event, Sky Deutschland committed to a 95 per cent increase in its rights contract from 2013/14, and now both BT and BSkyB have contributed to an increase in the cost of PL rights, which once again makes the league one of the most lucrative sports media properties in Europe.

In Germany, Sky's bid was designed to snuff out the challenge to its core business by Deutsche Telekom, which threatened to extend its domain from IPTV into satellite. It was also boosted by the relatively low valuation of the domestic rights to the Bundesliga. In the UK, PL rights certainly have not been undervalued and while the higher stakes have seen ESPN priced out, this is more of a side effect of the auction rather than BT and BSkyB's design.

BT's strategic decision to gain value from its investment in its high speed fibre optic network is clearly the major factor. For a company with its deep pockets and cash flow, the investment in PL rights is manageable. BT said the investment would reduce EBITDA by around £100m and cash flow by £200m in 2013/14, though this would reduce in subsequent years.

The telco has been heavily involved in regulatory challenges to BSkyB's alleged dominance of the UK pay TV market over the years, and will compete head-on with BSkyB, retailing linear pay channels direct to consumers as well as broadband and fixed line telephony services. BT has already started striking deals to sell third party channels to its IPTV subscribers, including UKTV and the FX and Nat Geo channels (owned by BSkyB's main shareholder News Corp). BT is also part of the long-delayed YouView venture which will launch internet connected set-top boxes probably in Q4. BT and Sky together dominate the growth in the consumer ISP business at present, being responsible for a combined 99 per cent of broadband net additions in Q1 2012. With the popularity of triple-play services taken into account, BT's ability to compete more effectively in pay TV will only help the telco further consolidate its share of growth in the broadband sector.

It is still unclear how far BT will be able - or willing - to disturb BSkyB's leading position in pay TV. Even filling up the schedule of its new football channel will require further investment in rights, with BSkyB already having key events like the Champions League locked up for many more years. BSkyB's Premier League offering will be just as strong from 2013/14, though the increased cost of the contract may mean less money for other sports rights. A similar move to that attempted by BT was made in France in 2008 by local incumbent France Telecom, which acquired a selection of premium movie and sports rights intended to drive additions to its broadband and IPTV offers. However, customers proved more reluctant to switch over to Orange TV than expected, leading the telco to abandon its venture into proprietary sport channels.

ESPN, meanwhile, faces a decision about the future of its move into UK pay TV from 2013, when it loses the rights to the Premier League. Even though it only has rights to 23 PL matches a season, the promotional value of the event is great and the other rights it owns, such as FA Cup football and Premiership rugby, may not be enough to sustain the service in its current form in the UK. ESPN's main shareholder Disney has already spoken about reducing its international exposure and earlier this month pulled out of the ESPN Star Sports joint venture in Asia.     

 

Geography
Ireland UK
Organization
BT ESPN Sky
Share facebook Twitter Google Plus Linked In Add This Contact Us