[wptabtitle]<i>BTwatch Report #234</i> <b>Extract</b>[/wptabtitle]
BT secures premium Premier League football rights
BT Group announced it has secured an agreement with English football’s Premier League to show 38 live games per season, including the opening game, for the 2013/14 to 2015/16 seasons, starting around August 2013, for £246m-per-season.
BT won the domestic rights to two out of seven packages on offer — package “A” showing 28 Saturday lunchtime games, and package “G”, showing ten matches on bank holidays and mid-week evenings. Crucially, BT’s deal includes 18 so-called “first-pick” games — high-demand fixtures such as the Manchester derbies.
By comparison, rival broadcaster BSkyB agreed to pay £760m-a-year for 116 games-per-season, including 20 “first-pick” games.
“ We are pleased to have won these rights, and to have secured around half of the best games on offer each season. We look forward to offering football fans real value and great quality using the latest technology. BT is already investing £2.5bn in fibre broadband. Securing Premier League rights fits naturally with this, as consumers increasingly want to buy their broadband and entertainment services from a single provider. ”
— Ian Livingston, Chief Executive, BT Group.
As a result of the deal, BT said it will look to launch a new football-focused channel to show the matches (as well as other yet-to-be-acquired live sports content), which will boast interactive features when delivered over BT’s fibre network, and also distribute the new channel across other platforms.
Marc Watson, Chief Executive of BT Vision, said the company hoped to “get going pretty quickly”, to invite pitches from potential production partners. Press sources speculatively named sports management company IMG as a possible content producer, and established pundits Adrian Chiles and Gary Lineker as potential presenters. However, perhaps more likely is that the bulk of BT’s production team will come from unsuccessful bidder ESPN, which will lose its rights to top-flight football coverage at the end of the coming season (19 May 2013).
Financial impact — cash and EBITDA to take a hit
The price of the rights to BT, which totals £738m, will be paid in six bi-annual instalments of £120m, starting from August 2013, plus an initial deposit of £22m, which was payable immediately.
BT said its financial outlook for the FY12-13 year would remain unchanged, but that, for the FY13-14 fiscal period, earnings before interest, taxation, depreciation and amortisation (EBITDA) and normalised free cash flow would fall by £100m and £200m, respectively, although it added that this should improve in subsequent years. The company also said its dividend policy and share-buyback programme would remain unchanged by the investment.
Football rights seen as key for TV services; opening for ESPN/Disney tie-up?
BT and market observers have long seen football rights as a key element of building up the customer base for mass market pay-TV services, with BT Vision supporting the launch of the Setanta Sports channel in mid-2007 (BTwatch, 2007.06), and subsequently switching to the ESPN sports channel in 2009, when ESPN acquired the exclusive rights to the 46 live Premier League matches in the 2009-10 season, and 23 matches-a-season from 2010-2013, following the demise of Setanta Sports. BT Vision also offers Premier League matches on a “near-live” basis via its Vision Sport channel.
BT has fought long to force digital satellite broadcaster BSkyB to offer its market-leading Sky Sports 1 and Sky Sports 2 channels on a wholesale basis (BTwatch, passim), but, even when regulator Ofcom granted this request (BTwatch, 2010.03), the company failed to fully capitalise on its football offering, signing up just 50, 000 customers to the premium £6.99-per-month service by September 2010 (BTwatch, #217). BTwatch considers that take-up of the premium sports package was hampered by continued BT strategy of tying up its most favourable deals for the content to onerously long contracts, with required subscriptions to the entire BT broadband and voice portfolio.
Referring to the latest deal, Marc Watson, Chief Executive of BT Vision, BT Retail’s pay-TV service, underlined the importance of securing the “first-pick” games, which he described as the “crown jewels” of the rights available, and implied that the previous underperformance of BT’s sports offering was due to a lack of these “must-see” fixtures.
He sought to distance BT Vision from the failures of Setanta and ESPN content in the past, stating that BT would be able to offer higher quality games, and now has a 700, 000-strong existing customer base to whom to market the service. Watson also emphasised the importance of triple-play bundles of broadband, television, and voice services within BT’s wider commercial proposition.
Ironically, BT may have paid a huge favour to incumbent pay-television operators BSkyB and Virgin Media, by whipping football rights away from ESPN. Almost by stealth, ESPN has built a portfolio of UK-appealing premium sports rights competitive with Sky Sports. Allied to the entertainment and other content of its controlling shareholder, The Walt Disney Company, ESPN was beginning to resemble a king-maker with capability to crack BSkyB’s lock on sport and entertainment. Until BT wrecked this portfolio by taking away trophy football content, the question was how would ESPN and Disney exploit their growing power, e.g. to entrench incumbents, nurture new entrants (BT, Netflix, Amazon.com‘s LOVEFiLM, etc.), or go it alone.
Through ESPN, Disney was also looked close to being able seize the initiative back for the Hollywood Majors from a dominant national pay-TV operator, although this scenario is muddied by BSkyB-controlling shareholder News Corp. also owning a Major, in 20th Century Fox.
Perhaps beyond BT’s imagination and comfort zone, a joint venture combination with ESPN (a leading sports player in the US), potentially also involving Disney in its own right, could strengthen prospects and build momentum for Vision. ESPN already has UK sports production resources, along with carriage agreements and customer traction across the UK pay-TV market, and potential to launch a promising over-the-top (OTT) service.
Potential for revenue growth suggests a worthwhile gamble…
A number of commentators questioned the prices paid for the rights by both BT and BSkyB: the domestic rights sale totalled £3.018bn — over £1.2bn higher than the price paid by Sky and ESPN for the 2010-13 seasons.
Spending £738m on 114 games (and ignoring an estimated £95m in production costs over the duration of the three-year contract) means that BT is paying an average of £6.5m-per-game. Should BT be reliant solely on its the 707, 000 BT Vision customers it reported at the end of Q4 FY11-12, it would have to generate average additional revenue of £9.16-per-subscriber, per-game just to break-even at current customer levels. However, BT will be projecting an expanding customer base, and is looking to wholesale its rights.
In order to realise a return on its investment, BT must maximise revenue from a wide variety of sources. BSkyB currently receives around £300m-per-year by selling football subscriptions to clubs and pubs (excluding other “public spaces” sales to venues such as gyms or hotels).
BT will be looking to tap this hinterland, with some estimates suggesting it could be looking for to secure £100m-£150m per-year through these sources, with its half of “first-pick” games. However, these venues and their audiences encompass all sports, with BSkyB’s premium sports portfolio going far beyond domestic football. BSkyB has also established commercial relationships, and has equipment installed (often bundled with broadband and other communications services). This means BT will be targeting an incumbent (entrenched through years of ‘Sky Sports shown here’ marketing), possibly as an additional or bundled premium channel. Further BSkyB has proved commercially far more wily than BT at acquiring and retaining customers, and parrying competitive threats.
There is also significant potential to raise revenue through advertising and sponsorship deals, as BSkyB has proved with its football-related sponsorship deal with Ford.
BT has already said it plans to offer its new, yet-to-be branded sports channel on a wholesale basis, and key rivals such as Virgin Media, and even BSkyB, are likely to seek to resell the BT football offering, especially considering the high number of premium games.
Press sources have speculated that a subscription to BT’s new sports channel will be priced at around £10-per-month for BT customers. Around 70% of BSkyB’s customers also subscribe to premium sports channels that include Premier League football. Based on a similar proportion of existing BT customers signing up, that could equate to up to £60m per-year in subscription revenue, probably reduced unless other sports are bundled (perhaps through tie-ups with Eurosport, ESPN and others), without factoring in how the BT Vision customer base may grow as a result of the deal and wider commercial efforts.
Factoring in revenue from advertising (including the benefits of its own “free” advertising on the channel), public space sales, subscriptions to existing customers, and wholesale sales, the £246m-per-year paid by BT for the rights looks bold rather than irrational (as it appears to some), and it seems feasible that the company can justify its investment. However, the real return BT hopes to see is the knock-on benefit to its wider business — not just in driving adoption of its soon-to-be-re-launched BT Vision service, but in terms of halting the decline of its traditional calls and lines customers, and, most importantly, driving adoption and building a large installed base for its new fibre-based broadband offering.
…real value could be in triple-play, but still no quad-play
To BTwatch, one of the most striking elements of BT’s success in securing content rights is the level of ambition being demonstrating as the telco moves to better compete with BSkyB. Previous efforts have been tempered by BT’s troubled history of mismanaging content and entertainment delivery, which proved to be far beyond its core network competency.
At the turn of the century, BT committed to steering clear of the temptation to become a broadcaster, and analysts for a long time appeared twitchy whenever rumours of a reversal in policy surfaced. This wariness prompted caution in BT for providing premium sport services, and saw BT Vision suffer from a lack of compelling content. Now that the telco has gone toe-to-toe with the satellite broadcaster, and will be able to offer bundles of in-demand programming, it may be able to poach BSkyB’s high-spending customers.
The telco is hoping that television will be the key to providing sufficient incentive for customers to sign up to superfast broadband, which has currently only been adopted by around 5% of properties ‘passed’. The investment in football rights is part of a wider effort, including the forthcoming launch of Vision 2.0, which will include more interactive services and streamed channels, the launch of YouView (BTwatch, passim, and see separate report), and addition of further entertainment channels (see separate report). This could build a critical mass of content, and ultimately enable BT to use content as the “battering ram” (to quote News Corp.’s Rupert Murdoch) to get fibre into customers’ homes, selling them a package of other premium services along the way.
BT will now need to focus strongly on growing its pay-TV customer base in order to generate sufficient returns to justify its big bet on football rights. That the Group has shown willingness to heavily back the Retail drive in this area indicates that commitment is there, but investors’ (and BT’s) expectations need to be tempered. Rapid payback looks unlikely, with the long-range strategy and investment behaviour proven by BSkyB being a more realistic model, meaning that it might be reasonable only to fully judge the wisdom of BT’s investment in content in five or ten years’ time. At that point, impact on average revenue per user, market share and margins should be clear.
BTwatch recently called on BT Retail to take a more aggressive approach to bundled services, with an emphasis on fibre and pay-TV adoption, to accelerate the transformation of its business, and help stem declines in revenue at the division, while building sustainable profit (BTwatch, #233). It appears that BT may finally be showing recognition that defending the status quo is no longer a viable option.
An interesting test of the telco’s commitment to customer base growth, and belief in its triple-play offer, will be deals that do not tie users into long-term contracts and associated product subscriptions. A confidence to let BT Vision stand alone, and customer service that wins customers through performance rather than coercion or sleight-of-contractual-hand, would be a clear sign of intent. It would need a leap of faith by BT Retail to change its way to such an extent, however, and recent performance of the Vision service in Ofcom customer satisfaction performance (see separate report) may have already dented belief.
Unfortunately for BT, BSkyB is as usual already showing greater foresight and execution, being far more advanced with its own defensive and offensive plays, including triple-play bundling of broadband and voice with video services, and offering OTT, IPTV, and on-demand video services — BT has yet to even feature in the burgeoning OTT space. BSkyB’s immediate riposte to BT securing football rights could be to make a play for TalkTalk, which would make it a large and predominantly unbundled number-two to BT Retail to in voice and broadband.
Oddly, and in contrast to cable-TV player Virgin Media, neither BT nor BSkyB has significant presence in the mobile or quad-play (three-plus screens) spaces, whether facilities-based or as mobile virtual network operator. This omission becomes only odder with time, but telecoms market consolidation, often-related changes in the wholesale market dynamic, and upcoming LTE spectrum auctions could provide impetus to both players to tackle this deficiency.
Based on history, though, BT is likely to ramp up consumer mobile ambitions only as a belated follower of BSkyB moves. That said, BT may currently be wondering if it badly misplayed its hand in recent years by unthreateningly focusing on milking cellcos for wholesale and managed services, instead of competing to re-build a meaningful retail mobile arm and thwarting the cellcos broadening enterprise and wholesale ambitions. Presumably in part due to feeling ripped off by BT’s notorious wholesale stranglehold, and the related lack of supplier innovation, cellcos are now sharing ever more infrastructure and increasing self-provision of backhaul and other services, all to BT Wholesale‘s cost — and, in doing so, making them more-rounded rivals to BT’s retail, wholesale and enterprise businesses.
BT Wholesale could support market transformation
It is worth noting that BT Wholesale has in recent years begun to highlight the development of its content delivery capabilities over fixed-line networks, particularly with a view to streaming live content, such as sport. In addition to Content Connect, its content distribution network, it has been developing TV Connect, which is aimed specifically at multi-casting (BTwatch, passim).
In 2011, Simon Orme, Strategy Director of Content Services at BT Wholesale, suggested that delivery of content over fixed networks using these new platforms could prove dramatically cheaper than digital satellite services, which would enable BT to provide a disruptive platform that could offer premium content at lower prices (BTwatch, #222). BT Retail is certainly in a position where it does not need to be overly concerned with the risk of cannibalising existing revenue streams, and so could lead this revolution. Multi-casting also reportedly leads to substantial cost savings compared to renting multiplex space for providing live channels over traditional set-top boxes.
[Further reference: BT wins live Premier League rights — BT, 13 June 2012; BT nets winner in Premier League TV rights war — This is Money, 14 June 2012; This bubble ain’t bursting yet: all the details you’d ever want to know about the Premier League’s new TV deals — Sporting Intelligence, 20 June 2012; BT gambles that Premier League deal will pay off faster than broadband — Guardian, 17 June 2012; BT seeks partner for FA Premier League coverage — Broadcast, 21 June 2012.]
[wptabtitle]More info: <b>Try/Buy</b>[/wptabtitle]
Covering: June 2012
Published: July 2012
Next report: July 2012
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BTwatch Report #234 contents
1 Executive brief
4 BT Group
4 Digital Britain
4 Virgin COO joins government’s broadband critics
5 Digital Britain
5 BT again highlights Virgin’s closed network; cableco quiet on Fujitsu support
5 Acquisitions and disposals
5 BT sells French application development business
6 Corporate social responsibility
6 People movement highlights
7 BT Pension Scheme acquires 13% stake in Thames Water
7 F5 helps BT transition to IPv6
7 BT leads UK ISPs in migration to IPv6
9 BT Retail
9 Awards and accreditations
9 BT launches Xbox Live‑branded environment
9 Promotional ties a prelude to closer links?
10 Television services
10 BT Vision adds National Geographic
10 BT secures premium Premier League football rights
10 Financial impact — cash and EBITDA to take a hit
11 YouView set for early‑July launch
11 Football rights seen as key for TV services; opening for ESPN/Disney tie‑up?
12 BT Business
12 BT Business appoints Work Club
12 Potential for revenue growth suggests a worthwhile gamble…
13 BT Engage IT
13 BT Ireland
13 …real value could be in triple‑play, but still no quad‑play
14 BT Wholesale could support market transformation
15 CC U‑turns in favour of BSkyB over film monopoly
16 Setback for BT’s TV aspirations…
16 …but could decision force BT’s hand towards innovation?
17 BT Vision performs poorly in Ofcom complaints poll
18 Digital content
18 BT blocks The Pirate Bay
20 Wireless networks
20 BT “on track” for 500, 000 London hotspots for Olympics
20 BT Wi‑Fi brand introduced ahead of Games
20 Virgin Media to wholesale London Underground Wi‑Fi coverage
21 Plusnet multi‑play offer sparks price war
22 BT Conferencing
22 BT bullish on US conferencing partner programme
22 BT launches video-as-a-service from Polycom
23 BT Conferencing to resell ON24’s solutions
23 BT Retail selects Informatica Cloud, boosts Salesforce
25 BT Global Services
25 BT International: Europe
25 BT to target Asia‑Pacific health IT market
25 Healthcare projects provide demonstrable growth for BT in Asia‑Pacific
26 BT International: Africa
26 BT advises Vodafone on Ghana revamp
26 Public sector contracts
26 BT named for PSN Services framework
26 BT helps Norfolk gain PSN certification
27 BT International: Africa
27 BT advises Vodafone on Ghana revamp cont’d
27 BT working hard to maintain public sector leadership
27 Financial services
27 BT wins Totan IT voice trading contract
28 Radianz to be offered at new Hong Kong data centre
28 SGX selects BT to link Chicago and London hubs
29 BT International: Americas
29 BT offers Radianz Venue at São Paulo
29 BT International: Americas
29 BT launches BT Cloud Contact
30 BT International: Asia
30 BT launches One Voice anywhere
30 Asia launch follows from USA, shows ongoing value of Ribbit
31 BT launches “Retail in a Box” for Chinese expansion
31 Global Services building on UK Retail experience
32 BT Diamond IP
32 BT promotes Diamond IP for IPv6 migration
32 Security services
32 BT launches Assure Analytics
33 Awards & accreditations
33 BT selects Cyber‑Ark for identity management
35 BT Wholesale
35 Ofcom to maintain and extend Ethernet regulation
36 Council spat halts Kensington fibre rollout
37 Rival criticises BT posturing, looks to fill gap
38 Openreach details FTTP On Demand pilot
39 Regulatory pricing
39 BT asks Lords for fibre regulation freedom…
39 …while seeking tighter regulatory controls on BSkyB’s film monopoly
BTwatch Report #234 index
Advertising Standards Authority, 9
– LOVEFiLM, 9, 15, 16, 17
Apple, 11, 16
Aurora Fashions, 9, 31
British Broadcasting Corporation (BBC), 11, 17
– iPlayer, 11
British Phonographic Industry, 18
BSkyB, 9, 10, 11, 12, 13, 15, 16, 17, 18, 39
– Sky Movies, 15
– Sky Sports, 11
BT Group, 4, 5, 6, 7, 10, 11, 16, 39
– BT Diamond IP, 7, 32
– BT Global Services, 5, 6, 7, 25, 26, 27, 28, 29, 30, 31, 32, 33
– – Assure Analytics, 32
– – BT Advise, 25, 26
– – BT Americas, 29
– – BT Asia Pacific, 30
– – BT Assure, 32
– – BT Cloud Contact, 29
– – BT Connect, 26
– – BT Germany, 25
– – BT India, 25, 30
– – BT International, 25, 26, 27, 29, 30, 31
– – BT One Voice anywhere, 30
– – BT Radianz, 28, 29
– – BT Telconsult, 26
– – On Demand Compute, 26
– – One Source for Cisco TelePresence, 13
– – Unified communications and collaboration (UCC), 29, 30
– BT Innovate & Design, 7
– – Ribbit, 30
– BT Pension Scheme, 7
– BT Retail, 6, 9, 10, 11, 13, 14, 15, 17, 18, 20, 21, 23, 31, 35
– – BT Broadband, 20
– – BT Business, 12, 23
– – bt.com, 7
– – BT Conferencing, 6, 22, 23
– – BT Directories, 23
– – BT Engage IT, 13
– – BT Expedite, 9, 31
– – BT FON, 20
– – BT Fresca, 31
– – BT Infinity, 9
– – BT Ireland, 13, 14
– – BT Openzone, 20
– – BT Vision, 9, 10, 11, 12, 13, 15, 16, 17
– – – BT Vision 2.0, 13
– – BT Wi-Fi, 20
– – OnLive, 9, 16
– – Plusnet, 21
– – Together, 6
– BT Wholesale, 6, 14, 35
– – Content Connect, 14
– – TV Connect, 14
– – Baker, Andy, 20
– – Galvin, Mike, 38
– – Hammond, Chris, 23
– – Kwok, Eliza, 31
– – Livingston, Ian, 10, 39
– – Narang, Sudhir, 25
– – O’Neill, Colm, 13
– – Orme, Simon, 14
– – Osborne, David, 7
– – Owen, Huw, 25
– – Passingham, Tim, 22
– – Regent, Tom, 27, 28, 29
– – Rogers, Neil, 26
– – Rooney, Tim, 32
– – Schmidt, Jeff, 32
– – Stark, David, 22
– – Taylor, Kevin, 30
– – Watson, Marc, 10, 11
– – Williams, Sean, 39
– – Apsey, Craig, 6
– – Barnett, Mark, 6
– – Cochrane, Peter, 4
– – Flood, Mark, 6
– – Weeks, Mark, 6
– Openreach, 36, 38
– – GEA-FTTC, 36
– – Rapid Assessment BT Incident Tracker, 32
Cabinet Office (UK)
– Public Sector Network, 26
Cable&Wireless Worldwide plc, 4, 26, 27
Charles Clinkard, 31
Cisco Systems, Inc., 13, 29, 32
Citizens Online, 6
Competition Commission, 9, 15, 16, 17, 39
Cumbria County Council, 5
Cyber-Ark Software, 33
Department for Culture, Media and Sport
– Broadband Delivery UK (BDUK), 4, 5
Digital Britain, 4, 5
– Race Onlines 2012, 6
– Freeview, 10
Everything Everywhere (Orange UK, T-Mobile UK), 18
F5 Networks, 7
Facebook, 7, 16
Farrer Park Company, 25
Football Association, 14
– Premier League, 10, 11, 12, 14, 16
Frost and Sullivan, 31
FTTH Council, 4
Fujitsu, 4, 5, 26
Google, 7, 11, 16
– Android, 23
– Google TV, 16
High Court, 18
Hong Kong Exchanges and Clearing, 28
HOPE Foundation, 30
– Geo, 4, 10
Informatica Corporation, 23
International Paralympic Committee (IPC)
– Paralympic Games, 20
Leeds City Council, 6
Level 3 Communications, 26
– LG Electronics, 16
MDNX Enterprise Services, 26
Microsoft, 5, 7, 13
– Xbox, 9
National E-Health Transition Authority, 25
National Geographic, 10
National Health Service (NHS, UK), 26
National Portrait Gallery, 6
Netflix, 15, 17
Norfolk County Council, 26, 27
Ofcom, 11, 13, 15, 17, 35, 39
– Price controls, 39
Olympic Games, 20
– London 2012, 20
– Abbott Mead Vickers BBDO, 9
OnLive, Inc., 9, 16
Public Services Network (PSN), 26
Rainey Kelly Campbell Roalfe/Y&R, 12
Saudi Telecom, 26
– Setanta Sport, 11
Singapore Exchange, 28
TalkTalk Telecom Group plc, 9, 11, 18, 21, 39
– Harding, Dido, 39
– Broadband, 4, 5, 9, 10, 11, 12, 13, 14, 16, 17, 21, 26, 27, 36, 37, 39
– Ethernet, 13, 35
– Fibre, 5, 9, 10, 12, 13, 16, 36, 37, 38, 39
– – FTTC, 36, 37, 38
– – FTTP, 36, 37, 38
– – FTTH, 4
– ICT, 25, 26, 31
– IP, 7, 10, 11, 26, 27, 29, 30, 32, 33
– IPTV, 10, 11
– IPv6, 7, 32
– Java, 5
– Private circuits, 35
– SIP, 32
– TDM, 32
– Unified communications, 22, 25, 29, 30
– Video-on-demand, 10, 16
– VoD, 10, 15
– VPN, 30
– Wi-Fi, 4, 20, 30
Telefónica, 18, 26, 27, 37
– Telefónica Europe, 18
– – BE, 37
Thames Water, 7
The Pirate Bay, 18
Totan Information Technology, 27
Transport for London
– London Underground, 20
UK Government, 26
University College Cork, 13
University of Brisbane, 13
– Verizon Business, 6
Virgin Media, 4, 5, 12, 15, 17, 18, 20, 26, 27, 37
Vodafone, 26, 27
– UK, 26, 27
– – Vodafone At Home, 27
Walt Disney Company, The
– ESPN, 10, 11, 12
Western Kentucky University, 22
Work Club, 12
– Maxus, 9
YouView, 11, 13