Tuesday, 13 August 2013

Battle of the Brits

“They think it’s all over…it is now!” – probably the most famous quote in the history of football commentary and, for two reasons, a rather apt summary of the situation BSkyB now finds itself in with respect to the Premier League. Firstly, BT’s challenge looks set to end the monopoly that Sky has held over the Premier League since it controversially took the rights from ITV in 1992. Secondly, the context of the quote is important – it relates to the hat-trick that Geoff Hurst scored against West Germany in 1966. We are, of course, not referring to a trio of goals here – instead to the triple-play market where the competition between two British corporate giants is heating up. 

The attack

The “they think it’s all over” moment arrived on 13th June 2012 when the Premier League announced that BT had won two of the seven live packages for the Premier League football matches, giving BT the rights to a total of 38 games. BT will be paying £246m per season as well as additional costs for production. That works out at a cost per game of £6.5m which is broadly similar to what Sky pays (£6.6m per game).

The “it is now” moment followed just less than a year later when, at the start of May, BT announced the launch of three sports channels – BT Sport 1, BT Sport 2 and ESPN – available free to its broadband subscribers. BT has the right to be the first to choose the games it wishes to broadcast for 18 matches. While this is a significant step-up from what ESPN had, the way that the pick system works means that BT’s situation is not quite as attractive as it may initially appear. For a start, Sky was allowed to make use of its 20 first picks before BT had any because it has the most games. The only constraints on Sky were that it could choose games scheduled for midweek or Bank Holidays (as BT bought the first pick rights for those) and it could not show one team more than five times in a season. BT then took first picks on the remaining weeks. Another important factor is that Sky has games that are watched by a larger audience (twice as many people watch the Sunday 16:00 games than watch the Saturday 12:45 games).

The fixtures are now in and the marketing battle is in full swing ahead of the Liverpool vs. Stoke match that kicks off the 2013 Premier League season on 17th August (which is being covered by BT Sport). As expected, Sky has the upper hand – showing every clash between last season’s top four clubs and every team in the league by October. BT, while having less high profile content, will still be showing Manchester United twice, Manchester City twice, Arsenal twice, Chelsea twice, Everton twice and Liverpool three times – not a bad hoard with David Moyes' first season with Manchester United and Jose Mourinho's return to Chelsea.

The defence

On 14th June, Sky introduced new offers to its triple-play bundles (TV, Broadband and Phone) in response to BT’s announcement in May. While these are temporary offers rather than permanent price cuts, the scale of the offers indicates just how intense competition in the UK market has become. Sky is now offering free broadband for 12 months and fibre free for six months if a customer takes Sky Sports. This applies to both new and existing customers. Sky is also offering its premium two terabyte personal video recorder (which can record up to 1,180 hours of normal (not HD) television) free to new customers signing up to one of its new offers (it normally costs £149) as well as the usual £100 M&S voucher.

The strategy behind these offers is clear: prevent broadband switching in Sky Sports homes and make Sky broadband more attractive for Sky Sports customers that use competitor’s broadband. This is an aggressive strategy from Sky and could have some important longer-term implications. For a start, it may increase the adoption of fibre broadband with existing Sky Sports customers and entice the customers with only a Sky Basic subscription to take advantage of the Sky Sports bundle and upgrade their TV package.

So, the battle for football is clearly heating up as we move into the season. However, this is just the start of the war – the war on content prices. With BT bidding up prices for Sky’s must-have Premier League rights, Sky will have less cash to invest in its broadband offering. With BT already profitably wholesaling broadband to Sky, its invasion of the premium content market will put increasing pressure on Sky’s margins. Other potential competitors are sitting on the sidelines, with Google and Al Jazeera both interested in premium sports rights such as the Premier League. As a result, Sky is going to have to pay a lot of money to keep its star player -the Premier League – otherwise it will see its customer base rapidly transfer out.

James Hay
Analyst

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