Hat trick result for Sky Deutschland

Investors loved the news that Sky Deutschland (Sky-D) had secured the next four seasons of satellite and cable coverage of Germany’s pay-TV bundesliga soccer rights. Early morning trading on Wednesday April 18 continued the Tuesday boost, which saw Sky-D’s share price rise more than 20 per cent.

Deutsche Telekom gets nothing, nor does Al Jazeera.

Additionally, Sky-D has won IPTV rights, plus mobile and Internet rights. On the downside, however, it has cost CEO Brian Sullivan and his negotiating team substantially more. Sky-D is paying an average yearly fee of €486 million, well ahead of market expectations of around €360 million, and by the end of the four-year period will be paying €520 million for its bundle. The first 2013 season will cost some €450 million.

Sullivan is now anticipating a flood of new subscribers from 2013 onward, once it has the exclusivity. Analysts see Deutsche Telekom (DT) as the ‘loser’ in this game, and that new subs will flow once DT ceases its coverage.

The package gives Sky the pay-TV rights over cable and satellite, IPTV and mobile and Internet. In its existing deal, which still has one full year to run, SkyD had the cable and satellite and Internet rights. The new deal covers the four seasons 2013/14 through 2016/17. Sky-D as before will have access to the full programme of 612 matches (306 in the first division, 306 in the second division).

Analysts at investment bank Morgan Stanley say that winning the IPTV rights is also extremely useful. “Sky-D now has control of these rights, but we believe that DT bid for them and would be keen to continue to support its c160k subscriber base in this area. Last time round DT paid €45m pa for these rights. We could assume (by whatever means – wholesale to DT alone or DT and other partners) SkyD could get back potentially €68m pa if the IPTV rights were subject to the same inflation (+50%) as the DFL achieved for its entire rights package.”

SkyGo, Sky-D’s mobile service, also represents an opportunity: “At present the SkyGo mobile service is able to show Bundesliga only when it is connected via wi-fi, not via mobile. The service, which also encompasses film content is presently sold at €12 standalone but is usually bundled free with HD and Multiroom subscriptions. There are presently 596k subscribers. Unbundled and charged at €5pm with no subscriber growth might bring in an incremental €36m pa,” says the bank.

As to future forecasts, Morgan Stanley suggests: “Sky-D management thinks that in 2012 the company is likely to match both the gross adds of 2011 (671k ) and to be close to the 2011 level of net adds (359k) .This looks undemanding – as do our forecasts (680k gross, 330k net). In general, Sky is convinced that it will see an acceleration of subscriber growth in 2013 against 2012 – our base case numbers presently see a deceleration (275k in 2013 versus 330k in 2012). Sky is confident this will not occur.”

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