Sport’s mad!
February 18, 2013
There’s a lot to do with sport that is linked in some way to insanity. This is because the definition of insanity is to continue to repeat the same behaviour and yet expect a different outcome. Any of us that support a football team (or any other variety of team) year in, year out, knowing that any examination of the facts points to another season of wasted hope and guaranteed disappointment and yet, somehow, we believe things will be better, we will win something, know this kind of madness intimately. Sky Blue ’til I die, since you ask.
But the madness of repeatedly mad behaviour isn’t limited to sport fans. It seems to overspill regularly to sports rights buyers. ESPN is retreating from the UK after a few bruising years trying to break into the pay-TV market mainly via boxing and soccer. ESPN in the US is huge and in turn part of the much huger Disney Corp, but its efforts to take on Sky in the UK were sling shot versus howitzer at best. Why did it bother, what was it thinking? Did it think if it bought some soccer Sky would blink and not bid for the rest? Did it think the audience would vote with its feet and move to ESPN for unmissable mid-season clashes between West Ham and West Bromwich?
But it isn’t merely a cultural misunderstanding we have here. Weirdly, it seems there was also a misunderstanding of the business model. ESPN sells its US channel to cable operators who buy it ‘wholesale’ and then resell it within various packages to their subscribers. ESPN’s job is to get and keep sports it knows the cable company’s subscribers want and then negotiate the best price per home it can with its one customer. Whereas here it has a channel it then has to try and sell direct to subscribers. Its main access to potential subs is via the platform of its main rival, a rival that buys its own rights, makes its own programmes, packages it own channels and then sells them to its own audience.
Had no one looked at Sky’s pricing plan – which sums up its business model as well as any multi-layered spreadsheet ever could? Soccer is a loss leader. It can’t hope to recoup the price paid per game on the subs to sport calculated in a per game basis. But it opens the wallet or purse of the economic power of the household. The pricing is such that just taking sport and not the other premium channels (mainly movies) isn’t significantly advantageous and, vice versa, only taking movies and not sport doesn’t save a lot. Consequently most households take both.
As long as Sky can keep hold of enough of the best sport, this isn’t likely to change. The regulator’s attempt to break up soccer rights to encourage others in against Sky has merely been the midwife of the undertaker (if you see what I mean), for first Setanta and now ESPN.
Unless a competitor has deep pockets, a ready reach into the market place and multiple package propositions to be cross priced and promoted, it won’t beat Sky or, more importantly, survive.
BT is said to be readying a bid for ESPN’s distressed rights and it has already bought the second biggest (but quite small) chunk of Premier League rights for £246 million per season. And it has reach into the market with its broadband customers (many of whom also have Sky), and it is trying to grow a suit of other channel offerings.
Can it build a platform that is a realistic alternative to Sky? No it can’t. Can it get enough together to provide a kind of Sky lite, with just enough football and other sport to make an attractive much lower cost alternative? Maybe. It will be low margin, or no margin, for BT but perhaps that doesn’t matter if it means BT preserves its lead in broadband provision. But thinking football is the key to unlocking markets is a very dangerous game; just ask mobile net 3, ITV Digital, Setanta and, now, ESPN.
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