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BT and BSkyB both lose soccer gamble?

November 11, 2013

The City of London was in two minds about the BT Sport Champions League deal when markets opened for the first time after the deal. BT was marked down and so was BSkyB, with the established broadcaster losing a sizeable nine per cent of its value.

So, on balance, the market thought it was a bad deal for both parties. But BT wins because it thought it was a less bad deal for the telco? This is the league part of the competition – points lost hurt, but can be won back. At some point we move on to the knock-out stage and someone is going to have to leave the field. Or not?

BSkyB has always been a bit of an open book strategy wise. Pay high prices, if need be, to corner content markets, market packages hard and charge just short of a price that will burn off subscribers. If you can’t buy it, make sure your rivals pay more than they can afford. Take short term hits for the long term; invest in technology that takes you a step-change ahead of rivals, price aggressively in the face of direct competition. Take no prisoners; ask BSB, ITV Digital, Setanta.

But Sky’s problem is that it is now reaping some of what it sowed; it has made others pay ruinous prices for content but those prices are now really hurting it too. One loss-leading tent pole of a sport is fine, two is one too many, but now every sport thinks it deserves to be valued like that. Incredibly, the BT deal means the provider cost per subscriber of pay-sport in the UK is now higher than in the US.

What of BT? What indeed. They said they were taking on Sky. Then they said they weren’t. They say they want to underwrite their leading position in broadband provision. But this deal sees their content spending approaching £2 billion. They have made much of signing up two million ‘subs’ but most were customers already just renewing contracts. Do they want to be the totally dominant broadband provider (and what, charge other for access?), or do they want to be a significant TV player? It isn’t clear and that isn’t good enough when spending this much money. Perhaps their strategy is blow out all other players (what price TalkTalk?) and reach some kind of Cold War stand-off with Sky that will see content prices cool.

If not, it will be about who has the deepest pockets and whose shareholders will blink first? If Sky had become part of News Corp there would be no competition, and the record indicates that, anyway, these are not people to play chicken with.

And what if BT shareholders and the Government and BT customers wake up to the unfunny irony of BT making a play for broadband dominance by making footballers richer still, rather than investing in a fast access network that the rest of the world would recognise as such? Perhaps Sky should fund a rush to 8k Ultra HD and give it away for sport. Good luck with that at 14.7Mb/s (UK average broadband speed Aug 2013, Ofcom).


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