Bundle, Bundle, Everybody Bundle

Michael Hedges March 7, 2010 Follow on Twitter

The lucrative relationship between television and sports is wrapped in love. Great sums are collected and spent with, seemingly, no limit in sight. Somebody, of course, has to pay but who’s to say what is fair?

After considerable study and with ample attention UK regulator OFCOM reported (March 31) on the state of pay-TV. BSkyB, principally owned by News Corporation with James Murdoch as Chairman, would be punished for abusing its market dominance in pay-TV sports. Football and rugby leagues howled. BSkyB’s CEO Jeremy Darroch plans an appeal to the UK Competition Appeals Tribunal.

Ofcom is requiring BSkyB to reduce by 23.4% the wholesale prices charged to rivals to carry its two sports channels. Virgin Media and BT (formerly British Telecom) have argued that BSkyB’s market domination prevents them from entering the pay-TV sports market.

Sports leagues, checking their bank balances, took the news badly. Television revenue supports high priced players, high priced coaches, high priced executives and all that goes along at a high price. The Premiere League (football) recently came to a three year agreement with BSkyB for £1.6 billion (about €1.8 billion). BSkyB gets 115 of 138 live matches. Sales of non-UK rights will reportedly net the Premiere League another £1.4 billion (about €1.6 billion) over the next three years.

The position of UK sports leagues has been far from reserved. “Our lawyers are working through the document and we are reserving our position,” said the Premiere League’s statement. Premiere League CEO Richard Scudamore called Ofcom’s decision “ill-judged.” The expected legal position of the sports leagues will be Ofcom’s lack of standing to rule on sports rights competition.

The European Commission forced the Premiere League and BSkyB to end their exclusive rights deal. The result wasn’t really that painful for either. Rights fees went up with bidding from Setanta. Then Setanta went bust under the weight of it all, ESPN picking up 23 games. Big marbles were returned to BSkyB and the Premiere League.

So now ESPN signs a deal with the Premiere League (April 6) for exclusive mobile rights. ESPN will certainly partner with one or more mobile provider. Unbundling rights made it all happen. Do not weep for the sports leagues.

Financial people taking a closer look at the impact see a fair amount of good news for BSkyB from new revenue streams as a TV wholesaler not to forget a fat retail stream through Freeview.

Ofcom’s report opened the door for BSkyB to jump back into the triple-play business offering broadband, television and television services. Sky Picnic was shelved in 2008 largely because the regulator didn’t quite know what to make of it. Now it appears back on the table, so long as BSkyB doesn’t fight offering sports content to competitors.

Beyond the whinging from over-paid sports leagues and Murdoch-phobic media watchers, the larger realm is, as Guardian columnist Steve Hewlett pointed out (April 5, read here), the future of television. “Next generation TV services will not come cheap.”

“Thanks in part to Sky's good work,” he wrote, “pay TV now looks like the only viable way of securing the necessary commercial investment in the next generation of TV. It follows, therefore, that without access to premium content, no pay TV business of scale can be built. And that is why Ofcom is determined that Sky cannot be allowed an effective monopoly of that content, no matter that it has achieved that position through being an enterprising and well-run business.”

There is no small measure of transcendence to television’s evolution. As the brontosaurus on the changing media landscape, television continues to roar with irritation as the new media moles scamper playfully. As groans from other old media call only to the walking dead, television people, unwisely but predictably, risk becoming the latest boiled frog. What Murdoch hath wroth let no man call asunder. Television content will come with a pay-wall.

Sports, porn and movies – not necessarily in that order – drive premium pay-TV revenue. Two of the three are expensive to supply. Only sports channels were singled out as OFCOM decided the BSkyB movie channels pose less market jarring competition.

The question of movie channels will have its day at the European Commission (EC). Between DG Competition and DG Internal Markets, the relationship between pay-TV operators and movie producers will face examination. BSkyB through News Corporation is both. While Hollywood movie producers tend to question the EC’s jurisdiction over their business practices – like bundling channel and video-on-demand rights – they might want to review decisions against Intel and Microsoft.  

This isn’t new. Paying for telephone service is paying for content delivery. In very real terms, telephone conversations were the original user-generated content. Everybody paid to be connected, to have Aunt Mary’s phone call delivered, but not for anything else. The telecom people understand this and great fortunes continue being built on the premise.

It is, of course, simple calculus. People have always paid for distribution, content coming for free or the appearance of free. Consumers thought nothing of the nominal charge for a newspaper delivered to their door-step. Start charging for content and they move on.

New media services – Freeview, Project Canvas, Hulu, IPTV, mobile TV - are all about distribution.  Producers of the premium content noted above will get paid the most by getting the most mileage from the offering every sort of bundle. The era of the one-stop shop is over.

See also in ftm Knowledge

The Games People Watch

Media and sports are a powerful combination. Together they capture huge audiences and considerable money. This ftm Knowledge file looks at the competition from football rights battles and cycling coverage with new media to the Olympic Games. 60 pages PDF (September 2009)

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