“Armageddon” Arrives As Telecoms Roar Into TV Business

Michael Hedges November 14, 2013 Follow on Twitter

It’s another digital dividend. Telecoms fat with cash are taking over the television business. Once again distribution trumps content. Lucy has grabbed the football once again.

When UK telecom BT outbid pay-TV operator BSkyB for football rights, agreeing to pay GB£ 897 million (US$1.4 billion), clarity descended on broadcasters. Big telecoms have entered the television business with two undeniable advantages; lots of cash, not to forget a fine-tuned collection system, and highly effective distribution. Forget triple-play. The next big thing is quadruple-play; voice service, broadband internet, television and wireless access. “The end of peaceful co-existence in the UK telecom and TV worlds,” opined Sanford C. Bernstein research analyst Robin Bienenstock, quoted by Reuters (November 11).

For BT the thinking is that television sports – in this case Champions League and Europa League football rights for three years beginning in 2015 – will entice UK broadband customers from BSkyB, Virgin Media and TalkTalk. BT has about 7 million broadband subscribers in the UK and BSkyB, principally controlled by 21st Century Fox – formerly known as News Corporation, has about 5 million. Virgin Media was acquired by Liberty Global, Europe’s biggest pay-TV operator, earlier this year and former News Corporation pay-TV expert Tom Mockridge was promptly hired to run it.  TalkTalk, formerly part of Carphone Warehouse, reported 4 million broadband subscribers this week.

Before stock traders had a chance to gulp down another Red Bull Vodafone CEO Vittorio Colao told investors (November 12) he’s ready to enter the pay-TV business. “We will offer unified, converged, multi-screen services in all countries,” he said, quoted by the Guardian (November 12). “What that will look like in Britain I don't know yet. I will be doing a lot of thinking in the next few months about the impact of telecoms companies owning content.”

Vodafone is the world’s second biggest mobile telecom, China Mobile being the biggest. Earlier this year the company acquired a majority stake (77%) in Kabel Deutschland for €7.7 billion, about US$10.3 billion. That’s only a shred of the US$130 billion Vodafone will have when its Verizon Mobile stake sale closes next year. Some telecom watchers see Vodafone as a take-over target, possibly from AT&T.

In terms of sports rights, the rich teams and leagues just get richer. Last year Sky Deutschland, majority owned by 21st Century Fox, agreed to pay €1.94 billion for Bundesliga football rights from 2015 for three years. A month ago that was topped up with a €190 million Bundesliga rights deal in selected non-German markets. Sometime in the middle of 2015 English Premiere League football rights will again be up for auction. In 2012 BSkyB and BT agreed to pay GB£760 million and GB£246 million, respectively, per year, splitting up matches proportionately. The total, about GB£3 billion, was nearly double the previous rights deal. To accommodate the new sports content and show love to its customers BT launched the BT Sport Channel in August.

Sports, generally, and football, specifically, have been BSkyB’s main attraction to its sports channels for two decades. Enders Analysis CEO Claire Enders called BT’s successful bid an “Armageddon scenario in sports rights,” quoted by Bloomberg (November 11). The value of televised sports matches, games or events begins and ends as live television. Reruns don’t have shelf life, perhaps Olympic Games excepted, and don’t pay.

TV rights fees for non-football sports may also escalate and create joy for teams and leagues, and maybe not. Filling a sports channel schedule 24/7 can be expensive. BSkyB CEO Jeremy Darroch, dismissive of BT’s winning football rights bid, has already allocated more investment for original dramatic series, all brimming with second-run, third-run and catch-up opportunities. Anyway, a winning comedy or drama series has more marketing value than a football match that brings suffering to half the viewers.

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. 82 pages PDF (October 2012)

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