Latest News

BSkyB Pays Over GBP1 Billion To Retain Football Rights

By | August 13, 2003

      BSkyB has retained the crucial Premier League football rights for three years beginning from the 2004-2005 season. It remains to be seen whether competition concerns will prompt the European Commission (EC) to intervene in the matter since BSkyB has secured 100 per cent of the rights to live matches. BSkyB is still paying over GBP1 billion ($1.60 billion) for the rights, which could be considered on the high side, given the apparent lack of competition for the rights. It works out to GBP341 million ($546.9 million) a year. The current deal which includes 66 live games and 40 pay-per-view (PPV) games worked out at GBP396 million ($635.1 million) a year.

      The deal enables BSkyB to show 138 live games per season, compared to the current 106. This represents a 30 per cent increase in the live coverage of Premier League, likely to lead to greater advertising as well as interactive revenues going forward. The cost per live game has also come down significantly. The costs under the existing contract work out to just under GBP4 million ($6.4 million) a game. The figure for the new contract is around GBP2.5 million ($4.0 million) a game.

      Major Positive

      BSkyB’s Robert Fraser said that the operator was delighted with the deal and that “it represented good value” for the operator. Following recent deals to acquire other major football rights such as the UEFA Champions League, as well a deal with the Football Association to screen FA Cup and England games, this deal “offered long-term stability in terms of attractive programming,” Fraser said.

      Steve Liechti, a media equity analyst at Merrill Lynch, said in a research note: “It removes a key element of uncertainty, i.e., whether Sky might lose live matches to free-to- air competitors and therefore run the risk of churn out of key subscribers.”

      Regulatory Obstacles

      While the deal is good news for BSkyB, it could face some regulatory obstacles. Mike Hilton, a media equity analyst at UBS Warburg, said in a research note: “We remain concerned, however, that the EC has not yet ratified the contract structure used by the Premier League, and recent comments by the EC would suggest that there is a meaningful risk it asks the Premier League to make further modifications to the contract. Therefore, until the final sign off from the EC has been achieved, we believe there is still some residual risk that the bidding [will be] re-opened.”

      The odds do seem to be in BSkyB’s favour here. In the new tenders, the live rights were split into four separate packages, where as previously they had been in one exclusive package. The fact that BSkyB had to win all four packages to maintain exclusivity could be a key factor in its favour.

      A media equity analyst who requested anonymity said BSkyB is used to dealing with such situations. “We will have to wait for the [EC’s] opinion on the proposed terms, given its dislike of exclusive deals. We would, however, point out Sky’s successful track record in defending itself against regulators. Also, we believe Sky could potentially head off an [EC] investigation by giving up to 10-20 games to the BBC or ITV, and paying 10-20 per cent less accordingly.”

      Latest Results

      In its full year results announced Aug. 12, BSkyB edged ever closer to the 7 million-subscriber figure. As of June 30, BSkyB had 6,845,000 direct-to-home (DTH) subscribers. It increased the number of net new subscribers by 133,000 in the quarter; in the last year, it increased its subscriber base by 744,000. With the football season set to start in earnest in the next week, BSkyB is likely to push through the 7 million barrier in the next quarter. Certainly, its target to reach that figure by the end of the year is easily within reach now.

      DTH churn for the year stands at 9.4 per cent; churn has now been below 10 per cent for four consecutive quarters. The annualised ARPU (average revenue per user) figure stood at GBP366 ($588.7), a 5 per cent increase compared to the same stage last year. In another mark, BSkyB went through the 100,000 figure for its Sky+ PVR (personal video recorder) offering. It now has 105,000 subscribers for Sky+. This number has increased by 77,000 in the last 12 months. The new product offering, despite going through the 100,000 mark, has still arguably seen slow progress. A figure of 105,000 represents just over 1.5 per cent of BSkyB’s overall DTH subscriber base.

      Total revenue for the 12 months ending June 30 passed through the GBP3 billion ($4.8 billion) mark. BSkyB has also managed to bring its debt down. Its net debt had been over GBP1.8 billion ($2.9 billion) in 2001, but as of June 30, 2003, BSkyB had bought the figure down by GBP700 million ($1.1 billion) to GBP1.1 billion ($1.8 billion).

      Mark Holmes

      Click on a tab to select how you'd like to leave your comment

      Leave a Reply