[Satellite News 04-18-12] Sky Deutschland has paid a heavy price to win the latest set of Bundesliga soccer rights in Germany that was way above analyst expectations. Sky agreed to pay 486 million euros ($638.01 million) a year for the rights, which will take it up until the 2016-2017 season. Sky beat out Deutsche Telekom to the rights and now has rights across all platforms, satellite, cable, Internet, IPTV and mobile.

            “Sky Deutschland has made a clean sweep of the pay rights, but this comes at higher than expected cost. Sky Deutschland will pay 486 million euros per annum versus our expectation for 360 million euros ($472.60 million),” Patrick Wellington, a media equity analyst at Morgan Stanley said in a research note.

            Sarah Simon, a media equity analyst at Berenberg, echoed these sentiments. “While the 486 million euros average price to be paid by Sky Deutschland is higher than anticipated, it includes more rights than previously expected. We had assumed that Sky Deutschland would pay 350 million euros ($459.47 million) per year for cable, satellite, mobile and Internet, and that DT would pay 50 million euros ($65.64 million) for IPTV,” she said in a research note.

            Despite this, Simon believes the deal is a good one for Sky. She added that while the deal would lead to near- and medium-term downgrades to estimates, the long-term strategic benefit of gaining total control of the rights could be significant. “We believe that the exclusivity of Bundesliga rights will increase Sky Deutschland’s pricing power on its product, improve gross additions and create a climate that is more conducive to the success of pay-TV in Germany. We also believe that Sky will leverage a relationship with DT when negotiating with the cable operators,” said Simon.

Sky Deutschland, which now has ex-BSkyB executive Brian Sullivan as its CEO, maintains more than three million subscribers in Germany and Austria, and enjoyed strong growth last year. While the German market is one of the biggest in Europe, the region has been a tough sell for satellite TV for the last 10 years, but new revenue opportunities could emerge for the operator.

            “The operator emphasized the opportunities in three areas,” adds Wellington. “A step up in subscriber momentum in 2013 as Sky becomes the sole home of the Bundesliga; secondly, more capability to increase pricing and reduce discounting; and finally, new revenue opportunities given the new rights acquired. Sky Deutschland highlighted the possibility of launching SkyGo as a paid-for standalone service and the possibility of wholesaling the IPTV rights — in the previous deal DT paid 45 million euros ($59.07 million) per annum for these rights.”

            The operator will have to ramp up its subscriber numbers to justify the extra costs of these rights, according to a research report from Polo Tang, a media equity analyst at UBS. “To put this in context, the German/Austrian market opportunity is 45 million homes and Sky currently has only three million subscribers. Sky can achieve around a third of these net adds from converting the estimated 160,000 Bundesliga subscribers on the DT T-Entertain IPTV platform who will no longer be able to receive the Bundesliga from next year.”

            Tang believes Sky Deutschland’s contract win also has a number of other benefits. “Although Sky has seen several successive quarters of strong growth, we believe it has been held back by capital/financial constraints as well as uncertainty over whether it would retain the Bundesliga rights. However, post its recent 300 million euros ($393.83 million) capital raising and Bundesliga rights win, particularly the Internet rights, there are now no barriers to hold Sky back and it is now down to Sky to execute,” Tang adds.

            Sky Deutschland has been one of the turnaround stories in terms of DTH in Europe. Marcello Maggioni, Executive Vice President Customer Group, Sky Deutschland, said the company has fulfilled every promise it made for 2011. “Our recent results reflect the best performance in the history of the company,” Maggioni said. “In 2011, Sky achieved the highest net growth ever, with more than three million customers now actively choosing our services. Let me add that our customer satisfaction and recommendation levels are at an all-time high, with more than 40 percent of new customers now coming through recommendations by existing customers.”