In June 2012, a smiling Richard Scudamore announced that the Premier League had secured bids totalling just over £1 billion a year for its UK live rights (2013/14 to 15/16) – a 70% increase. For what was already the world's most valuable football league, this was an astonishing achievement.
Much has been written since about how BT's entry to the market for Premier League rights had such a dramatic effect on the price. We have read about the additional rights that BT has bought (FA Cup, Serie A and Ligue 1, rugby, WTA, UFC), its acquisition of ESPN's UK channels business, its hiring of expensive presentation talent and its extensive marketing campaign – all on top of its £246 million a year payment to the Premier League. We have also heard a lot about BT's groundbreaking tactic of giving away BT Sport to all of its broadband customers – making it one of the world's biggest-ever freebies. But I want to look at why BT has made this bold move.
Ironically, BT's strategy re-works Rupert Murdoch's: back in 1996, he announced the use of sport as "a battering-ram in all our pay-television operations”. True, he wasn't giving it away for free as BT is currently doing, but he recognised that sport (and, in Europe, that means football) is the trump card in pay television. His insight has been key to BSkyB's success in the UK and now underpins his strategies for Sky Deutschland and Sky Italia. Through football, Murdoch has gained the whip-hand over entire pay-TV markets.
The difference is that BT is targeting a market that encompasses not only pay-TV but also broadband and fixed telephony (including wi-fi) and, soon, mobile. This is a reaction to Sky's rapid growth in broadband. It now has 23% of the market, making it second only to BT (31%), having overtaken Virgin Media (21%) and TalkTalk (19%). BT has long dominated in broadband and now wants a means of halting Sky's advance onto its turf. While the value of the UK's broadband market is perhaps only half that of pay-TV subscriptions (which was £5.3 billion in 2012), 80% of all homes in Great Britain have an internet subscription and therefore it has enormous strategic value as the gateway to a range of other services.
Sky and BT believe that most homes will end up with a single provider of pay-TV, broadband and fixed telephony and that there is a big opportunity to extend this customer tie-up into mobile as well (the UK mobile phone market is approximately four times the size of pay-TV!). This all adds up to a fight with very high stakes and, while Virgin Media, TalkTalk and the mobile operators will make it a competitive one, BT and Sky both believe they have the opportunity to secure a commanding position. Not only are they the largest players in their core markets but now they both have the magic ingredient: content – and sports content specifically.
These two big beasts are engaged in what will be a long and tough battle but, while they take aim at each other, it is the other industry players who are likely to be the losers in the longer-term. Perhaps that is the real intention – to make this a two-horse race. With so much to play for, BT can commit about £1 billion this year to building BT Sport. It is fundamental to BT Retail's entire strategy – and, with revenues of £7.3 billion (similar to BSkyB's) and a market capitalisation of £26.8 billion (for the entire group), BT has the deep pockets to stick with the plan.
In an effort to simplify things for the consumer – by offering multiple services through one provider – ironically, the market is going to become more complicated. Consumers will have to weigh up the relative advantages of different content and service offerings at various price points and make decisions about switching from several providers to one. Overall, prices for existing services should come down but new services will be offered on top. Of course, there will be numerous legal challenges over wholesaling, bundling, network access and pricing that the regulator, Ofcom, will have to resolve. But, apart from being good news for the lawyers, it is also going to be positive for sport. For the next five years at least, neither of these titans can afford to back down: rights fees aren't going to be falling any time soon.
William is a Partner at Prospero Strategy, providing business advisory and consulting services to sports and media organisations.