The unexpected emergence of BT, and the fact that it won the rights to show 38 of the 154 games available, is an unwelcome game-changer.
One of the key pillars of Sky’s dominance of the UK pay-TV market has been its control of the Premier League rights. Even when it has had to share these with the likes of Setanta and ESPN, the combination of exclusivity on the top matches, plus Setanta’s and ESPN’s lack of any direct distribution platform to the consumer, has always given Sky the upper hand.
Yet BT represents an altogether different challenge. Unlike Setanta and ESPN, BT has a platform of its own – albeit, at this stage, a platform that currently lacks critical mass.
Crucially, in terms of the matches themselves, BT will now hold 18 of the “first pick” 38 games and this changes this dynamic: undoubtedly BT will market aggressively to entice consumers to sign up to its Infinity fibre broadband service with the allure of football games. You would also expect to see an attractive pricing offer, which will limit Sky’s ability to pass on the increased cost of the football packages to consumers and also its ability to attract BT broadband customers across to Sky’s own service.
Indeed, one of the greatest dangers, from a structural perspective, is that consumers take advantage of the “pick and mix” approach offered by BT – YouView for free channels, BT for Premier League matches and LoveFilm or Netflix for films – and move away from the subscription model that is at the heart of Sky’s approach. Sky has always puffed up its margins by getting subscribers locked into a bundle of programming in which football fans, for example, can’t buy the sports channels alone but only alongside the basic Sky package.
Unlike competitors in the past, BT has a well-known national brand that can challenge the assumption that Sky is the home of Premier League football. After years of Sky eating into its broadband base, it has obviously made the decision to take the fight to Sky in its core product. On the cost side, Sky will also now pay 40 per cent more for a less attractive package: while it is has been excellent at controlling costs, there is an opportunity cost here. The savings it could have made to boost overall profitability will now have to be used to offset the rising costs of football.
All this adds up to one of the most significant challenges Sky has faced in a long time.
Ian Whittaker is head of European media equity research at Liberum Capital.