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Going down | Does the Premier League need to rethink its media rights strategy?

  • Premier League to earn at least £1.488bn per season for domestic live rights from 2018-19
  • Total is about 15% down on the current live rights value but two packages are unsold
  • Like last time, it was a two-horse race between Sky and BT, with no new players emerging

Every three years, the Premier League domestic rights auction is a bellwether for the whole industry. Consequently, it is easy to read too much significance into them. Too much optimism after a 70-per-cent increase, as happened in the 2013-16 and 2016-19 cycles. Too much pessimism after a 13-per-cent drop, which has just happened for the 2019-2022 cycle, albeit for an incomplete set of rights.

The league will earn a minimum of £4.464bn (€5.04bn/$6.3bn) over the three seasons from 2019-20 to 2021-22, an average of at least £1.488bn per season, having sold five of the seven live rights packages it made available. Sky will pay £1.193bn per season for 128 live matches each season. BT will pay £295m per season for 32 live matches each season.

This total is 13.1 per-cent down on the £5.136bn the league earns from BT and Sky in the current three-season cycle, from 2016-17 to 2018-19. The sale of the last two 20-match packages – which has yet to be completed – was thought unlikely to close this gap completely.

The Premier League going down in value? The unthinkable has happened. It is not a question of the league having got it wrong – although there was some questioning of the rationale behind its new ‘event-style’ packages – but whether this auction represents a crossroads, a moment for considering radical change. The market is at a pivotal point where an old way of doing business can no longer be relied upon to deliver the necessary premiums. It is not yet clear what will replace it. All rights-holders face the problem of how to respond to that.

Signs of change

In November, Marco Bogarelli, former president of the Infront Italy agency, warned that this is where the industry was heading. He told SportBusiness International: “In the past, a content owner might have just two or three clients, the gatekeepers. But the days of gatekeepers are over. Nowadays, you don’t need the network to be in touch with a consumer. You can cut out costs that were the outcome of 20 years of working in a certain way.”

The following month, Rupert Murdoch agreed a $66bn-sale of 21st Century Fox assets, including his Sky European pay-television business, to US media group Disney. For many analysts, it meant he saw no future for his ‘full-fat’ pay-television business model in a world where sports content distribution is set to be dominated by low-cost OTT services from the likes of Amazon, Facebook, Apple and Google.

In Italy, Murdoch’s pay-television operator Sky Italia and rival Mediaset Premium had two bites at the Serie A cherry – in June 2017 and January 2018 auctions – and couldn’t get close to the league’s valuation of its rights, bidding a combined total of €830m per season.

Spanish agency and production house Mediapro was assigned the rights for €1.05bn per season. Mediapro’s investment is based on a plan to launch a league channel which is distributed non-exclusively to all platforms. The idea is to create value by reaching all football fans with an affordable product, rather than through the exclusivity premiums paid by one or two pay-television operators.

Days after the Premier League deals were announced, Spain’s LaLiga unveiled plans to convert its LaLigaTV service into an OTT platform this August. League president Javier Tebas told media the platform would be free but would require registration to access. It will include live and on-demand action from the top-tier Primera División, as well as the second-tier Segunda División and other domestic sport in Spain.

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Something new

Some experts believe it might be time for the Premier League to start thinking outside the box too. Consultant William Field of Prospero Strategy says “the price of using Premier League football as a strategic lever in the UK is prohibitive for any new entrant with a traditional broadcast view of the market place”.

Competition will have to come from elsewhere, with much expectation centring on the big US tech companies. However, as Field points out, we are not at the point where the big digital players “are ready to come and write a big cheque”.

He argues that without a radical change in the competitive landscape the league would have to seriously consider a direct-to-consumer option next time. He said that in a “post-pay-TV-wars marketplace” rights-holders generally would have to start examining new distribution models.

“Maybe it’s time to look at the US model, where you can do deals with digital platforms that also include games shown on broadcast platforms. The era of deals based on hard and fast and exclusivity…maybe that will have to start changing. If broadcasters are not trying to kill each other to get exclusivity any more maybe what you do is sell the same thing to two or more people. We are moving towards a world where there are different ways of monetising the content and we are clearly starting to move away from the classic pay-TV war model.”

David Murray, former head of sports rights at the BBC, says the league’s initial failure to sell two of its live packages gave it an opportunity to look at doing something different. “Does this create a possibility for the league to launch an OTT service themselves? It would serve two purposes. It says to Sky, ‘we’re not scared of holding on to things if you don’t step up to the plate’. And it creates a little bit of competition by the league dipping its toe into the water.

“Having not launched its international tender it could hold those rights back on a global basis and see how that plays out. They could then spin it as a gain rather than a loss. Otherwise, you have more games for less money and that looks like the market, as least for the short term, has peaked.”

Consultant Phil Lines points out that the Premier League had always done well in times of platform wars, from the first major television deal in May 1992, when Sky saw off a commercial broadcaster, ITV, through to the last two cycles, when a telco, BT, was forced to enter the market to protect its broadband business.

He argues that rights fees would continue to plateau or drop unless new platforms brought new platform wars. Facebook, Twitter, and Amazon have all dabbled in sports streaming and have all bought rights. But they have not paid the hundreds of millions of dollars per season required to take premium content away from a well-established incumbent pay-television operator. When, if ever, will they do so?

Lines believes they will be reluctant to get into the market at current price levels for premium sports properties like the Premier League. “The level of rights is way above what you can recoup by selling sports channels. It doesn’t matter whether the delivery method is the internet or satellite. The amount you can get each subscriber to pay is not enough to justify spending these amounts”, he said. “The Americans have had a look at it. They will wait until the prices come down.”

A market adjustment after two outrageously successful domestic sales cycles is no cause for panic. A strong performance with the global rights, ex-UK, could still see the Premier League ahead of where it is currently. But the league, under the leadership of its executive chairman Richard Scudamore, did not become the world’s second most valuable sports rights property after the NFL by failing to see which way the wind blows.

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In the know

Mike Darcey, chairman M24Seven, consultant, former director of strategy and chief operating officer at Sky, involved in five Premier League rights auctions

Since the [BT/Sky] cross-supply deal was done in December I thought flat [growth] would be a pretty good outcome. It’s a correction, not a bursting of the bubble.

The team at Sky did a great job. It’s one thing to think it all looks quiet, the war with BT is over and, notwithstanding the attempts to make up stories, there is nobody else out there. It’s quite another thing to follow through on that and bid less than you did last time. There’s a lot at stake. It takes courage to take the number down and believe all your analysis is correct.

It seems that BT did step away, as people expected, from a real contest with Sky. I would have thought they could have taken their number down further. They have a small saving but have fewer games. I think they got themselves stuck in the middle ground between contesting properly and just settling for the packs Sky didn’t want and they could pick up at a lower price as there was no one else out there.

But I think BT like the pack they have got. BT have been doing these match picks for a couple of rounds so have quite a lot of experience. Pack A has 20 second picks. They’re a pay broadcaster, not ad-funded, so the actual audience doesn’t matter that much. What is more important is how many big matches they have they can shout about.

David Murray, director Fozmuz, consultant, former head of sports rights, the BBC, involved in seven Premier League auctions

Sky didn’t think there was any competition and that wasn’t a surprise. The only question was whether, with the whole [Disney] takeover going on, it was worth taking that risk given the bigger prize at play. It felt like a reasonable gamble. I couldn’t think who else would bid. I didn’t give much credence to the Amazon and Facebook stories. With BT and Sky paying over the commercial value of the rights, it’s nigh-on impossible for a third party to come in without having to play the market and push it up by another 50 per cent.

BT were already retreating from bidding for premium rights and Sky were already hurting. It made sense for them to reach some sort of agreement. Without that [December cross-carriage] agreement, this kind of outcome would not have been a surprise anyway. Sky didn’t want another package and BT didn’t want to pay more for sports rights. But as soon as the carriage deal was announced I changed my view from a 10- to 20-per-cent increase to thinking this could go down.

Will BT even be in sport in 10 years’ time? I wouldn’t bet on it. Telcos seem to be moving away from a content model to a distribution model where they just carry other people’s content and that feels sensible. BT is not a content business. If they can carry all the Sky channels and make a margin they will ask why they are spending all that money on rights.

William Field, founder Prospero Strategy, consultant, former adviser to Premier League on new technologies

Clearly, Sky and BT weren’t going to go hammer and tongs at each other, so it was all about whether the packaging was going to persuade BT to trade up. It looks like BT were sanguine about just having one package. Sky have consolidated. There have been no game-changing bids from third parties. The league must have thought there was a good chance of tempting the digital players in and it doesn’t look as though it has worked.

It is unlikely BT will compete aggressively next time around. Those days are over. But we could have predicted that last year: the change of management, not getting the ECB [England and Wales Cricket Board] cricket rights, lowballing on the English Football League rights and then doing the cross-channel deal with Sky.

Price-per-game is not a particularly useful or insightful measure. It’s not how many games you’ve got. It’s whether you can say: We’ve got the Premier League. Their marketing is about what rights they have. Having exclusive Champions League and Europa League is a massive plus. They also need domestic football, so at least one Premier League package. Is BT in a slightly weaker position with subscribers? Yes. Is that a body blow? No. I think they will be content with this. Their calling card still says Premier League. If they were to lose Uefa rights next time around it would be game over, it would be curtains.

Phil Lines, consultant, former director of international broadcasting and media operations at the Premier League

I thought there was a strong chance the value would go down. It’s a reduction on last time, but last time was huge. They had two very big increases. In terms of what they have been experiencing it’s a huge correction but it’s not a big change in real terms, on where they are now.

All BT will care about is that they have enough that their subscription level doesn’t drop. Most people will keep BT for the Champions League and a bit of Premier League. When people talk about the lunchtime slot and the evening slot, they tend to focus on audience numbers which is not the business these guys are in. Audience numbers for a subscription business are the cherry on the icing on the cake.

Businesses don’t tend to go on beating themselves up. BT and Sky can’t get rid of each other; they have to live together. Beyond a certain level of bidding you are just hitting your own bottom line. It’s been coming for a while. This does send a big message to the market. It’s indicative that it’s going to be tough going forward.

What’s more interesting than the absence of Amazon is the fact that it looks like Perform didn’t bid. They are way ahead of anyone else in terms of creating a sports OTT offering when you look at what they are doing in Japan and Germany with DAZN. They seem to have looked at the UK market and decided it won’t work at those numbers.

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