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Sky suffers Q1 revenue hit, looks to protection of shorter rights contracts

(Photo by James Baylis - AMA/Getty Images)

European pay-television broadcaster Sky saw its revenues hit in the first quarter of 2020 following a drop-off in subscriber numbers as sport ground to a halt due to the Covid-19 outbreak.

Revenues for Comcast-owned Sky decreased by 5.8 per cent to $4.51bn (€4.12bn) in the first quarter, with direct-to-consumer revenue having dropped by 4 per cent to $3.68bn.

Comcast attributed the direct-to-consumer fall to chiefly a “decrease in average revenue per customer relationship due to the impact of Covid-19, which has resulted in lower sports subscription revenues, partially offset by an increase in customer relationships over the last 12 months”.

The release of the first-quarter results came as Sky suggested that the shorter length of sports rights contracts in Europe could offer it some protection amidst a ‘reset’ in rights values.

Sky’s ‘total customer relationships’ decreased by 65,000 to 23.9 million in the first quarter of 2020 as all major sports were suspended due to the pandemic.

Advertising revenue also decreased by 13.5 per cent to $513m, with Comcast citing “overall market weakness” which was worsened by Covid-19. An “unfavourable” impact from a change in legislation related to gambling advertisements in the UK and Italy was also given as a reason for the drop-off in advertising revenue.

Content revenue dropped by 12.3 per cent to $325m as a result of the deferral of wholesale revenue from sports programming.

Sky’s first-quarter adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) decreased by 16.9 per cent to $551m.

Speaking to analysts, Comcast chief financial officer Michael Cavanagh predicted a year-on-year 60-per-cent fall in Ebitda for the second and third quarters combined.

In March, Sky said that it would allow UK residential and commercial customers to freeze their subscriptions amid the dearth of live sport on its schedules. Sky’s UK rights portfolio includes football’s English Premier League and the Formula 1 motor-racing series. UK customers were able to pause their subscriptions free of charge.

On that move, Sky’s group chief executive Jeremy Darroch said yesterday (Thursday): “We unbundled sports. So we thought that was a very sensible way to manage in an environment where essentially the sports season’s gone away for now. That, of course, means that the level of cancellations we’ve had in sports is de minimis. So we think that positions us well to bring customers back when the sports season resumes.”

Sky Italia last month announced a discount offer to its sports subscribers in an effort to compensate for the lack of live action. Running until the end of May, subscribers to the Calcio and Sport packages will be eligible to apply for a discount of €15.20 ($16.70) per month. Subscribers to one of the packages can request a discount of €7.60 per month.

Sports rights value ‘reset’

Asked by analysts the impact of the Covid-19 shutdown on future sports rights negotiations, Darroch highlighted the typically shorter length of contracts in Europe (compared to the US market) and the leverage that gives the broadcaster in negotiations.

He said: “In terms of the future on sports renegotiations and new contracts, I mean, the principle is that our approach doesn’t need to change because we start with value, and the value that we see, we bid against that value in a disciplined way.

“One of the advantages about the way sports are sold in Europe is that, typically, we’re on shorter cycles.

“The average cycle will be three, perhaps four years. So that does give us the opportunity where we think there’s some form of reset that’s required or we take a different view in terms of value to get that away. Obviously we’re thinking about that all the time but particularly at the moment, and we’ll reflect that in due course.”

On the resumption of the sports calendar, Comcast chief executive Brian Roberts expressed his confidence in competitions resuming over the summer.

He said: “Given how the sports programming business works in Europe, the postponement of so many games has been a material event, with many customers pausing their sports subscriptions. I have reason to be optimistic as many European teams are already back practicing, and we have hoped that they resume play as early as May.

“Perhaps this will be the playbook the rest of the world uses and allows us to have conversations with our partners as we constructively work together to find solutions to bring sports back.”

Cavanagh added: “As we look to the rest of the year, we do anticipate, based on reports coming out of each country, that most major sports will return to complete their current seasons, although at different times for different sports across the Sky markets.”

(additional reporting by Martin Ross)