I was recently invited to BT’s press launch for the two new sports channels that will begin transmission this summer, and boy, did they put on a show.
Some 200 journalists and interested parties were bussed to London’s Olympic Park to be met by surround-sound screens, presenters and sports stars, including retired footballer Steve McMananan, rugby pundit Lawrence Dallaglio, London Olympic and Paralympic presenter Clare Balding, and rising star Jake Humphrey, who led the proceedings.
BT unveiled a jazzy new TV advert trumpeting the exclusive English Premier football games as well as a long list of other sports it plans to offer its viewers. We were shown around the formidable studios that BT is having built for the channels, including a 10,000 square foot hanger-like area for live audiences.
As I left, the words “giving sport back to the people” and “free sport” were ringing in my ears. The problem is that once you peel back the razzmatazz, BT Sport only has 38 Premier League football games to Sky’s 116. Yes, BT’s got some tennis and rugby, but none of what you might call the major minor sports, like cricket, golf, Formula 1, cycling and athletics.
BT’s head of retail Gavin Patterson made a big point of linking BT’s rollout of super-fast fibre optic broadband to the delivery of the sports channels, but at the moment this super-fast product is only available to 1.5 million households. BT’s spending big money to increase that number and Patterson predicted that it will take three to four years for 90% of UK homes to have access to a super-fast BT connection. But for the past five consecutive quarters BT has lagged Sky in the number of new broadband signups. For the quarter ended in March BT Retail signed up 136,000 new broadband customers to Sky’s 152,000.
BT’s biggest gamble – and certainly the moment that lit up the Twittersphere at the press conference – is making BT Sport free to BT broadband customers. That is a pretty brave move and it will certainly help BT Sport stand out from its predecessor ESPN, which carried a charge for anyone who subscribed.
Will BT Sport be enough to attract more customers to its broadband business and incentivise Sky customers to switch broadband providers? Because no conditional access agreement exists (yet) between Sky and BT, those customers who want to take both BT and Sky Sports services from BT still need to take a BT Vision+ box, not a BT YouView box, which is a bit confusing. On the plus side, the dual BT broadband/Sky Sports package is cheaper than Sky triple-play (TV, phone and broadband) plus BT Sport, meaning that BT broadband customers will not have a price incentive to drop BT’s triple-play for Sky’s. This is important because BT knows that selling bundles is the key. Selling more than one product to a customer not only brings in more ARPU but makes that customer less likely to switch to another provider.
BT would have us believe that offering sport over a broadband connection is “the next generation of TV”. Of course, Sky might beg to differ, and no mention was made of Virgin Media, which already has its own, two-way pipe that can offer the same (they would argue better) interactivity. At the time of the press launch, BT did not yet have a wholesale deal in place with Virgin Media and given that the latter’s new CEO is Tom Mockridge, a former News Corp executive who ran Sky Italia, it’s not a huge leap to think that this could be a very tough commercial deal to complete.
BT is taking a big bet and it’s an expensive one. BT has already committed £1 billion (€1.2 billion) in sports rights costs over the next several years and Enders Analysis estimates that direct annual operating losses from BT Sport will run to £250 million. So adding in rights and production costs against an estimated £200 million in subscription and advertising revenues per year, BT’s total annual operating costs for BT Sport will be £450 million annually. It’s also clear that Sky will “fight back” with targeted discounts.
BT’s Patterson told us at the press launch that there is “scale and ambition” to what it is doing. He also said that BT is in for the long term. That has to be the case if BT wants to make this work. BT may have to move into other kinds of TV as well, including Hollywood movies and series, and that will take even more scale and ambition.
Let’s face it: BT has deep enough pockets to do it, with the one potential fly in the ointment being shareholders’ nervousness about the ongoing scale of the investment compared to the bottom line benefit.
BT’s hope and plan is that the direct costs of BT Sport will be offset by greater customer retention and the acquisition of new broadband subscribers. Will the costs of running BT Sport come down over time? I would say, definitely not. BT will have to bid against Sky for sports rights again, including the next time the Premier League rights come up for grabs in three years time. If BT gets more live games than Sky in that auction, then goodness knows what that press launch will look like.
Kate Bulkley is a broadcaster and writer specialising in media and telecommunications. email@example.com.
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