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Pay TV: counting the cost of coronavirus

One of the most notable features of the impact of the coronavirus crisis on media has been the negative effect of the lockdown on the pay TV business. This was very evident in Comcast’s Q1 results this week, which showed Sky’s TV numbers and top line to be down significantly even ahead of the March 31 cut-off.

Comcast executives on the analyst call that followed knew where to place the blame: the shut-down of sports events that has forced the company to allow customers to ‘pause’ their premium sports subscription payments until something like normal service is resumed.

The crisis has certainly highlighted the importance of sports to the Sky business model. Comcast CFO Mike Cavanagh did not understate the threat, admitting that “the complete shutdown of sports presents a unique risk of customer attrition, if unaddressed”.

The absence of sports removes a key incentive for subscribers whose contracts are up to stay with pay TV platforms for whom sports is central to their appeal. It also removes a huge chunk of revenue to operators, like Sky, who move to shore up their base by allowing payment holidays for the uncertain duration of the lockdown.

Even if play is resumed – something that is by no means certain – pay TV operators are, like Sky, being forced to defer amortisation of those expensive rights to the second half or whenever things start up again, meaning that their financial results are likely to make for depressing reading for some time to come.

To add to pay TV’s problems, leagues are likely to come under pressure to do their bit for public morale and make at least a substantial number of games available free-to-air if and when they get back in business. UK culture secretary James Dowden recently told a parliamentary committee meeting that it would not be sending out the best signalif the Premier League were one of the first major sports to resume behind closed doors and the public at large couldn’t have access to view matchs. .

Under these circumstances, it is no surprise that pay TV operators are resorting to desperate measures. Canal+ and the French professional football league descended into an unseemly spat over the pay TV provider’s refusal to pay money owed to the league under the agreed schedule, which included payment for games already played.

Canal+ and fellow rightsholder beIN Sports have since made their peace with the league, but not before rival player Mediapro’s boss Jaume Roures intervened to claim that he was ready to step in and take over should the Ligue resume business to end the season. Mediapro is itself under pressure thanks to the importance of Spain’s La Liga to its business in its domestic market.

The crisis isn’t confined to traditional pay TV providers: sports streamer DAZN has reportedly sought to defer paymentsfor rights to matches that have been postponed such as international rights to the Premier League.

It would be wrong to characterise the sports lockdown as pay TV’s Achilles heel in what would otherwise be an opportunity to win new customers as the population look for entertainment to fill their homebound hours. In fact, operators face a kind of perfect storm due to the crisis. For those with content assets and inventory, advertising revenues have fallen away thanks to the general slowdown, which is also having an impact on subscriptions as consumer tighten their belts. And where hard-pressed subscribers don’t actually churn, they are likely to at least cut their overall spend and downshift to cheaper options.

New additions are meanwhile failing to materialise for other reasons – the lockdown means that operators are reluctant or unable to send staff to install reception equipment in customers’ homes – with consumers themselves reluctant to let them in – something that came out loud and clear in US operator Verizon’s most recent earnings call.

While pay TV suffers, streamers are meanwhile reaping the benefits of people’s hunger for entertainment, with Netflix’s spike in subscriber additionsbeing the most high-profile example of the trend. With no long-term contracts, less exposure to sports, and no worries about installation of equipment in consumers’ homes, subscription video-on-demand is riding even higher as the business model to be in. (Advertising VOD, of which great things were expected this year before the coronavirus took hold, is another story, as is the business of mainstream broadcasters, who are suffering the paradox of collapsing revenues even when their viewing numbers soar).

As with so many aspects of life, the coronavirus appears to be accelerating trends that were already in place – cord-cutting and the rise of streaming at the expense of traditional pay TV. Whether the traditional pay TV players can make up for lost ground as the crisis subsides remains to be seen.