No organisation has contributed more to the enrichment of English football in the last two decades than BSkyB, which has used its ownership of Premier League football rights to establish its dominant position in UK pay TV. At News Corp's AGM in 1996, Rupert Murdoch famously explained:
""Sport absolutely overpowers film and everything else in the entertainment genre… we plan to use sports as a 'battering ram' and a lead offering in all our pay television operations."
The recent decision by OFCOM to regulate the wholesale prices BSkyB can charge for Sky Sports 1 and 2 has raised question marks about the use of the "battering ram" in the future and hence the ongoing value of UK sports right. Today we saw the first effects of the ruling (which both BT and BSkyB are appealing against) for consumers.
BT have announced a new BT Vision offering that significantly undercuts Sky's pricing with SS1, SS2 and ESPN on offer (with a broadband package) for £29.98 per months vs. Sky's £52.50 and Virgin Media's £59.00 (see BT's comparison here).
This is a very aggressive move by BT and more radical than most analysts had expected. To quote Credit Suisse's Telecom team:
"Our overall take is that it looks more aggressive than it needs to be. We had expected aggressive pricing with BT potentially even willing to price at a loss on Sky Sports but the pricing is generally lower than we have anticipated. Strategically the right move by BT but perhaps at the wrong price."
You might imagine that BSkyB's response to this would be to cut consumer prices in response, but in fact they are taking the opposite approach, and will tomorrow announce that retail prices are actually going up. OFCOM's ruling on wholesale rates uses a formula that deducts a fixed margin from Sky's retail prices to determine what they can charge wholesale customers. By raising retail prices, BSkyB can thus raise wholesale prices too and squeeze the likes of BT and Virgin Media.
Sky claim their price rise reflects the additional Premier League matches they will show for the next three seasons (having won five of the six packages available vs. four out of six for the last three year deal). No doubt there is some truth in this, but the move looks more like an attempt to make BT's strategy untenable almost before it has begun.
For now, Premier League clubs can look on as this scrap progresses without being impacted themselves. The interesting point will come in around eighteen months when the bidding for the next three year deal begins. The outcome of BT and BSkyB's appeals against the original OFCOM decision, the new government's stance (the Tories had been quite anti-OFCOM before the election) and the extent of any market share moves as BT and Sky's retail prices diverge so radically will all have a major impact on how much BSkyB will be prepared to pay for Premier League football next time around.
Regulated prices, a saturated market and more competition probably means the answer is "less than before".... In March, long time friend of this blog Richard "don't blame us for England being shit" Scudamore warned:
"The effect [of the OFCOM ruling] will be to subsidise companies that have shown little appetite for investing in our content and fundamentally damage the investment models that have helped sport become a successful part of the UK economy and made sport so attractive to UK consumers."
Today's pricing announcements are just early skirmishes, this is going to be long war.....
LUHG
