Thursday, 9 September 2010

MUTV: “Is this the road paved with gold?” Probably not.

Arnold the optimist and a typical Hong Kong street
Earlier this week, the Press Association's Chief Football Writer Simon Stone wrote an article "Reds Rise to Commercial Challenge" in which he got very excited about United's latest commercial partnership. In case you missed it, the club have agreed a deal with Hong Kong telecom giant PCCW that:

"....makes the company the Official Integrated Telecommunications Partner and Official Broadcast Partner of United in Hong Kong".
This basically means that PCCW will have exclusive rights to broadcast MUTV, MUTV online and MU Mobile content in Hong Kong. These will be available on the "now TV" platform as well as PCCW's other "quadruple-play" services.

Stone's article describes the deal as offering "the first glimpse of how they [United] intend to maximise their massive global potential" and contains a series of quotes from a clearly excited Richard Arnold, United's Commercial Director:

""We continue to support the collective bargaining because it makes the Premier League incredibly competitive... But there are other rights that centre around the club and players, where our access is not paralleled anywhere else. It would be very surprising not to put into place something that allowed you to communicate with fans all over the world."
So far so sensible. Of course United will want to maximise the income that come from media rights that are outside the collective sales process. But Arnold goes on:

"Is this the road paved with gold? Put it this way, a football club has three sources of income; ticketing, sponsorship and media. Media has become the lion's share of that cake through collective bargaining. But the element left over could also be very significant."
Richard Arnold needs to ask Ed Woodward for a quick look at his big Excel spreadsheet as media, at 36% of last year's revenues, isn't even the largest source (that's "matchday") let alone the "lion's share".

Putting that to one side, could Arnold be right about the potential for club owned rights? Is this the road paved with gold?

Let's take a look at MUTV.

Manchester United own 66.6% of MUTV Limited having bought out ITV plc's 33% stake in 2007. The remaining 33.3% is owned by BSkyB plc. The club is very coy about the channel and to my knowledge has never published subscriber figures since the 2005 takeover. The 2004 report and accounts said that subscriptions for the year to July 2004 averaged 95,000 over the year. Last July, David Gill was quoted in Australian FourFourTwo as saying that (depending on the time of year) the channel had "anything between 80 and 100,000 subscribers".

Certainly, MUTV is not a substantial business. Turnover in the year to 30 June 2009 was £6.9m of which £4.9m came from the UK. The channel represents 6.9% of the club's media turnover, 2.5% of total turnover and a tiny 0.6% of EBITDA. Nor has MUTV grown over recent years, 2005 turnover was £7.4m. Although the channel made a pre-tax profit of £284,000, after paying the interest on loan stock of £11m (£6m from United and £5m from Sky), the most recent accounts showed a loss of c. £270,000. MUTV is not cash positive and has never paid its shareholders a dividend.

The channel's "problem", in common with other clubs' in-house TV stations is that its programming is not that compelling. All live first team games are sold collectively whether by the Premier League, FA or UEFA. This leaves MUTV with reserve matches, replays of recent games (after midnight the following day) and a mix of phone ins, interviews and features. Stone's PA article hypes up such highlights (note the following paragraphs are not a press release):

"It means, for instance, that supporters will have access to Sir Alex Ferguson's weekly press conference at 12 noon UK time, barely two hours after it has concluded.
With reserve team games, pre-match Premier League build-up as well as post-match phone-ins, it is the nearest fans are likely to come to the club without access to the actual matches themselves."


I don't mean to be rude about MUTV, I've been a subscriber myself, but the fact remains that content like this will always be a minority pursuit. Outside the UK, the appeal of full re-runs of matches is of course further reduced by the fact that virtually all Premier League games are broadcast live. David Gill seemed to recognise the inherent limitations of MUTV in his comments to Australian FourFourTwo:
"It will never get huge numbers of people without the rights and we will never have them. What we have done are little things like pulling the advertising slots back so we can offer to our partners. It is not going to help buy a star player but it is a very important part of our future and I am content with where it is. Yes we would like it to have 300,000 but that is not going to happen - and if MUTV can't, no-one else can."
Returning to Hong Kong and Arnold's "road paved with gold", it's important to see through the hype. MUTV's 80-100,000 subscribers come primarily from the UK and Ireland, combined population c. 68m. How many subscribers will PCCW pick-up from Hong Kong's 7m people? How many will want to watch press conferences and re-runs of games they could have watched live?

No doubt United will do more deals like the PCCW one and that's a good thing, with programming costs fixed, profits will surely rise as more distribution deals are signed. But if the UK can only generate £5m of revenue for MUTV almost twelve years after launch, it is hard to see this as something that will ever make a significant difference to the club's finances.

The Glazers need to look for another road....



GCHQ said...

You and your negative waves Anders. How about you actually tell everyone how much these distribution deals are reported to be worth to United every year.

I'll do it if you like.

There are now 8/9 of these deals in place in territories around the world and they're each reported to be worth on average c.£2m to United every year. So a total of £16m/£18m per year with the obvious potential to sign many more of these agreements in other countries.

This clearly is a significant revenue stream and will make a considerable difference to the club's finances.

Is this a road paved with gold? I'd say so.

PS. Still waiting for an article from you where you have the decency to admit that your plan to damage the club's finances by calling for a full scale boycott has spectacularly failed. I won't hold my breath.

Anonymous said...

GCHQ i could say alot about you and your kind of pro glazer people but i wont,
I Know its Of Topic Andy But what was the clubs total spend on transfers since 2005?What is your view on the Failure of the Season Ticket Boycott?

UTID said...

@Anonymous 8:09
Leave poor GCHQ alone, he adds comedic value to the proceedings.

Good to see you have DELIBERATELY missed the point.

Reading this article it is clear it is about MUTV (the clue is in the title) and PCCW being the "Official Broadcast Partner".

I presume you are talking about the "8/9 of these deals" that relate to telecommunications not broadcasting.

Otherwise, Sky will be pretty happy to take 1/3 of the 18m apparently "reported" (links please) leaving United with 12m.

Nevertheless, the figures "reported" are still somewhat dwarfed by the bond interest.

As for season tickets: Am I correct in thinking over 2k weren't sold meaning there is now no waiting list (or did I miss a meeting only GCHQ attended)?

ja said...

I must admit that when I read this story earlier in the week, which ran almost identically in several papers, I thought it was a straight lift from an OT press release. Only time will tell but sounds like pie in the sky to me.

Anonymous said...

So it's not a gold-paved road, that's typical media hyperbole AR and your derogatory (but correct) stance doesn't help.

MUTV isn't worth anything now but it's never been fully utilised.

Looking at the Deloitte football rankings and seeing United's breakdown is interesting. United made the most from matchday activities whilst English clubs in general relied heavily on this area with around 38% of income coming from Matchdays but this is obviously a limited growth area, stadiums can't be continuously expanded and as such it's the commercial deals that clubs look to.

Give it 8-10 years, UEFA regulations to curb the dangerous spending will stifle economic growth so the greedy owners will breakaway, form a new league and retain their rights individually, then MUTV won't be be a gold-paved road but a gold mine.

United needs to quadruple the content on MUTV to make it worthwhile. Every word that a player says on camera should be available here, replays of old games, youth games, everything must become available for it to grow.

Anonymous said...

There is no killer content on MUTV. Thats why no-one watches it even in the UK. When all is said and done, the live matches are the only content that anyone wants. And the live match content is already presumably achieving the maximum selling price that the market will bear. Does the far east *really* want Fergie's press conference asap ? Any salient point is covered in the press ( for free ) asap anyway. That's kind of what press conferences are for.

tier2red said...

I believe I read somewhere else that PCCW do not have the rights for the live PL matches, therefore if your a Hong Kong red are you really going to shell out for the channels with the live games and then on top of that shell out for PCCW so you can watch Fergis press conference 2 hours after it is done?

On another note it is amazing how much United make on TV more than any other club in Europe. Surely it will in the end become irresistible for the Glazers not to want to go it alone on the TV deal?

Darren said...

Hi tier2red

In respect to CL money you have to understand how the cash is allocated. Last season we did well, money-wise, from the CL because (1) we were PL champions therefore received 40% share of half of the English clubs' market pool and (2) the other English clubs did poorly (Chelsea only reaching 1st ko stage, Liverpool exiting at the group stage) and so we got a large percentage (30% ish) of the other half of the English clubs' market pool.

This year of course we aren't PL champions, so the 40% will drop to 30%. And the rest of our market pool earnings will depend on the performance not only of ourselves but of the other English clubs.

It's not to do with how marketable we are as a football club etc, it's all to do with how the money is allocated depending on not only this seasons performance but last seasons too. Our market pool earnings is not a fixed amount.

andersred said...

Thanks for the comments. For the confused (that's you GCHQ) this was a post about the limits to the value of non-collective media rights. They just aren't all that and that's why the UK only brings in £5m of income for MUTV, less than two home game gate receipts and far, far less profitable.

I don't see collective rights breaking down. Fourteen of the clubs in the Premier League would have to agree and how many would benefit? 4? 5? Look at Scotland or even Spain to see how a completely uncompetitive league can become uninteresting. Turkeys do NOT vote for Christmas.

Football in England is a financial junkie used to ever bigger financial highs. It looks to me that the come down is on its way; matchday maxed out, media saturated, leaving one revenue stream, commercial, still growing. That will find a level soon too. Given so much still relies on playing success and that is never guaranteed, the whole thing looks vulnerable to me...


GCHQ said...

No confusion here Anders. The issue here is that you've focussed all your attention on perhaps the slightly less significant aspect of the club's latest commercial arrangement. The raft of telecom agreements that have been signed over the last 12 months all involve the distribution of club owned media content. So why not mention that in your article and why not mention how valuable these new deals are to the club?

The PCCW deal involves both the telecom aspect as well as the MUTV broadcasting element. Richard Arnold is talking about the sale of club owned media content on all available platforms, not just MUTV, when he asks whether this is the road paved with gold. You've just given a completely false interpretation of what he's referring to.

I don't see the collective rights breaking down either but that's not the point. The point is that the club is generating a very significant amount of money from the sale of its own media content.

How can you have possibly reached the conclusion that media revenue has saturated? That's absurd. Just look at the increase in the value of the Champions League English TV market pool. The latest three year cycle shows a 50% increase on the previous one, up from 56m euros to 83m euros. The prize money and participation distributions from Uefa have also increased by 30%.

The latest sale of the Premier League's overseas broadcasting rights saw it double in value! That's £10m extra per year for United right there.

Media revenue saturated? Come on Anders. Get real.

I don't believe there's any evidence that commercial revenue will soon find a level. I mean for god's sake we've just achieved double digit growth during the worst global recession in living memory. And you think that growth will end soon after the global economy has recovered? You're mad.

People laughed at the Glazers revenue and EBITDA projections four/five years ago but they certainly aren't laughing now and they won't be in five years time I can assure you.

andersred said...

We give away a two goal lead in stoppage time and then my day is further spoilt by more nonsense from GCHQ. Grrrr.

I'm querying the long-term value of club owned media content. At the moment various telecom companies are willing to chuck £1m a year at United for "exclusive" content. Vodafone were equally excited about the same stuff when they took over as shirt sponsor. But whatever the hype, neither you nor anybody else can get around the fact that not many people want any of this stuff, or (more importantly) are prepared to pay for it. £5m of UK revenue in United's home market doesn't sound that great. I agree with Gill's comments (quoted) that "It will never get huge numbers of people without the rights and we will never have them." That means it isn't very valuable. End of.

We'll have to disagree about the rest of the media market. I was taking about the next set of deals. Nothing goes up forever you know.

The 2010-13 domestic PL deal is worth 4.8% more than the previous three year deal. That's 1.6% pa compound growth, less than inflation. That's saturation in the UK right there. The Champions League is very reliant on European terrestrial broadcasters, let's see what the next deal looks like....

As for the PL overseas, it's a cracking increase and the Scud deserves credit (for once). But look at how flakey the underlying elements are. Of the £1.4bn total value, Singapore (population 5m) was a bonkers £200m of that (the same per capita as the domestic UK deal for god's sake) up 300%. The Abu Dhabi Media company paid the same for the Middle East and North African rights. That's twice the value the rights went for in Scandinavia for god's sake.

These numbers look like a bubble to me, detached of all economic reality.

But enough of football for today. Grrr again.


DanS said...

Interesting post.

I subscribed to MUTV once - had it for years thinking if I removed it from my TV package I'd miss something.

A year on and I've missed nothing thanks to YouTube, Twitter and the like.

MUTV is poorly put together and too biased (of course it would be).

Eugene said...

As a HK based MUFC fan, I thought I would add my 2 cents worth on MUTV and the PCCW online media deal.

Given how big of a blow losing the BPL rights was to Now TV, I would imagine that they have done the MUTV deal as a desperate move to try to cling onto some subscribers who are thinking of moving over to I-Cable for the next 3 years. The logic would be as follows:

- Most HK based football fans support one of the Big 4 sides (I have yet to meet a Bolton fan in HK and I have been here 10 years now), with MUFC being arguably the best supported side. (At the risk of being snide, I should note that Chelsea fans were few and far between when I first got here, but the numbers have swelled since Abramovich took over...)

- MUTV broadcasts MUFC matches, albeit on a delayed basis.

- Perhaps some MUFC fans, who only really care to watch MUFC matches in any event, might be prepared to stay with Now if Now can broadcast MUFC matches via MUTV.

I would have to say that few MUFC fans that I know in HK watch MUTV, for all the same reasons that have been listed in preceding posts - even for an MUFC fan, the content is hardly appealing. My Now subscription does not expire until November, so I have access to MUTV myself, yet I almost never watch it - the only time I found myself watching was to catch up on the match against Newcastle a couple of weeks ago which I'd missed when it was broadcast live in the middle of the night HK time. I don't really see it being much of an incentive to stay with Now rather than to switch to I-Cable.

Similarly, despite HK having fantastic mobile and wireless telecommunication infrastructure, I don't know anyone who is particularly excited about being able to access MUFC content via their smartphone. I have a mobile phone (Hutchison) and a company provided blackberry (Vodafone) and I have not given any thought to switching to PCCW's mobile phone service so as to be able to watch clips of the Red Devils on my tiny little phone screen.

I would expect that whether PCCW renews its deal with MUFC will be heavily dependent on what happens to the BPL rights after the current deal expires. If Now can outbid I-Cable, I would not expect PCCW would even contemplate renewing with MUFC unless the fees payable were so low as to make the deal very attractive...hardly a road paved with gold!

As a final note, I'm not a telco or media analyst, but I cannot figure out why the Glazers are so keen on the future income streams from "new media". I use my smartphone for all sorts of things, from email, internet surfing to just plain old phone calls...but I would never want to watch football on it. TV is the killer app for football, and that is hardly "new media". I guess that the Glazers and David Gullible, er, Gill know a lot more about this stuff than I do, so we shall wait and see.