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Premium sports: a battleground for Pay TV and FTA

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In the age of fixed-broadband market saturation and fixed-mobile convergence, the increase of triple-play penetration is a proven means to reduce churn. In some Western European countries, triple-play bundles are sold as a commodity product (e.g. the UK, Spain and France). In these markets, consumers cannot choose a naked broadband connection from most providers anymore, and instead have to buy the triple-play product as a whole.

Sports-centric households are gaining share among pay-TV households

Historically, pay-TV operators have provided both exclusive movie content and live sports content. The former has been increasingly preyed upon by OTT players (e.g. Netflix). OTT players have been successful for three main reasons: offering an abundant catalogue (available anywhere at any time), at an affordable price and with a simple user interface. Therefore, the perceived value of the filmed entertainment content value proposition of pay-TV operators has come under pressure.

Thus, pay-TV operators are shifting their buying power to premium sports, and free-to-air (FTA) broadcasters are finding it increasingly difficult to retain such live sports rights.

The dilemma of FTTx roll-out

FTTx broadband investments are very sensitive to the conversion of broadband households. Investment related to the acquisition of exclusive content has the potential to increase the share of connected households, thus leading to a reduced payback period for a large sunk investment. For an additional 10% investment and a resulting incremental five percentage point conversion of homes passed to homes connected, the payback period can be reduced by up to one year.

After many years of declining market share and increasing competition from alternative operators, all major European incumbents are (re-)engaging in long-term FTTx deployments again. Furthermore, a number of regulators have refrained from imposing wholesale regulation on fiber connections in order to encourage investments.

Telecom operators follow different strategies in positioning their broadband investments

In order to make a case for sports content investment, a number of parameters have to be taken into consideration. First, the respective market’s consumer appetite for premium sports content, and secondly the investment capacity of the individual players. Thirdly, the competitive intensity is a key driver for investment and differentiation. This competitive intensity is driven by the number of players, the presence of strong cable operators, regulation on the incumbent’s copper network, and government incentives for network investments.

Excesses are eventually reined in by regulators

In 2010 in the UK, Ofcom forced Sky to wholesale its major sports channels, Sky Sport 1 and Sky Sport 2, to other pay-TV platforms such as IPTV and digital terrestrial TV. This led to all major TV platforms providing their subscribers with access to these channels. Recently in Spain, the regulator approved the acquisition of Canal+ by Telefonica under a specific condition obliging the telecom incumbent to wholesale 50% of its premium content to pay-TV competitors at a price fixed by the regulator.

Live sports content will be a key battleground and ultimately drive consolidation

Direct-to-home (DTH) pay-TV operators that currently own significant parts of premium pay-TV rights will increasingly get under pressure from broadband operators. The latter are still cash rich and by now have a sizable number of pay-TV households (through IPTV and, in most cases, also DTH) and, with the current fixed broadband roll-out, a large-scale business case to defend or improve.

However, bidding for premium sports rights provides only a relatively short-lived window of opportunity to differentiate, as auctions are typically repeated every three years. Furthermore, during this period of exclusivity, new entrants can acquire only part of the subscribers of the incumbent rights holders, as in many cases the pay-TV subscription is based on family consensus.

Photo: BT has made a big impact in the UK by buying premium sports rights for its BT Sport service.

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