Telecom channel snatches TV rights

FOR years Britain's commercial broadcasters, ITV and BSkyB, have enjoyed an iron grip over European Champions League soccer. Until now.

FOR years Britain's two most successful commercial broadcasters, ITV and BSkyB, have enjoyed an iron grip over European Champions League soccer and the huge financial rewards that flow from it. Until now.

In the biggest shake-up of the pay-TV industry for a generation, Britain's newest broadcaster yesterday shattered this long-standing duopoly. A mere 100 days after launching its sports channels, the telecoms giant BT snatched the Champions League rights from under the noses of Sky and ITV. The pound stg. 897 million ($1.53bn) raid was a bold signal of intent from Gavin Patterson, who took over as BT's chief executive on September 1.

More significantly, it will fundamentally alter the landscape of the pay-TV market, where Sky has carved out a dominant position thanks to its big spending on soccer broadcast rights.

BT has already tapped Sky's shins by scooping up a slug of rights to Premier League football matches as well as Premiership rugby and a number of other sports. The two BT Sport channels have so far been taken up by two million of the company's broadband subscribers, plus two million Virgin Media households.

The Champions League coup ups the ante, taking BT deep into Sky's football stronghold. From 2015, BT will have exclusive rights to show all 350 Champions League and Europa League games for three seasons. Some of them will be free to watch for all British households, including the finals of both tournaments and at least one match involving each British team.

However, BT's outlay is roughly double the value of the current deal, for which Sky and ITV pay about pound stg. 80m and pound stg. 53m respectively per season. So, to recoup part of its pound stg. 299m-a-year investment, BT will charge a monthly fee for access to the European games.

This marks a substantial shift for the company. Hitherto, it was assumed that Patterson intended to use the BT Sport channels, which are free for its internet subscribers, as a way of shoring up the broadband business and driving households to its quicker fibre-optic service. Charging for European football means it is making a direct play for Sky subscribers, and trying to undermine the satellite broadcaster's status as the home for football fans.

"Sports is already having a halo effect on our broadband and our lines (home phone) businesses," said Patterson, noting that BT won 92 per cent of new broadband customers in the third quarter.

"But we looked at the research and felt that we could go further and increase the amount of broadband customers we could attract and retain if we added Champions League and Europa League."

Patterson, a Liverpool fan, wants to democratise TV sport. BT estimates that 50 per cent of Britons would like to watch sport in their homes, but only 20 per cent do so because of the cost.

BT's move into the market has concerned some investors. A number of pretenders have sought to dethrone Sky over the years, including ESPN and Setanta, but have ended in costly failure. Patterson yesterday sought to allay those fears. The Champions League investment, he said, would not dent its profit and cashflow forecasts for the coming three years. Nevertheless, some observers believe it could end up as a Pyrrhic victory.

BT had "every incentive to push the price up (for Sky), but not actually to win", according to the research firm Enders Analysis. It would make "almost no sense" to double down on its football offering because of the "massive costs", it said in a note published before yesterday's shock news.

Adding the Champions League to its existing sports roster will allow BT to increase the fees paid by pubs and clubs. Yet, even if the fee were doubled, that would generate only an additional pound stg. 30m a year, according to the investment bank Macquarie. That equates to roughly a 10th of its annual spending on rights.

Despite the concerns, there was a palpable sense of schadenfreude at BT's headquarters yesterday.

"You've got to feel sorry for Sky, they'll be really hurting right now," said one senior executive.

BT's rivals claimed that it had paid substantially "over the odds" for the prestigious European tournaments. "We bid with a clear view of what the rights are worth to us. It seems BT chose to pay far in excess of our valuation," said Sky.

The final whistle has blown but the stormy post-match analysis has only just begun.

THE SUNDAY TIMES