BT's football gamble
The share prices of BT and BSkyB dropped sharply as investors digested just how much they had to pay after a bidding war for Premiership television rights. Citigroup commented, 'Even before the latest round of [price increases], we estimated that [the] rights as a standalone are barely break-even.'
BT paid 40 per cent more than the rights would have cost three years ago. A football-themed interactive sports channel will be used to attract customers to the BT Vision pay-tv service that is offered over its high speed fibre network. However, Deutsche Bank pointed out that other attempts to create football channels have disappointed and that BT is inexperienced in this area.
BT is taking a gamble to boost BT Vision after following for several years a safety first strategy based on cost cutting and returning cash to shareholders. Just 700,000 customers have signed up to the service as against an initial target of 3m customers by 2010. However, subscriber numbers rose by 23 per cent last year as more customers moved to higher speed broadband packages.
Analysts at Citi estimate that BT would need 2.5m TV subscribers to break even, assuming a monthly price of £10. However, BT also hopes the move will drive up its overall customer numbers. BT chief executive Ian Livingston said that previous Premier League rights holders such as ESPN gained more than 1 million customers. However, this implies that BT may have to pay even more for the rights next time round unless they want to share ESPN's fate.
Citi saw BT using the football rights as a bargaining chip to gain access to BSkyB's content rather than solely as a means to poach its customers. If BSkyB wants BT's games then it might need to be more forthcoming with its own in future.
BT hope to appeal to the occasional football fan unwilling to spend £40 to £50 a month on a BSkyB package.