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BT’s “free” premium-sports strategy refutes established pay-TV and multiplay market truths

Ted Hall, Senior Analyst at Informa Telecoms & Media

Ted Hall, Senior Analyst at Informa Telecoms & Media

BT’s announcement that it will offer its forthcoming premium-sports channels for free to all its broadband customers lays down the gauntlet in what is set to be a ferocious tussle between the UK’s largest telco and dominant pay-TV provider Sky.

The DTH operator recently labeled BT a “gorilla in puppy’s clothing”, and with the unveiling of this hyper-aggressive strategy for protecting its fixed-line business and boosting its IPTV platform, that animal is beating its chest and baring its teeth.

Since BT made the surprise move to acquire a GB£ 738mn (US$ 1.1bn) share of Premier League football rights last year, questions remained over exactly how the telco could maximise the value of its investment in order to better compete with Sky and its other TV-and-broadband rivals.

BT contests two telecoms & media market truths

In answering them, BT has refuted two established telecoms-and-media market truths: 1. That access to premium-sports channels comes at a premium; and 2. That a triple-play of TV, broadband and phone services from one provider is always the best-value option.

Triple-play is the key battle that BT has been losing ground in to Sky. Indeed, since acquiring its own ISP in 2005, the DTH operator has posed an increasing threat to traditional home-communications players, becoming the UK’s largest provider of triple-play services last year and its second-largest ISP following its agreement to acquire Telefonica’s UK broadband assets in March.

And much of Sky’s success has been at the expense of BT, which has failed to attract customers to its IPTV service (which has 810,000 subscribers) at anything like the rate Sky has attracted broadband customers (now at 4.4mn).

The stage appeared to be set to for a tug-of-war battle for the several million homes that take TV from Sky and broadband from BT, with consumers ultimately likely to choose one provider for all their home-entertainment-and-communications needs in order to save money with a discounted bundle of services.

But BT’s decision to offer BT Sport for free to all its DSL and fibre broadband customers undermines the conventional wisdom that one provider is better than two.

The logic behind BT’s ‘free’ offer

BT is acutely aware that its chances of convincing high numbers of largely-satisfied Sky TV subscribers to switch to IPTV are slim, especially given that, unless a new reciprocal wholesale sports-channels deal is done with Sky, BT will not be able to offer the still-crucial Sky Sports channels to its YouView customers.

So rather than forcing a one-or-the-other decision upon these Sky-and-BT customers, the telco has presented them with a logical reason to retain both services, removing the incentive to get a better deal by switching to Sky, as this would incur a GB£ 12 or GB£ 15 charge (for the standard- or high-definition service) to receive the channels via satellite without a BT broadband subscription.

Of course, BT would rather its broadband customers switched the other way, dropping their Sky TV subscription to take a full suite of services from BT. But until it can create a compelling-enough proposition to attract high-spending pay-TV customers, this holding strategy will serve to stem the flow of broadband customers churning to rival providers and, in turn, slow the triple-play consolidation that has been progressing steadily in the UK.

An eventual wholesale sports-content deal between BT and Sky should not be ruled out. One of the main drawbacks of allowing Sky to resell BT Sport is that it would allow the pay-TV incumbent to set its own price for the channels and undercut BT’s.

But given that “free” can’t be beaten on price, the threat of Sky undermining BT’s offer has been negated. The telco’s need to offer Sky Sports to its YouView customers could therefore result in the two parties eventually striking an agreement.

Potential wrinkles

The lack of Sky Sports on BT’s YouView service is one wrinkle in the telco’s TV offering that must be overcome. Another is the potential consumer confusion around its multi-platform distribution of BT Sport – not all BT YouView customers will be able receive the channels via their YouView box, only those with a fibre connection, and it will be three or four years before these high-speed services are available to 90% of UK homes.

DSL BT YouView customers will need to opt for one of the alternative options: use a DTT tuner equipped with a conditional-access module – which YouView boxes do not feature – to receive the channel over the air; go online; or stream the channel via an app for tablets and smartphones.

The main point of scrutiny in assessments of BT’s strategic use of its premium-sports content will be the return-on-investment prospects, given that none of the 5 million customers the telco could have potentially sold BT Sport to will be paying a penny on top of their broadband subscription to receive a set of channels that are costing BT around GB£ 1bn to run over the next three years.

But making money from TV is clearly not BT’s strategy in the short-term. The telco is in it for the long haul and has suggested that it could wait two years before introducing a fee for BT Sport. In the meantime, protecting the revenues generated by its core business is the immediate priority – whatever the cost.

This article originally appeared in the Informa Telecoms & Media analyst blog here.
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