By E.B.
WHAT can £3 billion ($4.7 billion) buy? More than 40m gallons of pricey crude oil; or perhaps 45 copies of Picasso's most expensive painting (“Nude, Green Leaves and Bust”, 1932); or maybe some 1m heifers through Heifer International, a charity. According to an announcement from the English Premier League (EPL) last week, it can also buy three years of British broadcast rights for some top football matches. This is the mind-blowing price that BSkyB and BT agreed to pay in a joint deal for 154 matches per season, starting in 2013-14, a 40% rise on the current three-year cycle.
The news caught many by surprise. Not only is the price staggering (about £6.5m per game, with the occasional tribute of a fragrant burnt offering thrown in), but also it shined a light on BT's ambitions to compete more agressively against BSkyB. The two companies have long been circling each other: BT is mainly a telecoms and communications company with some pay-TV aspirations, whereas BSkyB is a pay-TV leader that has been nosing into BT's broadband and home-phone turf. The big business for subscriptions is in bundling packages of premium content with high-speed broadband and phone lines. The problem is that BT didn't have any premium content, which is why it decided to edge out its rivals (ESPN wisely forfeited its share of the matches in this round) and cough up £738m for 38 games a season (including eight “first pick”, such as Arsenal versus Manchester United).
In effect, BT has begun a long-term plan that is destined to lose money up front in the hopes of fortifying the company's position down the road—perhaps in time for the next round of bidding, says Ian Watt at Enders Analysis, an industry observer. Now the company just needs to get cracking on creating its new BT Vision sports channel, probably with plenty of content bought from BSkyB.
If BSkyB weren't in such a plum position as the premium source of all of this premium content, one would almost have to pity the company, which is now stuck paying £2.3 billion for three years to hold on to its strategic position. Gobsmacked shareholders punished both BSkyB and BT after the announcement (particularly BSkyB, whose shares have yet to recover from News Corp's halted plans to take over the company last summer), but both companies' share prices have been improving incrementally since then.
Some Americans gazing at this kerfuffle from afar have wondered whether they should feel embarrassed for ESPN. As one such American asked me recently: “is the Worldwide Leader in Sports losing its grip on the world's most popular sport”? Well, no. Let's first set aside the fact that European football is still fairly niche in America. Even the landmark 2.1m ESPN viewers for the recent European championship match between Italy and Spain is a fraction of the 16.4m audience for an average Monday night game of American football. (And some non-American viewers gripe that ESPN's presenting style leaves much to be desired.) When it comes to a game of footie, Yanks still prefer less running, more Coliseum-ready brutality. (Cheez Doodles taste better when observing heavy men throwing themselves at each other—as an American, I know such things.)
But more importantly, ESPN didn't expect to hold on to the 23 Premier League games it now broadcasts in Britain. The company had already said that it can't compete with pay-TV providers like BSkyB, which justify their high bids as the price for acquiring more subscribers and advertising. The economics of ESPN are different; the channel makes its money through advertising and affiliate fees. This makes the outcome of the bid a “non-event for ESPN,” explains Todd Juenger at Bernstein Research.
The record-breaking contract is still just a fraction of the total television-rights haul that the EPL can expect in the coming years. It applies exclusively to broadcasting in Britain, meaning that the league will reap yet more television revenues from the same games as contracts to air the games in other countries come up for bid (Fox holds the American rights for these matches for now). How the league intends to spend this money—and what such a windfall will do to the game and to the discrepancy of income among clubs—is now a looming question, prey to anxious speculation.
