BSkyB shares fall 9.6% as BT wins UEFA Champions League TV rights
City Index November 11, 2013 4:58 PM
<p>Shares in BSkyB suffered their biggest one day decline for two years on Monday as investors reacted to news over the weekend that Sky lost […]</p>
Shares in BSkyB suffered their biggest one day decline for two years on Monday as investors reacted to news over the weekend that Sky lost out to growing rival BT for exclusive live rights to show UEFA Champions League and Europa League matches from 2015.
Shares fell over 10% on the day to trade back around the 830p – 840p a share range: levels not seen for two months.
BT Sport won the rights to both the UEFA Champions League and Europa League tournaments for three years from 2015 by outbidding BskyB to the tune of £897m – a record. Sky is said to have offered just over half that amount and the new deal strongly usurps the joint deal Sky have with ITV for rights up to 2015.
Why is this deal so unsettling for BSkyB shareholders?
The fact that BT has blown Sky’s offering out of the water has deeply unsettled BSkyB’s shareholders. Not only does it show the vigour of BT to topple Sky’s dominance of the paid TV market but it also escalates fears that Sky will have to spend much more in the future to maintain its share of sports coverage, escalating costs and pressurising margins.
Premier League live rights come up for renewal in 2016. Bidding will start in the next two years. Sky now knows BT is likely to also be extremely aggressive in their bids for coverage here: forcing Sky to up its own game or surrender control (a control already shared with BT Sport this season).
What’s worse is the fact BT is claiming to offer some matches – including the Champions League final – for free, meaning that Sky will have to strike a delicate balance between its own subscriber fees if it’s forced to hike prices to match growing costs.
In the quarter to end of September (first quarter), Sky saw total paid-for subscribers hit 32,434,000: of which TV contributed 10% of that at 10,459,000. Revenues grew by 7% to £1.84bn, though adjusted operating profits fell 8% to £285m.
This could serve as a wake-up call to BSkyB that BT is serious and its dominance of the UK paid-for-TV market is no longer a certainty.
The situation with Virgin Media in 2007 – where Sky removed access to some of its channels for Virgin Media subscribers – may be a tactic employed by Sky to force BT subscribers to switch back to Sky in the future. Certainly the example is evidence of the lengths Sky has gone to in the past to maintain its market share and dominance.
The key lesson here, BT may have won the battle for UEFA live matches but there’s a growing TV war emerging here and tactics will start to get a lot more mischievous.
This is not over.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.