BT Sees Future in Sports as BSkyB Moves Into Broadband

BT Sees Its Future in Sports as BSkyB Moves Into Broadband
An illuminated logo for BT Sport is seen during the launch of BT Group Plc's new sports television channel, at the company's offices inside the former London 2012 Olympic Broadcast Center in London. Photographer: Simon Dawson/Bloomberg

BT Group Plc, the company once known as British Telecom and a descendant of the world’s first national telegraph operator, has seen the future: soccer, rugby and tennis.

The company will release three new television channels in August, before the start of the Premier League soccer season, it said at an event near its London TV headquarters in the Olympic Park today. The BT Sport 1, BT Sport 2 and ESPN channels will be free for BT broadband subscribers and will also stream on the Web and through applications for mobile phones.

“I’ve worked in television for 24 years and opportunities like this do not come around very often,” said Simon Green, the former Sky Sports executive who’s leading BT Sport. “The scale and ambition of BT Sport is exciting.”

The service will compete with free programming from the publicly funded British Broadcasting Corp. and paid services offered by British Sky Broadcasting Group Plc. Shares in BSkyB, the U.K.’s biggest pay-television broadcaster, dropped the most in almost two years after today’s announcement.

As BT moves beyond its 165-year-old business of offering communications over wires, it’s entering a competitive field with British sports-broadcasting, and one that has frustrated more experienced entrants. The company is poised to spend 1 billion pounds ($1.6 billion) over the next three years on sports rights alone.

BT declined to comment on the venture’s total cost. The service will be accretive to earnings “in the medium term,” said Gavin Patterson, BT chief of retail. “The way to judge this for our shareholders is ultimately is our business growing?”

BSkyB Declines

BT said it will offer the sports channels to clubs and pubs for prices about 80 percent cheaper than BSkyB’s services. It’s also in talks to sell the channels in wholesale deals to Virgin Media Inc. and Talk Talk Telecom Group Plc.

“BSkyB shares are going to get murdered and will have a significant weakness not only today but in the weeks and months to come,” said Alex DeGroote, a media analyst at Panmure Gordon & Co. in London. “BT and Virgin Media are not Mickey Mouse little operators coming from left field. People may be turning away from Sky for the first time in ages.”

BSkyB shares fell 6.2 percent to 809 pence in London, the biggest drop since July 2011. TalkTalk Telecom Group Plc, the U.K. broadband provider split off from Carphone Warehouse Group Plc, dropped 12 percent. BT shares declined 2.3 percent, paring the advance this year to 19 percent.

Bundled Pricing

“Sky Sports is playing in a different league to BT Sport,” Stephen van Rooyen, Sky’s managing director for sales and marketing, said in a statement. “For us, sport isn’t a marketing gimmick to promote another product. We’re long-term supporters and our sustained investment has benefited sports fans and British sport at all levels.”

The company said that an equivalent service from BT would cost most Sky broadband customers more than 110 pounds extra each year.

Among packages today on Sky’s website was a bundle of phone, Internet and TV starting at 36 pounds a month. A bundle including Sky Sports and unlimited broadband is 57 pounds a month.

BT said today that new customers will pay 10 pounds to 15 pounds for broadband service, which includes access to BT Sport. The company’s website advertises bundles of broadband, phone and TV service starting at 30.45 pounds.

ESPN’s Exit

BT has poached star presenters from other networks, including BBC Radio veteran Clare Balding, former English national rugby team captain Lawrence Dallaglio, and Jake Humphrey, a former host of BBC Formula One broadcasts.

“What they’ve done is essentially bought themselves a tool of relevance,” said Guy Peddy, an analyst at Macquarie Group Ltd. in London. “Without pay-TV or access to pay-TV they would struggle to compete in the longer term.”

It’s a risky field even for the experienced. Broadcast rights are expensive -- BSkyB, the U.K.’s most popular paid television company, has said it spends more than 2 billion pounds a year on matches, movies and shows. U.S. sports channel ESPN, one of the most profitable networks ever, lost money on a TV venture in the U.K. and Ireland, prompting parent Walt Disney Co. to exit after less than four years.

In February, London-based BT agreed to buy the venture -- part of a months-long effort to secure rights to matches. The company has also acquired rights to 38 British Premier League soccer games, soccer matches in Italy, France and Brazil, rugby competitions, and tennis tournaments.

Shrinking Revenue

Production and rights to broadcast games will probably cost BT as much as 450 million pounds a year, Peddy said. The company will also have to commit to bidding on the next round of Premier League soccer rights less than two years after starting its broadcasts, he said.

Rights to Premier League soccer games will cost BT almost 500 million pounds through 2016, the company has said. A deal to show Premiership Rugby is worth as much as 152 million pounds over four years, the company said in September.

Reeling from declines in its core fixed-line telephone business, BT will probably report its fourth consecutive year of falling revenue tomorrow. For the year that ended in March, sales may be down 6.1 percent to 18 billion pounds, according to the average of analysts’ estimates compiled by Bloomberg. Profit may slip below 2 billion pounds, the first drop in four years.

The move into sports is in line with the industry trend of TV broadcasters and telecommunications companies increasingly selling the same services in hopes of adding new customers, holding onto old ones, and making them all pay more.

On-Demand TV

BT already has an on-demand TV and movie offering called BT Vision. And it’s part of the YouView partnership, a consortium of telecommunications providers and broadcasters that have developed a set-top box with digital TV channels and video-on-demand.

“The core service portfolios are under pressure,” said Gartner Inc. research analyst Katja Ruud. “In terms of fixed voice and broadband access, in terms of pricing, there is tremendous pressure to add something above and beyond fixed broadband.”

BT and BSkyB’s businesses are increasingly overlapping. As BT expands into programming, BSkyB has been working to attract Internet customers by offering a limited amount of free Web service to customers who buy TV and phone service.

Blocking Ads

BSkyB attracted 152,000 new broadband subscribers, it said last week, helping boost profit for the first nine months of the year by 9 percent, to 994 million pounds, as sales climbed 6 percent to 5.4 billion pounds. In March, BSkyB agreed to buy Telefonica SA’s broadband and fixed-line phone division in the U.K.

BT and BSkyB have already clashed. In March, BT filed a complaint with the U.K. telecommunication regulator claiming that BSkyB unfairly blocked advertisements for its new sports channels. Sky director of corporate affairs, Graham McWilliam, replied last month in an open letter on the company’s website that blocking BT Sports ads on Sky’s sports channel is “perfectly reasonable given the billions that we have invested to build our brand.”

“Sky is blacklisted by BT from advertising on the Web portal aimed at its broadband customers,” McWilliam said. “This has been the case since we entered the home communications marketplace in competition with BT.”

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