The On-rushing Recession and Football

[Tony Le Mesmer]

I saw an advert for Setanta on the tube this morning and noticed how much extra coverage they have this season.

Got me thinking what would happen if Setanta did an ITV Digital? You have to think that is a reasonably likely scenario. Surely to take on Sky Sports you have to be taking a real gamble, ie, borrowing a lot of money. If subscriptions dont reach expectations, then they are trouble. as the above post said, its a make or break year for them. Lets face it, if you are more likely to ditch your Setanta Subscription than Sky if you coudn't afford both. Under the old deal, you had Sky and that was that. Sky are massive and are far better equiped to deal with a recession. With split TV rights it increases the chance of one company not being able to compete and going to the wall.

The money being spent in football just doesn't add up. something has to give. Small clubs seem to be suffering the most, but they are more protectable by a benefactor with the smaller sums invloved. The debts in the Premiership are just insurmountable should the shit hit the fan. And i think it probably will.

[Dirk Gently]

As previously posted, Setanta are considerably exposed by this contract - and subscriptions are nowhere near their target levels.

It doesn't help that although Setanta have the Rights to the matches and they do the filming, they don't have the ability to broadcast them - they have to use the Sky platform in the main - and especially for pubs. Sky really screw them down contractually on this, and restrict the services available (e.g. no red button etc), so after Sky has had their cut Setanta make a lot less from these services than they planned. In a similar way, Sky restrict the way their matches are sold on other platforms like Virgin Media - I believe people have to subscribe to all Sky sports channels as a package, and again there's fewer interactive services.

There's about to be an enquiry to OFTEL about what some see as Sky's restrictive practices.

Plus the Portsmouth landlady who's being prosecuted for showing PL matches via foreign satellite services is about to take her case to Europe having lost in the UK, and many say she's very likely to win her case under European law.

All of this spells bad news for the next TV contract.

[Royal Rother]

When is the contract up for review? Can Sky reduce the amount they pay?

I believe there is a good chance that Sky will start losing big time on the football contracts as the recession advances. Advertisers just won't pay top dollar anymore so Sky's revenues will be reduced on many fronts. If that is the case, and, as mentioned earlier, if the overseas rights to PL football are not producing the revenues expected (China was the e.g. given), then it seems likely that the bids will be less next time around.

Also, if China are not watching live PL in the numbers expected, how is that going to impact on the longer-term plans of Man Utd / Chelsea et al, who have placed huge importance in the exploitation of worldwide brand merchandising in their business models where ultimate payback to their investors are the vision / dream?

Maybe TMD can correct me, but didn't the Glazers publicly express their intention to set up their own direct subscription TV Channel to China / Korea? Or was that just media guesswork?

[Silver Fox]

Advertisers just won't pay top dollar anymore so Sky's revenues will be reduced on many fronts.

I'm no expert but I believe that advertisers are cutting the amounts they'll pay at the moment thanks to the advent of PVRs, making it a load easier to skip ads. However I'd guess this is less of an issue for sports as in the main the events are watched live and you can still reach the market.

[Royal Rother]

Interesting. I think the main point is that if profits aren't there the big companies will cut their advertising budgets. How many mind-boggling millions do the car manufacturers spend at the moment? If new car sales are down by say 30% from a couple of years ago then it stands to reason their advertising spend will have to be cut as well.

Still, I suppose Ocean Finance won't need to cut their budget! (However they won't have to spend as much to get the good slots if the market rates decline of course...)

[Dirk Gently]

When is the contract up for review? Can Sky reduce the amount they pay?

Negotiations for the next contract(s) start in January - each set of contracts is for 3 years, and we've just started the second year of the current one. It's essentially a bidding war - they auction off each of the packages (e.g. 5 for UK satellite broadcast rights, the most valuable being the Sunday 4 pm slot) and whoever bids highest wins them.

So Sky or whoever will bid the lowest they think they can bid and still secure the package - and still make a profit from it. That figure must inevitably be coming down.

Also, if China are not watching live PL in the numbers expected, how is that going to impact on the longer-term plans of Man Utd / Chelsea et al, who have placed huge importance in the exploitation of worldwide brand merchandising in their business models where ultimate payback to their investors are the vision / dream?

I understand that while there is massive media and public interest in the "global brand teams", the trouble is translating that into actual revenue. The top 5% or so of the population will pay for satellite subscriptions and genuine merchandise, but getting the mass-market to cough up is lot harder. One of the major beneficiaries of overseas tours are the local counterfeiters, who can knock off hokey shirts for a fraction of the price of official merchandise. And, of course, anti-copyright laws in China and many African/Far Eastern countries are worse than useless.

[TheMaraudingDog]

Maybe TMD can correct me, but didn't the Glazers publicly express their intention to set up their own direct subscription TV Channel to China / Korea? Or was that just media guesswork?

Not sure exactly what was said but Asia was certainly an area which they wanted to ‘exploit’ – as has been pointed out on here since though and as what was said by the various United groups against the takeover; the Asian market is a myth – the shirts are fake and the viewing is free – there is very little money to be made.

IMO the only area where there is potential for big money to be made is America, however that’s proving to be a very tough nut to crack.

[papereyes]

Maybe TMD can correct me, but didn't the Glazers publicly express their intention to set up their own direct subscription TV Channel to China / Korea? Or was that just media guesswork?

Not sure exactly what was said but Asia was certainly an area which they wanted to ‘exploit’ – as has been pointed out on here since though and as what was said by the various United groups against the takeover; the Asian market is a myth – the shirts are fake and the viewing is free – there is very little money to be made.

IMO the only area where there is potential for big money to be made is America, however that’s proving to be a very tough nut to crack.

United have been after 'the Asian market' for as long as I can remember.

The horror story when the Glazers took over was about them negotiating their own TV deals in England thus devaluing the overall Premiership deal.

[Royal Rother]

When is the contract up for review? Can Sky reduce the amount they pay?

Negotiations for the next contract(s) start in January - each set of contracts is for 3 years, and we've just started the second year of the current one. It's essentially a bidding war - they auction off each of the packages (e.g. 5 for UK satellite broadcast rights, the most valuable being the Sunday 4 pm slot) and whoever bids highest wins them.

So Sky or whoever will bid the lowest they think they can bid and still secure the package - and still make a profit from it. That figure must inevitably be coming down.

I know this has long been a bit of a hobby-horse of mine, (and may be getting a bit boring now) but what on earth will happen to clubs who have players on 3-4 even 5 year contracts for massive wages who are hugely reliant on Sky money to pay them, if the revenues from the TV contract declines in a year or 2's time (notwithstanding reduction in other revenues like merchandising etc.)?

Those business models are going to be completely buggered and if the rich men who own the clubs are not prepared to chuck loads more into the hat (whilst, as I said yesterday, their own portfolios reduce in value as the recession bites everywhere) then a meltdown of apocalyptic proportions will hit the game over here!!!

[6ft Kerplunk]

Interesting article here on pubs ditching Sky Sports.

[Rev Algenon Stickleback H]

In a similar way, Sky restrict the way their matches are sold on other platforms like Virgin Media - I believe people have to subscribe to all Sky sports channels as a package, and again there's fewer interactive services.

I'm not sure if this is quite what you mean, but you can get Setanta on Virgin Media without having any SKY channels at all. It's part of one of their standard packages.

[Dirk Gently]

In a similar way, Sky restrict the way their matches are sold on other platforms like Virgin Media - I believe people have to subscribe to all Sky sports channels as a package, and again there's fewer interactive services.

I'm not sure if this is quite what you mean, but you can get Setanta on Virgin Media without having any SKY channels at all. It's part of one of their standard packages.

Yep, I was talking about the options for getting Sky Sports packages (specifically) on Virgin Media - they are far more expensive to Virgin Media subscribers than to Sky subscribers, and have fewer interactive facilities.

[TheMaraudingDog]

In a similar way, Sky restrict the way their matches are sold on other platforms like Virgin Media - I believe people have to subscribe to all Sky sports channels as a package, and again there's fewer interactive services.

I'm not sure if this is quite what you mean, but you can get Setanta on Virgin Media without having any SKY channels at all. It's part of one of their standard packages.

Yep, I was talking about the options for getting Sky Sports packages (specifically) on Virgin Media - they are far more expensive to Virgin Media subscribers than to Sky subscribers, and have fewer interactive facilities.

I don't really see a problem with that. Make your product better and cheaper and you'll get more customers.

[Dirk Gently]

I'm not sure if this is quite what you mean, but you can get Setanta on Virgin Media without having any SKY channels at all. It's part of one of their standard packages.

Yep, I was talking about the options for getting Sky Sports packages (specifically) on Virgin Media - they are far more expensive to Virgin Media subscribers than to Sky subscribers, and have fewer interactive facilities.

I don't really see a problem with that. Make your product better and cheaper and you'll get more customers.

Nor do I if it was just a case of selling the product like that in a fair market. But in this case Sky owns both the product and one of the competing means of delivery, and what they're releasing for sale to the other owners of product delivery mechanisms is a lower quality and higher cost product, so they're not giving the likes of Virgin Media the ability to compete with them.

Effectively, their product is only better and cheaper because they use their content ownership power to make sure what other people have to sell on is something that is worse and more expensive. It may be good business but it's against competition laws.

[Royal Rother]

Branson -v- Murdoch in the courts would be fun.

[TheMaraudingDog]

so they're not giving the likes of Virgin Media the ability to compete with them.

Effectively, their product is only better and cheaper because they use their content ownership power to make sure what other people have to sell on is something that is worse and more expensive. It may be good business but it's against competition laws.

If Virgin Media can't compete with Sky then they shouldn't. It would be like Hatton getting in the ring with Lewis, only going to be one winner!

Competition Law really pisses me off. Sky were first off the mark with the extra TV channels on offer, have captured most of the market and have a good product that is of (IMO) a decent price. Thanks to "Competition Law" Setanta now get to show a few games which would be at more cost to me, more cost that I'm not going to pay.

I can't see why Sky are not allowed to tell Virgin to do one, Virgin uses Sky's infrastructure as it is.

[Royal Rother]

Take your point but you need Competition Law to ensure a competitive market - otherwise customers will be ripped off forever and ever amen.

[TheMaraudingDog]

Take your point but you need Competition Law to ensure a competitive market - otherwise customers will be ripped off forever and ever amen.

If Sky could do what they wanted with regards to content ownership and pricing do you actually think the subscription fee would be much higher than it is know? Sky is an absolute luxury so its not as if consumers will be forced to subscribe. They know better than anyone that a £1 increase in price will lead to x amount cancelling their subscription. They have to get the balance right between price, revenue, cost and profit so I doubt its in their interest to increase the prices much further than they are now. Especially with other factors such as fewer subscribers = less advertising revenue.

For me, I’d prefer Sky to own everything they possibly can. This would mean that my product would be better and I still believe it would be at a decent price.

I couldn’t really give 2 shits if this means that Virgin TV goes bust.

[Royal Rother]

Again, I do understand what you are saying but ultimately the power that comes with absolute domination (in almost any walk of life, but especially in business) is corrupting.

[Dirk Gently]

The problem comes that when they have a monopoly there is nothing whatsoever to stop them putting prices up to a point where not even you would be able to afford them.

Fair competition stops that happening.