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Oil Capital

Sky needs the Premier League regardless of the cost

Soaring rights fees and push-back from consumers puts Sky Plc between a rock and a hard place - but, the Netflix threat means football is vital to the subscription broadcaster's proposition.
Paul Pogba, Manchester United - presently the world's most expensive footballer
The football business is booming thanks to soaring TV rights

In the Netflix-era of streaming media, the near £700mln paid out to the Premier League by Sky simply represents a necessary cost of doing business.

Undoubtedly, it is a lot of money for the TV and broadband bundler to be paying and results out today confirmed that the new Premier League rights deal has taken a bite out of earnings.

Sky’s new rebranding efforts, which will allow users to slim down their sports subscriptions by selecting specific themed channels suggests the broadcaster is seeing increased push back from subscribers.

Ultimately, content is the be-all-and-end-all for broadcasters. Indeed, it is no coincidence that BT, Sky’s biggest telecoms rival, earlier this year moved aggressively to take exclusive rights to the Champions League football in a deal worth £1.2bn.

Frankly, as a consumer, one would be hard pressed to come up with another reason to pay Sky’s annual subscription.

Realistically the sports package, specifically access to live football, is the only real deal breaker for many households as they try to justify paying upwards of £100 per month for their TV and broadband bundle.

At the same time, Sky’s once dominant entertainment offering continues to be eroded.

The rise of Netflix (and to a slightly lesser extent Amazon Prime) means the UK’s couch-potatoes have never had so much access to so much content. And, you could take both of the rival streaming packages and pay just £12 per month, without being tied into an annual contract.

Sky’s marketing people would likely boast that the exclusive content deal with HBO would be the ace up their sleeve, and to some extent they’d have a point.

Game of Thrones is at the forefront of this would-be marketing coup, though, it is probably worth pointing out that the hit fantasy drama is also the most pirated TV show ever.

The first episode of Game of Thrones season 7, which aired earlier this month, was illegally downloaded a staggering 90mln times according to an anti-piracy report (with the vast majority coming via unsanctioned streaming services). Bootleg football streams have, of course, been a challenge that Sky has been dealing with for some time too.

As a broadcaster and content distributor Sky continues to be pressed.

Facing ever more costly competition for football rights and pushback from customers over their bloated subscription fees, the company is between a rock and a hard place – and shareholders will no doubt keep close watch on earnings.

Thursday’s results may, however, surprise some in the City where the financials have been seen as ‘resilient’.  In the twelve months, to June 30, operating profit was down just £97mln at £1.47bn while revenues were ahead 5% at £12.9bn.

The reality is that shareholders are focussed more on corporate and regulatory matters, given the potential takeover by Rupert Murdoch’s 21st Century Fox.

So while Sky subscribers countdown the days until the start of the new Premier League season (its 15 days, by the way), Sky shareholders will be watching Westminster where the government is expected to volley a decision over to the competition watchdog.

© oil Capital 2019

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