Day of reckoning for BT Sport after price surge

BT Sport’s price hike of up to £48 ($63) a year, or 67% on its standard package, marks the end of a prolonged honeymoon for its subscribers but could also signal the start of its own decline. It also highlights the faultlines starting to appear in live sports broadcasting globally as the specter of league and event organizers going direct to the consumer (D2C) looms larger.

BT Sport kicked off in 2013 after acquiring a package for 38 English Premier League matches for the 2013/2014 season, or one match per round of fixtures, leaving its competitor Sky with a much bigger package. It then secured a major if expensive coup by beating Sky to the prestigious European Champions League and the lesser Europa League for the three seasons 2015/2016 to 2017/2018 and then retained it for the next three seasons running into 2021, paying £1.2 billion ($1.6 billion) second time round. The initial strategy was to accumulate subscribers to its broadband service so access to sports was bundled free.

But BT first started charging in January 2017 and then ramping up the price, being perhaps emboldened now to push higher than expected by a surge in English subscribers inspired by the progress of two of its teams to the Champions League final.

It is a big bet on the Champions League alone being sufficiently compelling to keep subscribers on board despite the hike, given that Sky has the much bigger package of domestic league matches and other sports offers.

It is true the rise is smaller at 10% for broadband-only customers viewing the service via the BT Sport app, taking the price to £11 a month, but it comes at a time Sky has frozen its sports prices and also increased flexibility by allowing users to subscribe to individual channels and then cancel on a monthly basis so that football fans can unsubscribe during the close season for example.

Sky has also moved closer to pay per view with its Day Pass for access via its OTT service Now TV, as well as moving into temporary sports channels lasting for the duration of an event or series, like Sky Sports Ashes this summer for the England versus Australia cricket test matches.

BT Sport meanwhile has come to a plateau and even started descending gently the other side and we would bet on its six years of ECL coverage in the UK representing its summit, even though it is not going to disappear from premium live sport at a stroke. The whole BT Group has clearly been distracted by other priorities, including fiber roll out, coping with pensions debts and also the expansion into mobile and 5G infrastructure, even though the latter will help sustain an interest in at least staying on board with premium sports.

Sky has already signaled its intent to prize back the crown jewels of EPL rights and there are also some indications Amazon Prime will come into the bidding, having been enthused by reception to its packet of mid-week EPL matches in the UK.

The price hike coincides with a decline in BT Sport’s overall range of coverage, having shed rights to NBA basketball and losing ground to both Sky and Amazon for EPL after 2021, with none of the big games or “first picks” anymore. The latest price hike then resembles a country with an ailing economy desperately trying to balance the books by raising taxes when that actually accelerates the decline.

But faced with rising rights and programming costs, which were 10% up at £841 million in 2018, and these other priorities, BT perhaps has nowhere else to turn, although a possible divestment of BT Sport is looking increasingly likely. Currently it is in a state of limbo in the middle of a major rights run and a pivotal moment will come late in 2019 when the auctions for the next round of soccer matches begin.

There was one slight reprieve for BT Sport when Eleven Sports, a UK online-only service that had lofty ambitions to become the Netflix of live sports, ran into difficulties after splashing out too boldly on what might be called secondary rights to major leagues in foreign countries. It had also secured rights in the UK to the Ultimate Fighting Championship, an American mixed martial arts promotion company, but this blew up when UFC triggered an exit clause after Eleven Sports failed to secure distribution rights with either Sky Sports or BT Sport. Coverage therefore reverted to BT Sport and Eleven Sports has scaled back after discovering that it lacks the muscle or sufficiently compelling rights to make much headway against what was effectively a sports duopoly between Sky and BT.

This was greeted by some analysts as a blow for OTT sports streaming in general, but it was just a temporary reality check for aspiring service providers getting ahead of themselves without adequate planning or financial backing. Amazon with its deep pockets is better primed for success and is biding its time, gaining experience and acknowledging that sustained investment over several years is needed to build up the production infrastructure and expertise from which a more major assault on premium rights can be launched. This looks like happening around 2020 or 2021 when a lot of major sporting rights around the world enter their next cycle.

Amazon has been slowly accumulating sports around the world, especially North America and Europe, examples being UK rights to ATP Tennis, while adding Major League Baseball’s (MLB) OTT service, MLB.TV, to its Prime Video Channels platform in the US. In Europe it has recruited a head of territorial acquisitions to seek rights across the continent beyond the UK.

The question then is how Amazon packages its sports content when it has become a significant player in multiple markets. For the moment, its strategy is still to drive Prime subscriptions which then in turn brings in digital advertising and helps gain market share against Facebook and Google. But to justify the huge outlay that would be needed to make a dent in global sports rights currently worth around $45 billion a year, Amazon will likely hive off a dedicated sports channel which could be free and even outside the Prime umbrella, funded entirely by advertising, although likely with some subscription element.

Amazon will not be the only major player in OTT sports, with YouTube also building its rights portfolio and signs Apple will get involved. This brings the story full circle as Apple TV has edged closer to BT Sports through a partnership with BT’s mobile arm EE. Under this deal, EE is offering customers an Apple TV 4K box bundled with a BT Sport subscription for £7 on top of the cost of EE’s pay TV service.

EE first developed an IPTV service using set tops made by France’s Netgem in 2014 but that was before it was acquired by BT in 2016. BT meanwhile had developed its own hybrid service based on the legacy YouView platform for streaming live and on-demand TV. However, EE’s own TV product to customers for an additional £8 a month provided access to premium on-demand content via the EE TV app, as well as the usual Freeview TV channels and PVR features. We anticipate BT steering more towards EE TV and partnership with Apple, suggesting that BT Sport may be retained after all.