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23 January 2020

Piracy conspires with politics, commerce – to slash into Middle East pay TV

Pay TV subs and revenues in the Middle East continue the decline that set in during 2016 amid little sign of the region’s piracy problems being resolved. The diplomatic dispute between Saudi Arabia and Qatar that erupted in 2017 has almost universally been pinpointed as the root cause of subsequent loss of pay TV revenues on the grounds that it precipitated the rise of BeoutQ which then perpetrated piracy on an industrial scale.

The beIN Media Group, which has held supposedly exclusive rights to major sports across the Middle East, has claimed that BeoutQ’s piracy and retransmission of the signals in Saudi Arabia has cost it $1 billion, a figure endorsed in a report by MarkMonitpor commissioned by FIFA, the AFC, UEFA, the Bundesliga, LaLiga, Lega Serie A, LFP and the English Premier League.

This may be a slightly rose-tinted view of the revenues beIN Sports would have gained without the piracy, but it is not too far off the money and confirms that this was the biggest single act of rights theft yet. The success of beoutQ and the knock-on consequences for premium sports and leagues globally can undoubtedly be traced to Saudi Arabia’s at best inaction over the piracy being conducted within its borders.

The country was clearly irritated by beIN Sports’ status as a virtual monopoly holder of premium rights syphoning revenues from Saudi Arabia to Qatar, but this was hardly grounds for condoning piracy. But the bigger point that has been widely missed is that the Middle East was already a hot bed of piracy before beoutQ upped the ante so dramatically, before even the fall out between Saudi Arabia and Qatar.

Piracy appears to be more accepted there not just by consumers but also governments, except when it impinges on their own rights holders as in Qatar with beIN Media. Indeed, the primary reason beIN Media was able to secure such a monopoly position, even if it turned out not to be so secure, was that the region’s biggest pay TV operator, OSN, had already pulled out of the field, citing rampant and uncontrollable piracy in the region as the reason.

OSN’s CEO at the time, Martin Stewart, said in 2017 that piracy was already costing the entertainment industry in the Middle East $500 million annually, with losses across all genres, including films and TV shows as well as sports. Notably, OSN singled out sports as the area hardest to control and began extricating itself from the field. It then operated six own-brand sports channels from its base in Dubai, UAE (United Arab Emirates), as well as the US-owned streaming service WWE Network. Five of these were shut down in 2018, followed by removal of WWE Network in March 2019 and then finally closure of the OSN Cricket channel in July that year, the day after the final of the 2019 Cricket World Cup.

OSN has continued to pursue pirates aggressively in its other areas and has also, in echoes of the beoutQ case, been in dispute with Dish TV India amid allegations the latter has allowed pirated content to leak into the Middle East in various ways. This came to a head in March 2019 when a UAE court rejected an appeal against an illicit Dish TV India dealer’s sentencing for piracy in the country. The court also upheld a decision to destroy all Dish TV India set tops, smart cards and remote-control units that had been confiscated. OSN had also taken the fight into India, filing a suit for infringement and damages before the Delhi High Court, which led to an injunction against Dish TV India preventing the latter from exporting its set tops or receiving any subscription revenue from other countries.

This last action also has echoes of the beoutQ saga, since foreign leagues had contemplated taking legal action inside Saudi Arabia, but gave up after finding it impossible to recruit legal counsel there willing to take up the case. Again, this highlights why combating piracy is hard in the Middle East, where it is entwined with politics as well as commercial interests. Efforts by sporting bodies to isolate Saudi Arabia and bar the country from major events have been compromised by the wider crisis over Iran and associated regional alignments.

There is also reluctance to mix decisions over sporting participation with what can be seen as commercial interests, even if the futures of some of the leagues and events concerned are at stake. There had been talk of banning Saudi Arabia and its clubs from all international football competitions, at a time when other sports such as boxing and snooker were anointing the country with their patronage by staging major events there for the first time. Such mixed signals are hardly conducive to deterrence.

The Iran situation may seem to give Saudi Arabia cover to continue being a bad cop. On the other hand, it does not wish what started as a local spat with Qatar affecting its larger regional and global strategic objectives. Its administration has been much less vocal recently defending Arabsat against external criticism, even if major leagues were perhaps unwise to accuse the operator of directly supporting beoutQ by carrying its signals.

We recall that Arabsat responded robustly to charges from the leagues it was supporting piracy with veiled threats of its own, but that has all subsided. Meanwhile beoutQ signals have been largely withdrawn from satellite with its focus now on IPTV distribution via its own boxes, indicating that pressure on the government has had some impact.

But a lot of the damage has been done and poses an existential threat, partly because leagues now depend on international rights revenues and partly because beoutQ boxes have spread to other regions. Such boxes can be used to access content to the same sports from other operators, such as Comcast’s Sky and Disney’s ESPN. The loss of Middle Eastern revenues is though more immediate, with beoutQ, after laying off 300 at its Qatar headquarters, stating that it would not be bidding as much for premium rights in future.

What is beyond doubt is that the fallout has dented pay TV subs and revenues across the region, even if less than expected. The latest data reported by Digital TV Research more or less confirms our own findings, that pay TV subs in the 13 Arabic speaking countries of the Middle East and North Africa fell by 5% between 2016 and 2019 to 3.58 million. Revenues fell more sharply by 15% to $1.05 billion because ARPUs had shrunk, partly on account of the impact of piracy diminishing the value of rights.

This comes close to home because our forecasting arm Rethink TV was accused by no less than BeIN Media CEO Yousef Al-Obaidly of being overoptimistic in forecasting that global sports rights would reach $85 billion value by 2025, 77% up on the 2018 figure. We should point out that BeIN Media itself has spent $15 billion on rights and is now intent on talking down the market.

The Rethink TV forecast in the report Globalization lifts TV sports rights past $85 billion future, Sports Rights Forecast to 2025, was driven by a number of factors, such as rapidly rising consumption of major sports in developing countries and also the potential of streaming to deliver revenue to second line sports through aggregation of audiences. It is true also Rethink TV made the assumption piracy would be kept in check so that it does not undermine the business models that sports have come to rely on, at least no more than has happened so far. If that is not the case, then all bets are off.

BeIN Sports has had its fingers badly burned but the fire has not yet incinerated operators outside the Middle East to anywhere like the same extent, nor the sports whose rights they have acquired. But BeIN’s warnings should be heeded not just within the sports and media industries but also by governments, given that over piracy Saudi Arabia has been behaving like a rogue state.