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16 March 2023

Serie A tires of farce, considers Sky Italia operator acquisition

Italian top-flight soccer league, Serie A, is apparently considering acquiring Sky Italia, part of Comcast’s European empire. It seems that patience with DAZN, the current Serie A rightsholder, is wearing thin enough that we might see an unprecedented move by a sports league to purchase an operator.

It was only back in August that Faultline concluded that at its current clip, DAZN should be stripped of its soccer streaming rights – with users subjected to a 50% price hike while suffering poor quality, outages, and login issues. While a kneejerk reaction, it is this sort of conclusion that kicks companies like DAZN into action, and we understand this headline caused quite a storm. This comes after Italian regulator Agcom went as far as threatening to implement a compensation system, if DAZN’s streams missed performance thresholds. In response, DAZN promised 25% refunds to subscribers, after an Inter Milan versus Napoli match suffered major playback problems.

Local outlet La Stampa reported that the bid was being presented by Serie A’s leader, Luigi de Siervo, to the 20 Italian clubs in the league. The goal is to construct a direct-to-consumer (D2C) streaming service, and the teams must decide on whether to bid for just Sky’s sports division, or for the entirety of the operator.

If the teams opt for the latter, they will reportedly lean on third-parties for the bid. These include Barclays, JP Morgan, and Goldman Sachs. The big question is what sort of premium would be required to part Comcast from its Italian operations?

Sky Italia has also announced a ‘voluntary’ redundancy program for 800 roles, in addition to 400 declared in 2021, which suggests more than a few operational headwinds. Given that Comcast is rumored to be looking for a buyer for its German operations, it may well be that there is no smoke without fire – and that it has made it clear to Serie A that a deal is potentially on the table.

A report from Reuters said that the 20 clubs had not reached a decision in the initial meeting, and that a follow-up was due by the end of March. At the same time, Serie A is due to begin the sale of the 2024 season’s rights, and DAZN’s failures will be top of mind.

Sky Italia holds rights to around 30% of the weekly games, with DAZN holding the rest. Sky Italia is thought to be paying around $280 million for a three-year contract, while DAZN has paid around $2.9 billion. Sure, the money is nice, but the reputational damage for Serie A has been hard to stomach.

It would be quite dramatic, to acquire the entirety, to essentially reclaim the sports rights – especially as the DAZN deal is set to expire in 2024. If Serie A wanted to go D2C, it could simply wait for the deal to close, find an online video platform to run the service, and launch an OTT app in 2024.

However, this is where the bid for Sky Italia becomes clearer. Italy’s fixed-line infrastructure has been relatively poor in performance, compared to its neighbors, for some time. The Netflix ISP Speed Index finding a top speed of just 3.6 Mbps for the country, from Sky Italia, is pretty damning evidence of this problem.

This is why DAZN has found itself in hot water. For Serie A, simply changing the name on the OTT app would not fix the problem of poor streaming quality due to lack of fixed-line capacity.

With control of Sky, Serie A could use the conventional satellite distribution infrastructure, to distribute a good portion of the viewing requirements. This would cut the OTT burden significantly, which might be enough to immediately relieve the headache, but if you take the view that all sports will eventually move to D2C distribution, then there needs to be a proper fix for the bandwidth issue in the longer term.

Fortunately, there are promising technologies at hand. The most applicable here is Multicast Adaptive Bit Rate (M-ABR). In the current DAZN model, every viewer is receiving a unicast stream of the same live soccer game, which is very traffic intensive. M-ABR would essentially provide a way to broadcast the game to viewers, using multicast one-to-many streams.

However, for Italy, there are problems in both the last-mile access networks, and in the ISPs’ core networks. M-ABR should help alleviate pressure in both, but without a peek behind the curtain, it is hard to say which of the two is the more pressing concern. Single-digit last-mile access speeds are so laughably poor that it suggests a problem further back in the network, as even twisted-pair copper lines should be capable of at least low double-digits these days.

Broadpeak and TIM have an M-ABR deal in place, where DAZN leverages the M-ABR stacks inside the TIM CPE to allow viewers to tap into the multicast stream. Faultline covered this back in December 2021, and should Serie A want to embrace M-ABR, it would have to commission a provider like Broadpeak, and somehow negotiate with each of the ISPs, to enable the requiring code to be installed inside their applications and equipment.

This is not insurmountable, but it would be an organizational pain – negotiating agreements with the ISPs individually to ensure sufficient quality of service (QoS). Should Serie A acquire Sky Italia, it would be able to push for Sky to quickly add M-ABR support to its operations – giving it M-ABR capabilities with two of the major operators.

Meanwhile, Serie A would be able to fire off some incendiary press releases, to force the other operators to get on board. Italian consumers are frustrated with the current situation, which has gotten bad enough that Italian politicians have sought to address the problem. In such a climate, it might only take a few tweets to affect the share price of the likes of TIM, Fastweb, and Iliad.

The other promising technology is Open Caching, the Streaming Video Technology Alliance’s (SVTA) specification that aims to create a common set of APIs to enable content caching much closer to the end-viewer. We know that Italy has at least one tentative Open Caching deployment, and should Serie A push to enable its contribution workflow to support the OC specs, it should enable all the ISPs to configure their own infrastructure to ingest and cache the live games inside their networks.

The billing APIs have not been developed yet, by the SVTA, which complicates matters, and while you can cache live content, this would be quite a major undertaking for the nascent technology. Open Caching would reduce the burden of the ISP core networks, but if the bottlenecks are still found between the caching server and the end-viewer, Open Caching would not solve the problem. Similarly, this would be quite the trial by fire for the Open Caching concept, but if it is successful, would go some way toward proving that the approach is viable at scale.

Without knowing the precise source of the congestion, prescribing a technological salve is guesswork. We have previously covered how the enhancement layer of LCEVC would be brought to bear, at Sky Italia particularly, but it does seem true that in Italy, any improvement would be keenly felt.

A combination of M-ABR, Open Caching, and LCEVC would sound like overkill in any other market, but in Italy, it might be only just enough to provide acceptable QoS.

Last month, JP Morgan and Goldman Sach’s names were mentioned in coverage of an Italian government decision to allow the current Sky and DAZN deals to be extended past their 2024 expiry, if Serie A cannot get a better offer through its usual tender offer.

The contracts appear to have a five-year extension clause in them, but it is unclear why the Italian legal system needs to get involved in those decisions. Nonetheless, the two international banking firms said they were interested in investing into Serie A’s media business, whichever form this takes.

To see their names floated again suggests that perhaps the smaller stake is the likelier of the outcomes.