Will new media become fashionable again?  

Tony Singh, sport and media consultant at UK law firm Addleshaw Goddard, looks ahead to a possible new wave of rights deals in the UK during which new media might become de rigeur again.

While attending a conference in Madrid during mid-May 2003 [SportAccord], aimed at international sports federations, Jacques Rogge, president of the International Olympic Committee (IOC), said that "sport is at the crossroads". He was talking about the industry's ability to engage and enthuse a new generation of fans and players, and one of the themes of the conference was the important role that technology would play in this process.
However, the commercial contribution of technology - certainly new technology - to sport is still open to question. After a decade of continuous growth - in media rights values, sponsorship deals, licensing and merchandising - professional sport in the UK finds itself in a much more circumspect environment. The negotiations taking place during the UK's summer months - with new TV, broadband and third generation mobile (3G) deals for Premiership soccer - will indicate to what extent media values have fallen from the "feeding frenzy" (in British Broadcasting Corporation director-general Greg Dyke's opinion) that characterised the last rights auction in June 2000.
Some analysts are again beginning to talk about new media rights once again as a valuable incremental revenue stream for sports. The UK trade magazine New Media Age recently concluded that this summer in the UK will see the largest land grab of sports new media rights ever. Therefore is the genre of new media about to become fashionable again?

Lessons from 3G

Let's look at 3G as an example - the latest of the new media being touted as a significant driver of revenue for sport. Last time around, telecoms giant Hutchison bet around $65.57m on English Premiership soccer's ability to drive subscriptions for its nascent 3G service. At the time, the technology was unproven, and with the major mobile networks about to launch their 3G services, the theory is that the next 3G contract is likely to be much more significant. However, even a cursory look at Hutchison's subscriber numbers in the UK (under the brand name 3) may be enough to disabuse bullish analysts of that notion. Hutchison was prepared to pay $65.57m in 2000 because the new technology was all about potential and imagination. As reality has bitten and technical difficulties have to date failed to realise the vision of 3G pioneers, it is difficult to see the figure reaching quite as high again.
However, it would be foolish to discount the possibility. For one thing, to simply analyse the direct ROI for Hutchison misses the point. English Premiership rights aren't necessarily meant to pay for themselves with millions of people suddenly trying to watch goal highlights on two inch screens. Instead, they are the marketing battering ram with which Hutchison will attempt to convince us that we need a 3G phone rather than the perfectly good 2.5G ones (also capable of handling video clips, by the way) that we have at the moment. This is exactly the way that UK satellite broadcaster BSkyB built its subscription base - at least after it belatedly realised that soccer rather than Hollywood movies was the way into the UK's hearts and homes. It is also the broadcaster's major point of differentiation when (although I suppose we might now have to say if) all of the networks offer 3G services.
This makes the imminent renegotiation particularly tricky for Hutchison. If it allows a competitor to purchase the Premiership rights, the brand that it has spent tens of millions on building will simply collapse. Whilst in pure economic terms we might accept that it is unrealistic to expect the mobile telco to pay $66m again, dare it risk being outbid? And would Vodafone, T-Mobile or Orange view a $82m bid as a small price to pay to effectively drive a competitor out of business? This would have further positive ramifications for these businesses: the spectrum capacity that Hutchison bought from the UK government might then be available at significantly more attractive prices than extracted three years ago.

Which came first - the soccer or Sky?

In short, Hutchison is in the position that Sky found itself in at the time of its first renewal with the English Premiership in 1996 - needing soccer far more than soccer needs it. In 1996, Sky had invested massively in marketing and technology and was suddenly faced with the prospect of its most popular subscription-driver - soccer - walking away to a competitor. Fuelled by this fear (and to some extent the success of Euro '96) Sky moved from paying $62.27m per year to $273.7m per year for exclusive Premiership soccer rights. History could repeat itself this summer in the UK, although probably not on that scale.
Of course, Sky today is not in the same position at all. In 2000, it faced significant competition from a number of UK broadcasters - ITV Digital, the BBC and a confident cable industry. The advertising market was buoyant. Viewing figures for soccer were rising, apparently inexorably. The stock market was booming. Most importantly, the pay-TV market was in transition from analogue to digital and Sky had to win a whole new competition for customers.
Now, these conditions are fundamentally different. There is no relevant competition, despite the Premiership clubs' occasional talk that they could set up their own TV operation. We have still not seen a recovery in the advertising market - the traditional sporting bellwether of the SuperBowl reveals that 30-second slots peaked at $2.78m in 2000; this year slots were sold for around $2.13m. Moreover, the current highlights packages (there are two, one for Saturday and one for Sunday/Monday) owned by ITV are estimated to be losing $1.2m per week. As debate continues about whether there is too much soccer on television, viewing figures outside the 'premium' fixtures are on the slide.
Most importantly, however, Sky is no longer in a customer-acquisition phase (the phase where Hutchison currently finds itself). Sky's publicly-quoted targets have moved away from being in x million houses in the UK - and are now focussed on the amount of revenue that it can extract from its users. The key metric for Sky now is the Average Revenue Per User figure (ARPU), and its target is $656.
Clearly, Sky is no longer going to use soccer content as a loss-leader with which to build the necessary scale in its business. However, that ARPU figure might just be a clue that the financial love-affair between Sky and the Premiership is set to continue.

Harnessing interactive revenues

In its last financial year, BSkyB made $304.8m in interactive revenues - that is from the services that it offers when you 'press red' on your remote control, and $155.69m of this was gambling revenue (it acquired a bookmaker, Surrey Sports, in 2000 and have subsequently re-branded it SkyBet). You can bet a fair amount of money that the majority of this was soccer-related - online bookmakers average around 60% of turnover on soccer; interactive TV betting's proportion is even higher.
A couple of years ago, at the height of the dotcom boom, sports executives were rubbing their hands in glee at the incremental revenues on offer from these types of services. At present, they are probably prepared to be more realistic and accept that these sums are in fact among the ways in which broadcasters like Sky will drive a return on their investments in soccer and other sports. And they might - just might - allow sports to continue receiving the size of rights fee that they have become used to.

Tony Singh, sport and media consultant at Addleshaw Goddard, can be contacted at: Tony.Singh@addleshawgoddard.com

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