The irony of Google’s YouTube launching paid channels in the same week that UK Telco and pay TV operator BT decided to give away its crown jewels for free was not lost on analysts, although the circumstances of the two are totally different.
For YouTube, the launch of a pilot program involving a small number of content producers offering channels at subscriptions from just $0.99 a month is really just testing the waters with little collateral risk to its core business.
But, for BT, the decision to bundle its premium content with English Premier League football at the core represents a massive gamble in its three-way fight with BSkyB (the UK brand for Sky) and Virgin Media. Its fate will be followed with interest in other European markets such as Germany, Spain and Italy, within which football rights also play a big role in the pay TV battle.
BT’s move, though, neatly transfers the battle and impending price war from pay TV to broadband. It reflects the reality that triple play, spearheaded by broadband with fixed line voice very much the junior partner, is where the battleground lies, as operators spread across each and compete for RGUs (Revenue Generating Units) rather than individual customers.
An RGU represents an account for any one of the triple three components of TV, broadband and voice so that a household with all three would equate to three RGUs. As was pointed out by Cesar Bachelet, Senior Analyst at Analysys Mason, the launch of the free BT Sport proposition to the operator’s broadband subscribers is a bid to extend the market for premium sports by undercutting Sky Sports, and so increase BT’s share of the triple play market.
But, Bachelet concurred with most other analysts in believing that the impact on Sky’s pay TV subscriber base would be limited. This is because BT Sport will be available on the Sky DTH platform anyway for £15 ($23) per month, so it will not on its own provide any leverage for churn. Furthermore, if BT really was intent on taking Sky on directly over pay TV, it would have had to spend even more heavily on premium content. As it was, BT spent £738 million ($1.1 billion) over three years for live rights to 38 EPL games per season for the three seasons 2013/2014 to 2015/2016, while Sky took the remaining 118 games per season for £2.28 billion. This breakdown is indicative of Sky’s overall dominance across the whole premium sports spectrum.
Yet, BT’s rights haul is significant and growing all the time. Crucially, unlike the two previous challengers to Sky Sports over EPL rights, ESPN and Setanta, the Telco has financial muscle and is using it to back up the proposition with high profile presenters, such as Manchester United’s popular and insightful footballer Rio Ferdinand.
The strategy, then, is clearly to use free premium content to pull in broadband subscribers from the three principle rivals in that sector, which in addition to Sky and Virgin Media include ISP Talk Talk, which recently launched its revamped pay TV service aligned with the hybrid connected TV platform YouView. BT is also migrating its service to YouView, which as at present will start as a hybrid offering delivering premium content over digital terrestrial and only on demand material via IPTV. But, BT plans to migrate the whole service to its broadband infrastructure with multicast delivery, aiming to cut the cost of using the DTT network run by Arriva and enable a range of interactive services only possible with IPTV and OTT.
BT also reckons on Quality of Service (QoS) over broadband becoming a key differentiator, above all for premium sports with HD delivery. It has been investing heavily in fiber roll-out to increase the number of homes that will have access to its high-speed BT Infinity service. This is based on fiber-to-the-cabinet (FTTC), with optical fiber terminating in a street-side DSLAM and the last few hundred meters to the home over copper using VDSL2 technology. This enables maximum speeds up to 76Mb/s downstream and 19Mb/s upstream, although average levels are somewhat below these headline figures.
Sky, itself, grudgingly acknowledged this strategy with its argument that far from being free BT’s premium content bundling was just a gimmick to sell broadband at a premium price. However, BT has revised its broadband plans to encourage take-up, with BT Infinity now priced at £15 per month, identical to the cost of its sports package over Sky. HD access to the channels however is an extra £3 per month.
Mobile access will be increasingly significant competitively, and that is why BT has returned to the UK cellular business by acquiring 4G spectrum at the country’s recent auction, having demerged its former Cellnet mobile phone operation back in 2001. But, for the moment, the key battleground will be over fixed broadband, where of the big four, TalkTalk has been flat at around 4.05 million subscribers, and the other three still expanding: Sky on 4.3 million, Virgin Media 4.5 million and BT 6.6 million. But, at one time, BT, as the incumbent Telco, had a near monopoly on voice and data, and its bold move to bundle premium content with broadband seems a gambit to regain some of its further dominance. Then, even though TV may eventually all come OTT, when it would not matter in theory who provides the broadband service, for now ownership of the whole end-to-end delivery pipe is deemed a significant competitive advantage by being able to bundle services and optimize QoS.
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