BoAML: Significant earning risk for BSkyB after BT Sports offering
Bank of America Merrill Lynch (BoAML) has predicted that there will be significant earning risks for Sky as a result of BT Sports’ Premiership offering.
BT announced on Thursday that its Sports HD channel will be available free to all BT Broadband customers in a bid to appeal to the vast majority of UK homes, of which only one in five currently subscribes to a sports channel.
BoAML says there is a major risk of revenue loss for sky.
While rival BT’s TV offering does not have the depth of Sky’s, BoAML expects that the offering will appeal to a number of Sky’s five million subscribers.
To encourage the switch, BT Sports will be free to a Sky home if they cancel Sky broadband and switch to BT – a net saving of over £10 per month, putting tremendous pressure on Sky. BT will offer two new broadband packages, including BT fibre for £15.
BoAML also says that Sky’s commercial revenues are at risk as BT tries to undercut the corporation – by 80% – with the launch new commercial offers for pubs and clubs – the first competition in the commercial TV sports market.
According to BT, a typical pub that subscribes to BT Sport could save 78% compared with the cost of Sky.
In addition to this, the move also undermines Sky’s HD pricing, which accounts for approximately 27% of Sky’s profits.
As a result of BT’s offering, Sky will likely respond with discounts and free fibre the bank says. However, it forecasts significant earning risk for Sky given that it is a ‘fixed’ cost business, with a small change to subscribers and revenues having a ‘disproportionate’ impact on profits.
Commenting on the news, Jonathan Doran, principal analyst at Ovum said, “The BT Sports offer marks a significant departure for BT from its previous TV service positioning. The unbundling of affordable access to premium sports content from regular pay-TV subscriptions is a move that will be attractive to many consumers.
“This, coupled with the subsidised sports offer for broadband customers will certainly help BT consolidate its leadership in the retail broadband access market. As well as defending its broadband business, it is also important for BT to increase its own TV market share, as this will drive much-eeded additional ARPU growth. BT will be hoping that, backed with a big marketing campaign, the new BT Sports channels (which are also free to BT TV customers) will drive greater take pay-TV up.”
Ovum believes BT’s TV strategy remains muddled, with two distinct brands still cluttering its messaging and some unclear benefits listed attributed to its various TV packages. It says much work is therefore needed to simplify the offering and drive home the advantages of BT’s TV service over that of the competition.