Sky’s football dominance at stake as rivals covet German TV rights

Berlin/London/Rio de Janeiro: Rupert Murdoch’s grip on European football is being challenged again.

Sky Plc, which has lost exclusive hold on English soccer broadcasts in recent years, now risks the same fate in Germany as rivals such as Deutsche Telekom AG and Discovery Communications Inc. prepare to bid against it in a TV rights auction. Sky, controlled by Murdoch’s 21st Century Fox Inc., has relied on Germans’ passion for teams such as Bayern Munich and Borussia Dortmund to win customers and a setback in the auction could derail its momentum.

Sky’s early bet on soccer broadcasts’ rising popularity—it has held the rights for almost a decade now—has paid off by making it Germany’s dominant pay-TV provider. Even as the auction price is forecast to reach €1 billion ($1.1 billion) a season, rivals are now set to challenge Sky for the games to attract subscribers and advertisers as movies and TV shows are moving online to services such as Netflix.

“Live domestic football is the best of the rights available,” said Dan Jones, head of Deloitte’s Sports Business Group. “They have that year around quality to attract and retain a subscriber base.”

Sky’s hold on German soccer dates back to the early 1990s, when its predecessor Premiere showed the first games live. The last time it lost the rights was in 2005, when cable operators Unity Media and Kabel Deutschland beat Premiere, causing the company’s shares to collapse as much as 43% in one day.

The company bought them back for the 2007-2008 season and has held onto them since. Sky’s subscriber base in Germany and Austria has grown from about 2.6 million in 2010 to about 4.5 million today.

In a potential blow to Sky, German regulators may ask that the live rights go to more than one TV outlet for the first time. That would make the market similar to that of countries including the UK and Spain, where leagues have boosted revenue by selling rights to multiple pay-TV companies.

In that scenario, Sky could end up paying more than its winning bid in the previous auction for a smaller number of games, said Guy Peddy, an analyst at Macquarie Group who rates the stock outperform. Still, a broadcaster can be successful even with just a portion of the rights, said Deloitte’s Jones.

“As long as you still got a significant portion of the rights, the people who are big fans of that competition want to maintain their subscription,” Jones said.

Sky and BT last year agreed to pay a record £5.14 billion ($7.3 billion) for the UK rights to broadcast live English Premier League soccer for three seasons, a 70% increase from the previous auction. In Spain, Telefonica SA, Orange SA and Vodafone Group Plc have acquired rights to broadcast Spanish first division and European soccer.

In Germany, analysts project the price to rise by more than a third to above €1 billion a season. The Bundesliga, which seeks to raise more cash to stay competitive with the Premier League and Spain’s La Liga, on 21 March invited companies to register for the auction. The league aims to complete the sale before the European championship tournament begins in France on 10 June.

RTL, Discovery

The list of potential bidders in the auction is long. It includes Bertelsmann SE’s RTL Group, which owns the rights to show the German national team’s qualifying matches for the 2016 European Championship and the 2018 World Cup, and Deutsche Telekom, which operates a popular online-TV service and was outbid by Sky in the previous auction.

Discovery, which owns rights to show the next four Olympic Games, and Perform Group, the company backed by Russian billionaire Len Blavatnik that runs sports websites including Spox.com and snatched from Sky the contract to show the Premier League in Germany, both plan to bid, Manager Magazin reported on 23 March.

Vodafone may also bid, according to Erhan Gurses, an analyst with Bloomberg Intelligence, and Haitong Research analysts led by John Karidis, who say premium soccer TV is worth more to companies that can also cross-sell fixed-line and mobile services.

Officials for Sky and the Bundesliga declined to comment. Discovery, Deutsche Telekom and Perform Group didn’t return calls and e-mails seeking comment. Vodafone is “monitoring” the process, said a spokeswoman for the company’s German unit, declining to comment further.

Live soccer has helped the German unit to become Sky’s fastest-growing business, and the market has more room to grow. The German division’s 4.5 million subscribers is far less than the 12 million Sky has in the UK and Ireland and chief executive officer Jeremy Darroch said in November that Germany has the potential to top the UK as a pay-TV market because of consumers’ spending power.

“Premium sports rights are key to become a dominant player in a pay-TV market,” said Gurses. “For Sky, it’s very important to get as many games as possible, so I expect them to bid aggressively.” Bloomberg