Investors Shaken as TV-Sports Battle Heats Up; Eyes Turn to Premier League Rights Next
LONDON— British Sky Broadcasting Group BSY.LN +1.87% PLC's shares dropped sharply Monday as the weekend news that rival BT Group BT.A.LN +0.11% PLC won away some of BSkyB's flagship European soccer-tournament rights rattled investors.
BSkyB shares fell 10.4% to 833 pence in London trading, making them among the worst performers on the FTSE 100. ITV ITV.LN +0.65% PLC, which shares with BSkyB the current rights to the tournaments that BT secured, lost 1.6%.
Saturday, BT said it is paying £897 million ($1.43 billion) to show live UEFA Champions League and UEFA Europa League soccer matches for three seasons starting in 2015-16. That price is more than double the nearly $650 million paid for the rights package for 2012-15, according to a person familiar with the situation. The Europa League wasn't included in that bundle.
BSkyB said BT's offer for the new rights was "far in excess" of its own, while ITV said it was "not prepared to pay over the odds." Neither company disclosed its bid.
BSkyB is 39%-owned by 21st Century Fox Inc., FOXA -1.12% which comprises media and entertainment properties split off earlier this year from the old News Corp.NWSA -1.02% The new News Corp primarily owns publishing assets, including Dow Jones & Co., publisher of The Wall Street Journal.
The rights win adds further bulk to BT's live-soccer ambitions after its summer launch of dedicated sports channels, meant to make inroads into BSkyB's lucrative sports franchise.
BSkyB has dominated broadcasting rights for live English Premier League soccer since 1992. But BT agreed to pay £738 million for exclusive rights to broadcast 38 English Premier League soccer games over the next three years starting last August. It is the first time a U.K. operator has challenged BSkyB, which in 2012 paid £2.28 billion for 116 matches.
"The next Premier League auction becomes vital," said Investec Securities analyst Steve Liechti, as that 2015 auction could signal a further shift in the broadband providers' balance of power.
By offering its sports channels, which include coverage of rugby and women's tennis, to existing broadband users, BT is vying to attract new television viewers and lure broadband customers away from Sky and from Virgin Media Inc., Liberty Global Inc. LBTYA -1.21% 's U.K. cable-TV and Internet provider. Last month, BT said BT Sport's launch sparked broadband sign-ups, stemmed losses of fixed-line customers and drove up consumer revenue by 4%—its best performance in 10 years.
BT had warned that spending on Premier League soccer rights would hurt its profit, but it said Saturday that it could absorb the £299 million annual charge for Champions League and Europa League matches without changing its current financial outlook.
JP Morgan JPM +0.26% analyst Carl Murdoch-Smith said the new soccer deal could also push BT into revenue growth, which in the second quarter ended Sept. 30 was flat at £4.49 billion. "This improves BT's historically poor positioning in TV," he said.
BSkyB says its Premier League TV audience is up this season compared with a year ago, but analysts said BT's new soccer deal could see viewers and Internet users make a switch. "The key question is how BT structures and prices the Champions League content and, in turn, any impact this has on Sky customers spinning down or [fewer] potential new Sky customer additions," said JP Morgan analyst Marc O'Donnell.
BSkyB is likely to fight back against BT through a consumer price war, said analyst Nick Lyall at UBS. UBSN.VX -0.24% "We assume lower BT share gains in broadband and a fall in [revenue per user] as Sky cuts prices," he said.
While not grabbing the headlines over the soccer-rights loss, ITV likely is the "bigger casualty" of BT's gain, said Citi analyst Thomas Singlehurst.
"While for BSkyB this is a property it would much rather have not lost, it does only represent 3% of Sky Sports viewing, and money can be reinvested to support its push into U.K. drama," he said. "For ITV, our concern is that this totally undermines the group's sports offering."
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