(The following statement was released by the rating agency)
9 - BT Group's aggressive bid for broadcasting rights to English Premier League football matches is a signal that UK triple-play competition is intensifying, Fitch Ratings says.
The UK pay TV market is one of the most competitive in Europe and BT needs to find new ways to compete. With this sports rights acquisition BT has shown that it is willing to buy attractive content to generate revenue from its ongoing investment in its fibre network. Increasing its TV customer base and take-up of its superfast broadband connections (ie fibre) are important if BT is to establish a sustainable position in the UK's highly competitive triple-play market for television, internet and telephone services.
Against this however, buying piecemeal sports rights and creating dedicated sports content to a credible and competitive level is both expensive and unfamiliar for telcos. European incumbents have found this strategy very challenging with a number of forays into football content only to be followed by subsequent withdrawal. The chances of BT driving TV customer additions sufficient to offset the cost of these rights look slim, but it should help BT defend its overall broadband market share.
Under new deals announced last week, the combined cost for BT ('BBB'/Stable) and BSkyB ('BBB+'/Stable) to show 154 games per season, for three years starting in August 2013 is GBP3.0bn. The deal represents a 70% increase on BSkyB and ESPN's current deal of GBP1.8bn for 138 games.
BT's credit profile is unlikely to be significantly affected by the cost of the football rights it purchased at GBP246m per season, compared to EBITDA of around GBP6bn and capex of GBP2.6bn. Current leverage is manageable at the current rating level. BSkyB is spending GBP220m more per year on Premier League rights in FY2014-FY2016, which may dent its profitability, but the group has some flexibility over leverage at the current rating level and a significantly bigger TV subscriber base to support any increases in programming costs.
At the end of March, BT had just over 700,000 TV customers, compared to the 6.3m broadband customers that BT Retail, its customer facing unit, serves directly. With YouView being launched this summer, 2013 will be a decisive year as BT's football rights start in August and its fibre network coverage reaches a greater number of UK households.
BT needs to differentiate its offering from its main competitors in the triple-play market, BSkyB and Virgin Media ('BB+'/Stable). BSkyB leads with around 3.3m triple-play subscribers, built up by adding telephony and broadband to its high-quality TV service. Virgin Media, with 3.1m triple-play subscribers, continues to highlight its superior network infrastructure with the fastest consumer broadband service offering.
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