Tech giants, telcos are biggest threat to live sport on FTA TV

Arvind Hickman
By Arvind Hickman | 21 August 2017
Arvind Hickman

Many Australian sports fans probably don’t realise just how lucky we are to have so much high quality live sport on free-to-air television.

We are so spoilt for choice that many take it for granted Bruce McAvaney will always be on hand to sprinkle a little ‘special’ dust to key moments and leave no stat unturned during Seven’s excellent coverage of the AFL grand final.

Each year there are must watch events on free-to-air TV, such as State of Origin, AFL and NRL finals, the Australian Open and the Australian F1. Everyone knows our summer doesn't follow a calendar, it officially starts when Nine’s iconic WWOS commentary team calls the first ball in the Brisbane test.

Commercial TV networks, particularly Nine and Seven, have played a critical role helping sports reach new audiences, growing fanbases and unlocking commercial opportunities as well as entrenching great sporting moments in our culture and national psyche.

Conversely, live sport is extremely valuable to commercial FTA TV networks, attracting their largest live TV audiences each year and proving a magnet for advertisers and commercial partners.

But this partnership is under threat like never before.

Sports rights Amazon Optus

In most other comparable markets, sports broadcasting rights have been too valuable for ad-funded  free-to-air players to play more than a bit part role. In fact nearly all of the world’s largest sports leagues have been the domain of wealthy Pay TV companies and, more recently, telcos and internet providers.

New market players, including global tech giant Amazon, Apple, Facebook and Twitter, are starting to shake-up sports rights in the US and UK, and will soon be turning their attentions to smaller but important regional markets like Australia for new content.

And here’s the clincher – the laws that have provided protection against Foxtel from monopolising sports rights in Australia do not cover these internet behemoths.

Anti-siphoning laws were designed to prevent the major sporting leagues and events from being controlled by Foxtel, allowing Seven, Nine and Ten to carve out FTA rights packages ahead of the Pay TV rival.

Although there are valid arguments about the laws being anti-competitive, it has created a dynamic where competitors co-exist in relative harmony, aside from the odd ‘no ads’ vs ‘no pay’ marketing spat.

The anti-siphoning laws were drafted in the 90s, prior to the internet age. They do not apply to global internet giants, which have much deeper pockets than Foxtel and could radically shake-up the space.

Optus sewing the seeds

Last year Optus signaled a major shift in sports broadcasting rights when it outbid Fox Sports to secure the English Premier League for $60 million per season.

This had a direct impact on Fox Sports, which had been the home of Premier League for many years. The pay TV operator responded by moving quickly to replenish its football stocks with European leagues on BeIN Sports, Premier League club TV channels and a hefty extension of its A-League package.

The broader significance of Optus Sport’s arrival is that it is the first major entrant to the Australian sports broadcasting market since Foxtel launched.

Optus delivers content via the internet, which means it doesn’t have the same anti-siphoning restrictions that shackled Foxtel, and the telco will be circling other sports properties.

An even larger threat to local sports broadcasters are the global technology giants Amazon, Facebook, Apple, Twitter and Netflix.

To date these companies have mostly focused on digital rights deals, most notably Twitter’s NFL rights, but have signaled their intentions for much bigger prizes. 

Earlier this month, Amazon outbid Sky to secure ATP Tennis broadcast rights and is rumoured to be circling the UK’s biggest sports broadcasting – the English Premier League.

A Citi analyst told The Guardian Amazon’s involvement in a bidding war would force Sky to pay a premium of 40% to 45%, the equivalent of £1.8 billion for three years.

BT's aggression on Premier League rights has already caused them to inflate by 70% in the past two auctions, with Sky forced to pay 83% more to secure the prime games in the last bidding war.

Sports rights spiral

The inflation of sports rights is the real killer for TV networks that are hamstrung by advertising revenue as their major source of revenue.

Last week, Seven West Media boss Tim Worner cautioned that the rising cost of sports rights is getting to a point where it is no longer commercially viable for ad-funded broadcasters in current market conditions.

The point was illustrated by the performance of Seven’s Rio Olympic Games coverage, which failed to meet revenue forecasts. The business has also had to find $30 million in savings to offset the new AFL rights fees.

Unless the situation changes, it appears Seven’s capacity to commercialise elite sport is limited and may have already reached a peak.

Seven’s gloomy predicament is in sharp contrast to sports rights inflation. The new AFL rights deal which kicked in this year and will run to 2022, was 67% lift per season, netting the sport $418 million per year rather than $250 million.

Big Bash League sports rights, currently held by Ten, are predicted to increase from $20 million each year to $50 million to $60 million.

Worner pointed out this trend is not sustainable for free-to-air broadcasters and if internet giants enter the fray it will escalate even further.

According to The Australian, Telstra, Foxtel and Fox Sports chiefs realise the challenge ahead and are merging operations and floating part of the business to allow it to raise more capital for the battle that lies ahead. Fox Sports owner News Corp floated BSkyB in the 90s and is well aware of what will required as it has gone through similar battles in the UK with Sky.

This doesn’t mean a complete departure for FTA players. Their reach is still hugely valuable to sports codes and it would be a huge risk to compromise that while viewing habits for the majority of Australians are still dominated by television. There’s also years of goodwill and sports production expertise they currently offer that none of the global tech giants currently have in their locker. 

But change is inevitable Australians are going to have to get used to less sport on the box for free. As Worner points out, sports rights on FTA are at a tipping point, and it's global tech giants that are likely push them over the edge. 

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