Despite the adverse economic environment and structural changes in the media value chain causing revenue to decline significantly (by up to 20%) for some large broadcasters, premium sports rights are holding their value. Notably, the English Premier League has sold its live TV rights in the UK for a further three years (to 2012–2013) for GBP1.782 billion – a 4.5% increase in nominal terms compared with the previous deal. This mirrors patterns in recent rights auctions for domestic top-flight football in France, Spain and Germany. Such an impressive performance demonstrates the continued popularity of premium content and therefore the significant strategic and competitive value to broadcasters, even in the current downturn. In many cases, value has been sustained by the entrance of new competitors, such as Setanta in the UK, Mediapro in Spain and Orange in France, which may force some governments and regulators to review exclusivity models.
Exclusivity, in general, occurs at two stages of the value chain. First, rights owners sell those rights – directly or indirectly – to a content aggregator (mainly TV channel providers); this is typical for the primary rights product, full live coverage. Second, the content aggregator can sell exclusively to a retailer (such as IPTV, cable or satellite retailers). This is particularly the case for audiovisual premium rights in Europe and Asia, where top matches are shown exclusively by certain TV channels on a particular platform.
In most countries, the packaging of these premium rights developed alongside new technologies and distribution platforms such as pay-TV, via satellite or cable distribution channels during the 1990s, and more recently Internet and mobile, often being sold separately for these different distribution technologies. However, audiovisual markets have evolved further, and the growth in pay-TV take-up is often in large part due to IPTV triple-play, and in some cases quad-play, bundles.
Given this market evolution, and the legal and technical difficulties in distinguishing between technologies and distribution channels, some notable rights owners, such as UEFA and the English Premier League, have already started to sell rights by product (for example, live rights, highlights or delayed broadcast) rather than by distribution technology (for example, satellite, cable, DTT, IPTV, Internet or mobile). This fundamental change in packaging, especially for highly valuable audiovisual premium sports rights, has been encouraged by and resulted in some established telecoms players starting to bid for (and win) these rights against established pay-TV competitors. For example, Belgacom has won rights in Belgium and Orange in France for top domestic football rights.
This evolution has generated fresh, substantial challenges for regulators, governments and competition authorities, and has already resulted in regulatory and competition investigations. These investigations were triggered by a variety of potential issues including: the fragmentation of offerings; the increase in retail prices; the possibility of anti-competitive behaviour; and the foreclosure and definition of markets (pay-TV versus broader media and telecoms). However, any inclination to impose limitations on exclusive arrangements could have wider implications, especially where exclusive or premium content is considered to be a catalyst for the growth of new technology distribution platforms, a way of developing market structures, or a means of supporting competition between rights owners.
Currently there seem to be three models to which governments, regulators and competition authorities may look to examine the possibilities for exclusive agreements.
- The European premium pay-TV model allows exclusivities (both TV channel and platform) with, thus far, only minor ex-ante limitations and has in the past favoured ex-post limitations when necessary.
- The USA, however, offers a notably different model: its regulatory framework focuses on platform- and retail-level competition (independently of content) and hence does not allow vertically integrated distribution channel exclusivities, setting ex-ante limitations on exclusivities for vertically integrated players.
- There is also a model based on the commercial separation of content and networks. There have been some commercial agreements in Europe, such as those in France and Italy, that split revenue into 'pipe access' and 'content subscription' – this allows each party (the pay-TV player and the telecoms operator) to focus on its areas of strength, although there are doubts about long-term sustainability.
Each of the models identified has advantages and disadvantages for consumers, general interests, rights owners, content aggregators, retailers and the overall level of market competition. The optimal regulatory and competitive framework for a particular country will depend on overall public policy and the criteria of regulators and competition authorities, the importance of the rights holders, and the specific market structure.
Analysys Mason is highly experienced in supporting regulators, governments and competition authorities worldwide. We also have significant expertise in assisting international premium rights holders, such as football leagues and clubs, and content aggregators with regulatory and competition issues related to premium sports rights.