Nine Network outfoxes Foxtel in rugby league rights
The deal struck between the Nine Network and the NRL so perfectly highlights the dilemma facing free-to-air commercial networks today. Retaining relevance in the new world of increased competition requires more compelling and expensive programming but at a time when revenue is under more pressure. Nine paid the equivalent of $925 million to receive exclusive live coverage of the four biggest NRL games each week, the finals and the State of Origin. Its package also includes the free digital rights for five years starting in 2018.
Nine's move to be more aggressive on sport programs is perversely a defensive one. The pressure on Nine's share price on Monday suggests the market did not appreciate the strategic value in the company's programming deal or wasn't convinced by comments from Nine chief executive David Gyngell: "As the audience for television fragments, the value and marketing power of free live premium sport across multiple media cannot be underestimated."
It appears like a big increase in the current package – how much bigger depends on how one calculates lots of variables that make up the package. Firstly, Nine will now broadcast four premier live games. At present, it broadcasts two live as well as one delayed (on Friday night).
If calculated on a per live hours of football basis, the cost of Nine's football program deal is 14 per cent higher, according to Citi analyst Justin Diddams.The good news is that Nine can claw back some of that cost if the NRL sells Foxtel the rights to simulcast Nine's games. But how much is not known.
Clearly, Nine will attempt to recoup as much as possible from boosting the advertising revenue derived during the games. "For Nine, they're paying an additional cost of $90 million per season, which implies the extra two live games (Thursday and Saturday night) need to make a material ad revenue contribution to break-even on the new deal. We estimate Nine's current two live games (Friday/Sunday) generate $40 million per season," Diddams says.
Macquarie Securities' Andrew Levy takes a more positive view. "Under the new deal, Nine is increasing the games broadcast from three to four and is doubling its hours of live coverage. Given the significant step-up in total and live rights, the inflationary pressures in the deal look very modest," he says.
Nine's move to be more aggressive on sport programs is perversely a defensive one. But it is not fending off an attack from other free-to-air networks given Seven is now traditionally the home of AFL and Ten doesn't have the readies to get into the big sport game on a standalone basis.
The networks need to retain eyeballs as competition from video streaming operators are siphoning viewers.
And when it comes to the NRL the two big competitors are Nine and Foxtel – even though the later is fighting with one hand behind its back due to the anti-siphoning laws that mandate first dibs on much premier sports to the free-to-air networks.
Under this latest round of NRL negotiations, however, Foxtel has fared particularly badly. Foxtel is arguably under much more threat from paid video streaming services. The likes of Netflix, STAN and Presto don't offer sport, which means Foxtel's competitive advantage in the pay market is its sport package.
From 2018, Nine will take a bigger slice of the premier NRL games and broadcast them free, which could be enough for some Foxtel subscribers to think twice about paying to subscribe for the less popular weekly games.
The unfortunate twist for Foxtel is that it probably can't afford to ignore picking up the second tier NRL games for fear of losing too many of the estimated 600,000 Fox Sports viewers.
Given it is the only major pay-TV service in the market that offers sport, it would be logical to suggest it would be a buyers market for the pay rights. Under Foxtel's five-year deal (which runs to 2017), it pays the NRL $550 million.
The final party in this NRL broadcast game is Telstra, which has the digital rights to live games.
Nine has the rights to free-stream the four main games and state of origin and given Foxtel will probably acquire the pay rights to all the games it might be unwilling to let Telstra compete with it.
In other words, Telstra may not get a distribution role (via any device) from 2018.
The winner is the NRL. It stands to make more than the $1 billion it got for the existing rights package and it gets four live prime-time free to air games broadcast. The sporting body also regains control of the season schedule.
Read more:
http://www.brisbanetimes.com.au/bus...l-in-rugby-league-rights-20150810-givolv.html
