Nine and Ten both need to score the NRL
by: Simon Canning
From: The Australian
May 28, 2012 12:00AM
FAILURE to win the broadcast rights to the National Rugby League could lock either the Nine or Ten networks permanently in third place in the ratings battle, an analyst believes.
As the Australian Rugby League Commission revels in the super-sized audience for last week's first State of Origin match in Melbourne, where an average of 2.51 million people tuned in across the five state capitals, the highest rating for the league's marquee match since OzTam started recording ratings in 1999, an analysis by Citigroup warned that the winning network might not be able to gain enough advertising revenue to justify a massive bid for the rights.
Justin Diddams, an equity analyst with Citigroup, said missing out on the rights could be disastrous for the loser. "The network that misses out risks being stuck in third place for a prolonged period," he said.
Mr Diddams said the law of diminishing returns could apply to the advertising revenue from National Rugby League matches.
His report predicts rights to the code, including free-to-air and subscription TV, as well as digital rights, would be worth $950 million, although a best-case scenario would be over $1 billion.
He said Ten needed the rights to give it a kick-start after it declined to bid for the AFL.
"We expect Ten to aggressively bid for the NRL rights," he said. "It could be transformational for the Ten network. Any bid above $55m per season will be earnings dilutive in year one on a standalone basis, but the halo effect could be significant, justifying bids of up to $75m per season."
The halo effect means the NRL would bring regular viewers to the network, to whom it can then cross-promote other programs.
A former network head who asked not to be named said that win or lose, a bid by Seven would be destabilising for its rivals.
"If I were Seven, I would go at this with an aggressively priced bid," said the former executive, who has negotiated a number of broadcast deals in the past.
"They can't lose -- if they win, they reinforce their number one position; if they lose, they would have forced Nine or Ten to bid more than they wanted."
The Citi report says that even with an extra game, it would be hard for Nine to lift its ad income.
"There's little opportunity to lift the advertising revenue from NRL, as advertisers are unlikely to accept an increase on the rate card because the rights cost more," the report says.
It estimates total annual revenue for NRL games on an FTA network could be as little $65m, with $55m coming from direct advertising, $5m from sponsorship, $5m from other programming and an unknown amount from the "halo effect" of being the official broadcaster.
The report predicts the ultimate value of the rights, including digital rights now with Telstra, is between $807m and $1.057bn.
In Media last week, Mark McCraith, chief operating officer of media buying agency Maxus, valued the TV rights excluding digital rights at $750m.
The value of the digital rights has been thrown into doubt after Optus announced it would appeal to the High Court against a Federal Court ruling outlawing its TV Now service allowing people to use their mobile devices as free-to-air digital video recorders.
If Optus is successful, it will undermine the value of the digital rights, and Telstra insiders have admitted the company would not have paid $153m for the AFL digital rights if the TV Now service had been approved by the courts.
Harold Mitchell, Australian head of media buying company Aegis, rejected the possibility the winning network would struggle to increase revenue.
"The TV networks have the capacity to turn the attention of Australia's massive advertising industry to these events -- the winner will make it work," Mr Mitchell said.
