NRL tackles $1 billion-plus challenge
PUBLISHED: 01 Dec 2011 03:01:19 | UPDATED: 05 Dec 2011 05:54:22
Rugby league executives were talking a big game at their annual two-day conference this week, touting the large, and growing, television audiences their sport attracts.
A media release distributed by the National Rugby League on Tuesday, the first day of the conference, said rugby league matches had attracted a cumulative audience of 134 million people – yes, 134 million –– on free-to-air and pay TV channels this year.
It was an odd number: TV networks, advertisers and media agencies look at average, not cumulative, audience numbers.
A cumulative audience of 134 million is a meaningless number. But it is a big number, one designed to help set the scene for the negotiations over the NRL’s 2013 to 2017 TV and online rights negotiations, which will start after the much-delayed new rugby league independent commission is set up later this month.
Nine Network and Premier Media Group, the producer of the Fox Sports pay TV channels, currently pay a combined $100 million a year for their rugby league TV rights, or $500 million over five years.
Nine pays $40 million a year and Premier, which is owned by Rupert Murdoch’s News Corp and James Packer’s Consolidated Media Holdings, pays $60 million. Their current contracts expire in late 2012.
In July, NRL chief executive David Gallop and Colin Smith from LEK Consulting, which is working with the NRL on the media contracts, outlined three scenarios to club chairmen and chief executives covering deals worth $200 million, $240 million and $280 million a year over five years.
Gallop has not publicly disputed the figure of $280 million a year, or $1.4 billion over five years. He is confident the NRL can achieve a big increase in the value of its TV rights, given the importance of NRL content to Nine and Premier, Seven West Media’s stated desire to buy part of the next rights deal (it wants the high-rating State of Origin games), and the big TV deal the Australian Football League stitched up earlier this year.
In April the AFL revealed a five-year, $1.25 billion agreement with Seven, Foxtel, Austar United Communications and Telstra that takes effect from January next year. The existing five-year AFL deal was worth $780 million.
If the NRL matches the 60 per cent price increase the AFL achieved, its next deal would be worth $800 million over five years – and Gallop and the new independent commission would be hung out to dry by the media and NRL club officials.
The NRL has fuelled an expectation that the next TV deal will fetch at least $1 billion, a 100 per cent increase. But is that a realistic expectation?
Few people dispute that Nine and Premier are paying too little for their NRL TV rights. There is also no doubt that News Corp’s role as a shareholder of both the NRL and Premier kept a lid on the price the latter paid for its current deal (News Corp’s part-ownership of the NRL will formally end when the new commission is set up).
Sport is a valuable property for TV networks. This week’s media release from the NRL pointed out rugby league matches accounted for four of the five most-watched sport programs on free-to-air TV this year, and 64 of the 100 most-watched programs in any genre on pay TV.
Nine’s rugby league audience increased 1.3 per cent this year, while Premier’s audience jumped 16 per cent.
Gallop said the audience numbers were “a powerful set of results”.
“As we look towards media negotiations in the months ahead, they are a reminder of rugby league’s value in the market,” he said.
If Nine agrees to a doubling of its NRL TV rights cost – and that is a big “if” – it will be paying $80 million a year, or $400 million over five years.
To reach the $1 billion figure, let alone $1.2 billion or $1.4 billion, the NRL will need to convince Premier to also agree to a 100 per cent increase, to $120 million a year or $600 million over five years.
Under their new AFL deal, Foxtel and Austar will pay $658 million – an increase of 109 per cent – for the right to show all weekly matches, plus replays of all other games.
The current Foxtel-Austar deal costs them $315 million over five years for the rights to four live weekly matches.
Premier’s existing NRL TV deals give it the right to five live matches a week. The company has indicated it wants to show all eight weekly matches, some of which would be simulcast with the free-to-air TV rights holder.
But Premier will resist a 100 per cent increase in its NRL TV rights costs. Foxtel and Austar copped a big increase in their AFL costs because they are convinced their expanded coverage will hook more subscribers in Victoria, South Australia, Western Australia and Tasmania.
The pay TV industry’s household penetration rate is lower in the southern states than in NSW and Queensland. NRL executives claim the higher rate in the northern states is largely due to Premier’s rugby league coverage and the next TV rights deal should reflect that fact – that is, Premier should be paying more for its valuable product in NSW and Queensland.
The problem for the NRL is that Premier and its shareholders are not convinced adding another three NRL games a week will produce a massive lift in subscriber numbers, certainly not a lift that would justify paying $120 million a year.
Nine is determined to retain its NRL rights. Media executives think bids from Seven and possibly Ten Network will push the price tag for Nine to $80 million a year, while Premier will pay a maximum of $100 million a year.
That would give the NRL a grand total of $900 million over five years. A good deal with Telstra, which currently pays $10 million a year for NRL online rights, might lift the total to $1 billion, which would be an impressive result, but maybe not impressive enough for some NRL officials and executives.
