Premium Sports Rights Owners
Playing in a League of their Own

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By Juan Pablo Conti
Juan Pablo Conti, the former editor of UK magazines The IET Communications Engineer and Cable & Satellite Communications International (CSCI), is an independent technology journalist based in Buenos Aires, Argentina.

Ask any of the hundreds of millions of people around the world who month after month pay a fee to their multi-channel TV service provider about their motivations for doing so, and chances are that "sports coverage" will figure prominently as one of the main reasons.

"When pay-TV started out, there was a kind of equal balance between sports, movies and adult video as the three key drivers for subscriptions," says Daniel Thunberg, senior director of market development at Irdeto, an Amsterdam-based digital content security technology provider.

"However, in the past few years movies and adult content have increasingly moved to the Internet. So what we're seeing is that premium content is more or less becoming equal to sports only."

Whether it's a rugby fan in Scotland or Australia, a soccer fan in Italy or Brazil, a cricket fan in England or India, or a baseball or basketball fan in the U.S., they all have usually only two choices when it comes to watching their favorite teams and players perform live: getting a ticket for the real thing… or getting a premium pass for the televised version of it.

Broadcasters, cable and satellite operators have learned to tap into the immense popularity that some domestic and international competitions have enjoyed around the world. In the early and mid-1990s, when multi-channel TV was starting to consolidate as an industry in Western markets, the first successful experiments with premium sports showed just how much business potential there was out there.

In some cases, pay-TV business models were entirely built around exclusive sports rights ownership. Take the UK. There is wide consensus that the runaway success that BSkyB enjoyed during the 1990s and early 2000s (when it was the undisputed leading pay-TV operator in the nation) was closely linked with the firm stranglehold on live Premier League football (soccer) that the satellite broadcaster was only in 2006 forced to ease.

Today, premium sports have grown into a multibillion dollar global industry that no self-respecting multi-channel TV operator can afford to ignore. Josh Hizon, an analyst at market research firm SNL Kagan, says: "Clients have questions for us regarding premium sports because, usually, for some operators, it's going to be the most expensive content that they'll have to purchase."

Hizon says that, worldwide, soccer is probably the biggest premium sport. Traditionally a favorite with European and Latin American audiences, the growth of live soccer consumption in some Asian markets has been impressive in recent years. In Hong Kong or Singapore, for example, subscribers are currently paying between $20 and $40 a month to watch most English Premier League games.

"This has been a game changer for some of the operators, especially for PCCW in Hong Kong," says Hizon. "They outbid rival operators and they don't disclose [how much they paid for the Premiership rights], but it's a very substantial amount. This has allowed them to change the way multi-channel was perceived in Hong Kong and they have become the premium provider for that market."

So sensitive have exclusive sports rights become that the companies which end up getting them are sometimes accused of using monopolistic practices or bringing too much of a commercial spin to events such as the Olympic Games.

In Australia, where Robert Murdoch started to build his News Corp media empire in 1980, most of the key rights for the most popular premium sports belong to Fox Sports, a News Corps subsidiary. As is usually the case with many other rights holders, Fox Sports does allow any interested Australian pay-TV operator to participate in this market by reselling them the premium rights.

However, as Hizon notes, there is an element of controversy: "The problem is that News Corps also owns part of Foxtel (the major Australian pay-TV provider), which means that some of Foxtel's competing providers are kind of getting the raw end of the deal because they're being overcharged for the rugby and whatever sports are considered really high-value in those markets," he says.

Similar concerns in the UK market, where News Corps-owned BSkyB still has the rights to more than two-thirds of Premier League matches, have prompted Ofcom (the country's communications watchdog) to launch a consultation to determine whether it needs to regulate the wholesale prices that premium sports rights owners charge to rival operators.

State regulation can in some instances be extreme. In Latin America - where, with the exception of Argentina and Chile, more than three-quarters of residents still don't receive a pay-TV service - several national regulators have directly banned exclusive content rights, especially for competitions such as the popular domestic soccer leagues.

RETENTION TOOL
Analysts have started to raise questions about the sustainability of the premium sports business. Looking at the amount of revenue that some operators are currently generating exclusively from the sale of top premium sports, it's evident that many of them have overpaid for this content.

"While the rise of digital delivery platforms means there are now many more exploitation options for sports rights owners, there are also some dangers," says Adam Thomas, media research manager at Informa Telecoms & Media. "There are a finite number of premium sports events, and the increasing number of channels and platforms means there is increased competition for the highly prized rights."

Thomas says broadcasters know that without these premium rights they will be unable to attract sufficient subscribers or advertisers. "This is creating a climate where rights owners dominate and rights buyers are tempted to pay prices that may not be sustainable."

Hizon agrees: "I'm really not sure how much actual profit some of these rights buyers are going to be making off these deals in terms of recovering what they're bidding. The numbers just don't work out. In a lot of these cases, the pay-TV companies are just using premium sports for customer retention."

Given the mass-market appeal that sports on TV have traditionally enjoyed, it is little surprise that many of the true technological breakthroughs that the broadcast industry has witnessed throughout its history were first showed off to sports-loving audiences.

designed to maximize the impact of these two crucial genres."

While regular HDTV broadcasts have been available in Japan and the U.S. for more than a decade, much of the rest of the world still functions on good-old standard definition digital. That includes many of Europe's most developed economies, where for example the UK had to wait until mid-2006 (to coincide with last World Cup held in Germany) to get its inaugural HD transmissions.

"The fast action really is much better viewed on HD, and that can be used for gaining new subscribers or retaining existing ones," says Hizon. "In some of the developing markets, premium sports are going to be a significant driver - probably THE biggest driver - of HD adoption along with premium movies."

THEFT PROTECTION
A crucial technical aspect for providers of premium content in general and premium sports in particular is security. "This is really where they make their money from, so it's paramount that the security holds and that there are no gaps," says Irdeto's Daniel Thunberg.

According to the expert, operators that have the rights for major sports competitions and events would typically request a higher-than-average level of security. "They would generally opt for the most advanced security features available," he says.

"In the last year or so, we have seen a trend where, for lower-value content, many operators have started to request lower-value, cheaper security solutions. Not that long ago, the demand was mainly for a 'one-product-fits-all' type of security. Today, the market has become more segmented," Thunberg explains.

So what exactly constitutes the highest possible level of security that a premium sports rights owner or buyer could implement today? In Thunberg's opinion, "you need to look at it from a system solution perspective. In this case it would mean that you would go for, first of all, a smartcard which would have the latest hardware technology embedded in it."

Every 12 to 18 months, content security suppliers such as Irdeto release a new version of their cards that incorporates the latest advances in hardware design.

But having a secure smartcard alone is not enough to address the threat of piracy. Your set-top box population needs to be just as safe. "You will need to invest in secure silicon to ensure that your set-top boxes are tamper-proof and no one can extract the control words and begin to redistribute the signals in various illegal ways," Thunberg explains.

THE FAR CORNER OF THE NET
With adult and movie content being increasingly available over the Internet, why is it that premium sports is finding it more difficult to follow suit? Well, there is more than one reason. Some are purely technical; others are more of a combination between technical and commercial.

The biggest technical obstacle playing against the online streaming of live sports has to do with bandwidth; actually, the lack of bandwidth. "Having enough bandwidth to sustain a good signal which won't constantly skip or generate delays is still a major hurdle," says Hizon.

"Standard VOD streams already demand very large amounts of QoS bandwidth. If on top of that you want to access HD premium sports content, it becomes an even more complicated issue."

Still, this hasn't prevented a number of companies from offering live Web coverage of some major competitions. For example, the ATP (Association of Tennis Professionals) will during the current 2009 season stream 700 matches from more than 40 tournaments.

With both pay-per-view and subscription packages available to choose from, tennis fans are asked to pay $9.95 for a day pass or $129.95 for 12 months access.

But here's where the half-technical, half-commercial problem arises: "Paying a fee to a third-party such as the ATP but not to the ISP that is setting aside all this massive bandwidth creates a situation where your local cable or telecom supplier is effectively serving you with the video but not making any money on the back of it," Hizon says.

Finally, there's again the issue of security. If the threat of piracy is always present in the traditional digital TV world, it is practically a certainty as soon as a broadcaster decides to make its premium sports video available online.

According to Widevine Technologies, another content security provider with vast online experience, "there are hundreds of software tools available on the Internet that record content and enable piracy. Known as stream recorders and screen scrapers, these tools copy content while it's in the clear - typically after traditional DRM systems have done their job."

"The PC is an inherently insecure device and a complete nightmare from a security architecture perspective," Thunberg adds. "Operators that plan to make high-value content available online really need to think about the architecture of the video player that they will be using," he warns.

"If you decide to use your own branded player, there are definitely a lot of security issues that you'll have to take into consideration when you design that. You'll particularly need to make sure that the platform that you end up offering on a PC has the necessary security arrangements in place so that it cannot be tampered with by people looking to extract data and record it or redistribute it."

Analysts have started to raise questions about the sustainability of the premium sports business. Looking at the amount of revenue that some operators are currently generating exclusively from the sale of top premium sports, it's evident that many of them have overpaid for this content.