Broadcaster set to focus on increasing subscriber numbers rather than going the pay-per-view route for premier league football, writes Emmet Oliver.
In 1996 Rupert Murdoch, who controls one of the world's most powerful media conglomerates News Corporation, made a remark that was revealing, provocative and blunt.
"We will use sport as the battering ram for pay television." His controversial remarks have gone down in media and sports folklore. While some might have argued with the violent imagery, nobody can deny that it contained a core truth.
BSkyB, in which Murdoch's News Corp has a 37 per cent stake, is now one of the most powerful television companies in the world. It has a market capitalisation of about £9 billion (€13 billion). Such success has been built in large measure on exclusive sport content, mainly football.
When the modern English Premiership was formed in 1992 Murdoch and other executives at Sky realised that sport could drive huge audiences to pay TV companies. While the size of the audience was important, the loyalty of the football fans was even more vital. That loyalty is still what drives viewers towards pay TV. But it's not only football. Sky has gobbled up all sorts of sports - rugby, cricket, boxing and golf.
The growing presence in Ireland, Britain and Europe of pay TV companies has probably had one unintentional side effect.
Sport as a commodity is suffering some serious inflationary pressures. European TV rights to the Olympics, for example, increased by 1,200 per cent between Seoul in 1998 and Athens in 2004. As the cost of sport increases, terrestrial channels have been squeezed out. Government attempts to designate certain events as free-to-air (see panel) has helped. But no UK terrestrial channels - BBC or ITV - were anywhere near winning the latest Premiership rights.
RTÉ is not giving up the chase. Glen Killane of RTÉ Sport said: "There has been some inflation, but RTÉ is totally committed to ensuring that key national and international sports events remain available to the widest possible audience for free."
But this has proven difficult - live Heineken Cup rugby is exclusive to Sky from next season and the Ryder Cup in September will not be available live on RTÉ or any other terrestrial Irish station. While this is bad news for Irish stations, the trend of making sport a commodity has been a winner for others. Last Friday the English Premier League shocked the media and sports worlds by getting BSkyB and Setanta to pay £1.7 billion for six packages of premier league football. This was £700 million more than Sky paid in 2003.
In Dublin's Mulligans pub on the same day two young Dubliners Leonard Ryan and Michael O'Rourke (Setanta's co-founders) watched news of their coup being announced, ironically, on Sky News. They had agreed to pay, along with their co shareholders Benchmark Capital, £392 million for two of the six packages. It was the biggest sports deal ever put together by an Irish broadcaster.
For the two Dubliners it represents the high point of a 16-year journey to be among the elite of sports rights holders in Europe. It is hard to believe that in 1990 the two were making a living re-broadcasting the Ireland-Holland World Cup match to ex-pats in the Top Hat ballroom in Ealing, west London.
Based on the deal done by Setanta (46 games a season for three years for a total outlay of €574 million), each game on average would need to bring in €4.1 million in revenue for the company to at least break even.
Setanta, however, are not too interested in the per game calculations. Games involving Manchester United or Liverpool in the UK are capable of bringing in millions of viewers, whereas less popular clubs like Wigan and Reading will only bring in small viewing figures. What matters is the subscription revenue over the length of a season, explains a Setanta source.
Setanta charge subscribers in the UK £14 a month for its sports pack, which is made up of seven channels. The English Premiership will be added to this, although Setanta does not expect to be charging when the Premiership season kicks off in 2007. The company is likely to charge £15 per month, meaning subscribers will pay £180 a year for 46 Premiership games. Industry sources say Setanta's will focus on piling the subscriptions high and selling them cheaply. The games will be available via subscription, rather than pay-per-view.
A Setanta source said: "If you go the pay-per-view route, you have to win over the customer each time there is a game on, whereas with subscription there is a long term and dependable relationship." Based on what the company paid for the rights - €574 million - Setanta will need to bring in revenues of €191 million each year of the three years. In order to break even, the station's target has to be approximately 750,000 subscribers.
As for profit, that could come from another source. On top of the subscription revenues, there is the sales to 40,000 pubs and clubs in the UK. Setanta and Sky have agreed to sell their wares to these venues together. Setanta will hope that this extra contribution will bring it over the €191 million profit line each year. The other imponderable is advertising and sponsorship. Audiences for sports channels are relatively small - for example Sky Sports in Ireland only has a market share of 0.6 per cent.
Consequently the advertising revenue - normally based on nine minutes of advertisements per hour - is small beer compared to the subscription revenues. Sponsorship is also available - Ford has a lucrative deal to sponsor Sky's Monday night coverage.
Setanta's approach is likely to get as much sponsorship as possible, rather than getting one or two headline deals. But getting the subscribers is their key concern. Setanta is sticking with its pile 'em, sell 'em cheap strategy there too. It is likely to end up on three platforms in the UK: digital terrestrial television (known as Freeview), Sky's own satellite platform and NTL cable.
Its whole commercial strategy will revolve around getting subscribers, so it makes little sense for Setanta to cut off any platform options. The key one is Sky which has 8.1 million subscribers, with 5 million of these taking the sports channels. The Freeview system is in about 6 million homes, with cable back in third position. Setanta, which is not well known in England yet, has a tough battle on its hands getting its subscriber numbers up. British reports suggest it has up to 150,000 subscribers in the UK, many of these in Scotland.
A big marketing spend is needed to make Setanta as well known as Sky. While Setanta is likely to give all three platforms a go, carriage on these platforms can be expensive, with Freeview very costly.
Freeview is a free digital TV service offering over 30 channels and 20 radio stations for just a one-off payment and no contract. Freeview is received through a normal rooftop aerial. Extra channels or premium services are available on an additional platform called Top Up TV, which is available to Freeview customers. Setanta are likely to seriously consider this route.
While the revenue targets are considerable, the company's costs are not. While there are now several high profile executives to be paid - including former NTL executive Mark Mohan, ex-RTÉ Sport's Niall Cogley and former BSkyB man Trevor East- Setanta has no major platform in need of investment.
