A Good Year for Sky and its Football Coverage


December 17, 2012

Introduction

When football and broadcasting come up in conversation, BSkyB’s (Sky) live coverage of the Premier League (PL) since 1992 is never far from many people’s lips. It was Sky’s strategic initiative that, along with first run movies was the subscriber driver. It also had the consequence of bringing large amounts of Pay-TV revenue into the hands of PL chairmen. The mutually beneficial relationship, after twenty years, continues apace. The aim of this article is to trace the broadcasting victories in the football sphere that threatened to derail Sky’s grip on PL football. The pub decoder case, the Ofcom appeal in the Competition Appeal Tribunal and the recent successful retendering of the domestic PL rights have all ended on an extremely positive note for Sky. A year previously, there were serious doubts about how the PL sold its rights across the EU which could have left Sky (and ESPN) without exclusive rights to market in the UK, Ofcom had insisted that Sky provide a must-offer wholesale price to competitors like BT Vision, Top-up TV and Virgin for its Sky Sports 1 and 2 channels and it was rumoured that new competitors like Google, Apple and Al-Jezeera were planning to usurp Sky’s premier position as the significant PL broadcaster. From the depths of regulatory and judicial intervention ,and the significant risks to its business model (including the investigation into its first run movies) Sky has had an incredibly successful 2012. This article will take you through three of the highlights.

The Premier League and the Publican

Karen Murphy is a pub landlord. She was prosecuted after purchasing a Greek decoder and decoder card in order to broadcast live PL matches in her pub. She argued that as a Member State citizen she should not be prevented from finding the cheapest subscription in the European Union to broadcast the live matches. The PL alleged that Murphy’s actions, among other things, breached its IP rights. The PL argued that the way they sold their rights was backed up by European Court precedent supporting the notion of exclusive territorial licensing.

Mrs Murphy’s case was joined with a supplier of the decoder cards QC Leisure, in a reference to the Court of Justice of the European Union (CJEU). At the end of 2011, the European Courts (the CJEU) and the English High Court ruled on EU law questions of free movement, competition law and copyright.

The Outcome

In summary, the Courts held that restricting the importation of a Greek satellite decoder and decoder card to view the live PL games and clauses prohibiting an authorised PL broadcaster selling its service to a Member States citizen outside of its allocated territory were contrary to EU law. However, the CJEU did conclude that the PL owned copyrighted works such as the anthem and the logo which were embedded in the broadcast. As Mrs Murphy was deemed to be making a further communication to the public under the Copyright Directive (by broadcasting the pictures), Murphy required authorisation from the PL to show the copyrighted works in order to broadcast the live pictures.

The extremely tricky balancing act for the CJEU involved the need to safeguard the fundamental EU free movement freedoms whilst giving a degree of intellectual property protection to the PL as a rights holder. Many have suggested that the judgment is actually unbalanced; on one hand it extols the virtues of free movement whilst curtailing the very same freedoms through protection granted to ancillary copyrighted materials.

The decision is set in the context of Mrs Murphy using a Greek domestic, residential subscription for commercial use. The CJEU appears to have said that even if free movement principles and competition law apply, Mrs Murphy still needs authorisation because it was not granted by the PL in Greece to enable the communication of a domestic subscription broadcast to a wider public in a commercial setting. Thus the CJEU has taken the specific facts of Mrs Murphy’s case and narrowly construed them.

The CJEU’s rationale is that the PL authorised the Greek broadcaster to sell live PL matches to residential premises and whilst such residential subscriptions appear to be legitimately available to domestic UK subscribers, the PL did not authorise the Greek broadcaster to sell the subscription to a commercial subscriber. Therefore Murphy is using the wrong decoder subscription and appears to be in breach of the domestic copyright laws by showing the pictures.

Based on the current Murphy facts, it appears the High Court interpreted the answers given by the CJEU in relation to the Copyright Directive in such a way that would not permit Murphy to screen matches without PL authorisation.

What happens however if Mrs Murphy argues that she would have purchased a commercial decoder subscription, but was restricted by the Greek national broadcaster who was following the apparently anti-competitive contractual stipulations imposed by the PL? Whereas the CJEU appears satisfied that broadcast of a private, domestic subscription to a public venue in another Member State country is a further communication to the public, would the same apply if Murphy had bought a commercial Greek subscription?

An unanswered question is whether Murphy may argue in the future that she was prevented from purchasing a Greek commercial subscription and therefore the CJEU needs to consider whether such a subscription would be a further communication to the public under the Copyright Directive. Murphy would no doubt argue that the PL authorised the Greek broadcaster to sell the commercial subscription in Greece and therefore no further communication to the public would occur when that broadcast was shown in the UK.

Another conundrum that appears to remain unsolved after the the High Court hearing last year relates to the contractual prohibitions within the PL contract that the CJEU ruled contrary to EU law. The High Court has the ability to strike out the anti-competitive restrictive clauses. If, after removing the clause, the remainder of the agreement can reasonably be carried out, it can be enforced. There has been little word since the High Court judgment about how this process will be carried out.

The Next Premier League Tender

Against the Murphy backdrop, a question arose as to how the next PL auction would work in practice. The PL announced in May 2012 the details of its next three year UK broadcasting tender document starting from the 2013/14 season. The PL were selling 154 live matches split into seven packages. Sixteen more matches have been made available per season. The live rights packages will consist of five packages with 26 matches and two packages with 12 matches. In the last auction one hundred and thirty eight matches, spread over six packages, were marketed to interested broadcasters with Sky winning five of the six available. ESPN won the one remaining package. There is also a highlights package and various near live, internet and mobile packages available too.

From a domestic viewing perspective, it appears that a Member State citizen in the UK can subscribe to the authorised Greek broadcaster for live PL matches. Practically, whether this will have a cooling effect on the price UK broadcasters are willing to pay remains uncertain. This is because the likelihood of consumers buying two domestic decoders and subscriptions to view a game (possibly only available in another language) for a similar price for Sky Sports 1-5 may make this avenue rather limited. Many believe the larger price differential is the subscription for commercial broadcasts. Broadcasters may be insulated from such commercial switch-over because at present it appears that Mrs Murphy requires PL authorisation.

It has been reported that the PL has remodeled its non-UK, European tender offering limiting the number of 3pm games which would theoretically make it more unattractive for UK publicans to subscribe to non-Sky feeds because there would be fewer game on offer.

Conclusion

While there appear to be some outstanding legal points in order to conclude the decoder cases, it appears that Sky, along with the PL, has been one of the major beneficiaries of the decision. Sky can still sell the exclusive rights to live PL football (with ESPN) in the UK for this current season. That is the case, even though the CJEU, ruled against the PL in relation to  free movement and competition law principles. It is unclear whether Mrs Murphy is still showing PL matches with her Greek decoder. If she is, the PL believe they have strong grounds to sue for copyright infringement.

Ofcom and the Must Offer Remedy

An Ofcom decision requiring Sky to sell its Sky Sports 1 and 2 channels to its competitors at a regulated price was overturned giving Sky an important victory against its pay-TV rivals. For some time Ofcom had been investigating into the way that PL football was distributed to consumers in the UK.  Its main concerns were that Sky (as a wholesaler and retailer of PL football through its Sky Sports channels) could have had an interest in limiting the distribution of premium content, and that it could set its prices at a level as to make selling its Sky Sports channels uneconomical for its competitors like Virgin and BT Vision.

In December 2007, Ofcom launched an investigation into the pay TV market in theUK. Ofcom had competition concerns about the way premium content is distributed by Sky. It issued a number of consultations and in March 2010 published a Decision imposing an obligation for Sky to sell its Sky Sports 1 and 2 channels to its platform competitors (Virgin, BT Vision and Top Up TV) at a regulated price.

Ofcom’s main concerns were that:

  • Sky had an interest in limiting distribution of premium content, possibly as a result of a ‘desire to limit the growth of potential competitors’; and
  • Sky could, in theory, set their wholesale prices at a level above the competitive framework making it uneconomical for other broadcast retailers to compete with Sky.

Both these outcomes were beneficial to Sky as it would mean that subscribers for example, to BT Vision, would not be able to subscribe to Sky Sports because such channels were only available on Sky. (Note: Sky Sports channels have been available on Virgin for a number of years but Virgin had argued at a price which made selling them unprofitable).

The Ofcom Decision

The Ofcom decision in March 2010 required Sky to offer at a wholesale level its Sky Sports 1 and 2 channels at a price determined by Ofcom. This would have provided a mechanism for other platform providers to gain access to Sky Sports 1 and 2 on fair and reasonable terms. The decision would have meant, the wholesale price Sky charged for Sky Sports 1 and 2, to platforms such as Virgin Media or BT, would have been reduced by around 10%.

Sky appealed the Ofcom Decision on a number of grounds including the fact that Ofcom’s evidence that it used to show that Sky did not constructively negotiate in good faith with other platforms for the provision of Sky Sports 1 and 2 was flawed. The Competition Appeal Tribunal (the CAT), where the appeal was heard, ultimately accepted that Ofcom misinterpreted the evidence of the negotiations and as a result, Ofcom’s conclusions were inconsistent with the evidence. As such, the CAT decided for this, and other reasons, Ofcom’s Decision should be overturned. At the time of writing, it is rumored, that BT may appeal this CAT decision.

The Significance of the Decision

As Sky does not have to provide Sky Sports 1 and 2 to platforms like BT through an Ofcom regulated price, Sky are free charge what they believe is appropriate to other platforms like BT Vision to show its Sky Sports channels. Platforms like BT Vision and Top-TV (possibly along with Virgin) will have to individually negotiate a price with Sky for Sky Sports 1 and 2. Presumably, if Sky does not like the offer their competitors propose they can refuse to supply the channels.

BT Vision has somewhat safeguarded its position through winning two packages in the latest PL auction process. BT’s desire to win the latest PL rights at source in the latest auction may have also been to ensure they did not have to rely on Sky to show live PL matches. It means regardless of an agreement with Sky over Sky Sports 1 and 2 on its platform, BT Vision will have a number of games from the 2013-14 season to screen to its subscribers.

If commercial negotiations fail between BT Vision and Sky it may start a PL broadcasting war with BT potentially refusing to sell its PL channel (from 2013) on the Sky platform. This could leave both Sky and BT customers without a full set of PL matches to watch on their own platform.

There is little doubt that this is a crushing blow for the regulator Ofcom after over 3 years of investigations and consultations into the provision of live PL matches. Although further Ofcom action cannot be ruled out against Sky, they will have to go back to the drawing board.

The Sky is the Limit

The PL announced in June 2012 that Sky and BT had won the latest domestic live PL broadcasting tender, providing the PL with a record £3bn in revenue. It has been reported that such a figure is a 71% increase on the previous deal with Sky and ESPN.

The average overall price per match paid by the broadcasters has risen from £4.7m to £6.6m. Sky secured five of the seven packages on offer (116 matches per season from the 2013-14 season for three seasons) after paying £2.3bn.  BT won two packages worth 38 games per season for three years from the 2013-14 season, after bidding £738m.

BT have been active for some time in trying to source PL rights. Previously, it had been part of a number of broadcasters battling with Sky in the Ofcom investigation into the wholesaling of live PL matches. Initially, they were aiming to get Sky Sports 1 and 2 which show live PL matches, onto its BT Vision platform. That conflict is still to be resolved before the Competition Appeal Tribunal. In a number of ways, BT’s entry into the tender process was a natural extension of its need to get top premium content on its platforms. BT will hope that acquiring two packages will act as its own ‘battering ram’ to further its own cross-media, bundled internet offering.

ESPN will no doubt be thoroughly disappointed to miss out to BT. Like Setanta previously, ESPN had built its cross-platform channel on its PL offering. It still has the rights for one more season and will have contingency plans in place. They still posses the live FA Cup rights as well as a raft of live European football and US sports rights. Unlike Setanta, they are backed, to a degree, with the deep pockets of Disney and so may take a longer term view on building on a range of different sporting rights. The effective measure of whether losing the PL rights has had a major impact on its subscriber base will only come this time next year. The opportunity cost of not winning the PL rights may be more aggressive spending on other higher end sports rights.

Its fair to say the £1+bn increase on the domestic deal was an astonishing increase. The last domestic tender produced relatively flat growth which may have led analysts to believe modest growth would be achievable for the current tender. Ultimately, the degree of competition for the packages was significantly more fierce than in the previous tender with two broadcasters with very deep pockets ramping up the price. It would be as surprising as the current deal if the next tender produces such astronomical growth.

Many would argue that ESPN was very much the junior partner to Sky. With Sky having 5 of the 6 packages as well as assisting ESPN with its channel sales, it’s less likely both companies would be classed as a duopoly. Rather, Sky has been the established broadcasting incumbent of the PL. Other successful broadcasters have to date not managed to successfully win a subsequent PL tender.