Two developments bring Amazon's threat to Sky TV into sharper focus

Sky TV boss John Fellet: says Amazon's per-capita content expenditure is more at Breakers than All Blacks-rights level

RELATED AUDIO: Sky boss John Fellet on his company's full-year result and challenges ahead (Aug 23)

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Sky TV investors have been fretting for some time about the threat of new media competition. But two developments this week drew it into sharper focus.

The first – and this is a biggie; kudos, Matt Nippert – is the revelation that rugby body Sanzar is reportedly opening negotiations for post-2020 rights by April next year.

That's earlier than usual, and it's said to be so newcomers like Amazon could have time to organise infrastructure challenges (chiefly, how to film games given Sky TV bought the only independent outside broadcast operator).

As previously noted, Amazon has already been limbering up with sports coverage, joining Facebook, Google and Twitter in successfully bidding for some NFL rights in the US and tennis in the UK. As Sky reported its full-year result on August 23, its chief executive, John Fellet, told NBR that in per capita terms, Amazon's non-exclusive, limited NFL and tennis deals would equate to a bid for the Breakers rather than the All Blacks. But NBR's view is that Amazon is merely flexing its fingers with its minor sports deals. Once its warm-up is over, it will go after big deals.

Forsyth Barr shared that view in a recent research note. Six Forbar analysts predicted Amazon would establish a direct presence in New Zealand within five years, and look to push its Prime service (which offers everything from streaming music to video content to unlimited home deliveries for a set annual fee). Trade Me bases its planning on Amazon arriving as soon as next year. It's true that Amazon is about scale, so retailers can cling to a small but not totally-unrealistic hope that, although Amazon is now setting up a fulfilment centre in Melbourne, it will not bother with tiny New Zealand.

But with sports rights, Sky might not be so lucky. In Forsyth Barr's view, Amazon will not think in terms of five million rugby-mad Kiwis but rather about 120 million fans worldwide (based on estimated viewership of the last Rugby World Cup final). That might be goosing it a bit but there's no doubt Amazon will seek its desired scale through some kind of multi-territory deal (which would also put it in a stronger position to fight the growing problem of sports piracy, or at least people taking a virtual hop between regions as they seek out free-to-air coverage).

Amazon preceded its bid for NFL rights in the US with two documentary series, each following an NFL team (they will be available to New Zealand subscribers of Amazon Prime from September 6. The trailer for All or Nothing: A Season with the Los Angeles Rams is above. Amazon has now reportedly landed a deal for a documentary series that will follow the All Blacks.

An Amazon-friendly delivery platform
The second major development is the government's ramp up of its Ultrafast Broadband and Rural Broadband initiatives this week – with sealed commercial contracts, too, which would be problematic to break post-election. 

The goal now – and it seems quite achievable with the $276 million thrown into the pot this week on top of $2 billion-plus already allocated, with matching private-sector funding and progress so far – is to provide at least 50 megabits per second speed to 99% of the population. In layman's terms, that is all the bandwidth you need to watch high-definition streaming video smoothly on a smart gadget or regular TV.

One objection to a new media player like Amazon (or Spark's Lightbox or Google Play or Facebook Video) gaining A-list sports rights is that many in the provinces and rural areas don't have good enough internet for streaming. That objection is melting away. (And regardless, there is the lower tech option of partnering with a free-to-air broadcaster for more traditional transmission in some areas, or for delayed coverage.)

Many of Sky's critics moan the current government has let it get away with a domination of sports content that hinders new market entrants. But, really, by building up our faster internet infrastructure, the government has done as much to enable new competitors than any rules around contracts could have done.

Threats proliferate
In a recent Sunday Business with Andrew Patterson interview, NZ Rugby boss Steve Tew did at the very least seem to have a bit of a sentimental bent toward Sky, and sticking with its long-time partner would be the course-of-east resistance for the union if it could sharpen up its online act (although it did not break out a number for Fanpass at its full-year result, a Sky insider recently told NBR it was less than 10,000).

But at the end of the day, money talks. And Amazon – one of the five biggest companies in the world by market capitalisation, and led by the man who on some stock market days is the richest human on the planet – has lots of it.

Regardless, Amazon is not the only threat. Spark, which has deeper pockets than Sky, could make a bold return to sports after its Lightbox dabble – possibly in partnership with TVNZ or MediaWorks.

And Coliseum Sports Media, 50% owned by $810 million NBR Rich Lister Peter Cooper, is still circling with its RugbyPass service, which is growing around Asia Pacific thanks to heavyweight investment from the US Discovery channel.

Sky can comfort that at least Netflix is showing no interest in sport but then again it has to compete with the US streaming giant for entertainment content, plus grabble with nascent interest from the likes of HBO in selling streamed contact direct to the consumer, cutting out middle men old (Sky TV) and new (aggregators like Netflix).

It's possible Sky will keep hold of all its content post-2020. But, boy, is it going to cost.

Just look across the Tasman to the fight over league rights, to the US where streaming apps are diluting the value of broadcast rights, or the UK, where the scrap between British Telecom and the more traditional Sky UK drove the price of English Premier League soccer rights to a nosebleed £5.14 billion for the three season from 2016/17. That's meant a huge financial windfall for Premiership clubs, to the extent that New Zealander Chris Wood's recent £50,000 pounds-a-week move to Burnley barely made the sports front pages.

At least you say Mr Fellet backs himself, and his company. Some see it as foundering without a plan B following the ComCom's decision to block its merger with Vodafone, and slim hopes for its stock. But last week the chief executive bought 50,100 Sky shares on market (that is, not part of an option or bonus plan). Sometimes, you've just got to believe.


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26 Comments & Questions

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Nice article Chris.

Sky also seems to have the same corporate image as Yellow Pages in the price gouging 1990's. Sky PR is terrible and many ex customers seem to want Sky to fail. Their focus group feedback would be interesting reading

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Well I suppose if the price comes down at some stage, it will be a great help to all the poverty stricken people in my area that have Sky TV.

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Are you snooping in their houses Ivan or are you making the very dangerous assumption that because current occupants have a Sky dish they subscribe to Sky? My house has a dish but I don't subscribe.

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No Sam I don't, but I have been to many of their homes to watch Sky TV, as I know a lot of them. It's just something that I have observed that they do, all while drinking and smoking might I add. Not that there's a law against it. It's just that these are the people that are supposed to be regarded as poverty stricken.

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They probably are poverty stricken. Sky and Broadband (more so) is the only form of entertainment for many many people. Where you might go to the movies or the theater, or a restaurant, they sit home and watch Sky or use the Internet. Would you prefer them to be both poverty stricken AND doubly miserable?

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Looks about as happy as a songbird with strep, who's had his crumbs filched.

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NZ Ruby must be concerned about the falling subscriber numbers.

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I thought Sapphires & Rubies were found in Australia near the town of Sapphire in North Qld ; not NZ.

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If as rumoured Amazon is about to bid for the Rugby World Cup rights then perhaps Sky can hold some money in their bank by buying rights of the 'owner' rather than having to buy direct. Having another company willing to pay for rights is positive to NZ Rugby as this makes it a competitive areas which normally means more funds on offer not less.

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The only thing NZ Rugby would be concerned about is whether the cheque clears.

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Rugby needs to control its own destiny. The NBA league pass would be great product to replicate. Virtually no option other than illegal streaming to watch rugby in North America

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A very interesting on-going saga, which should leave us sports and other streaming content consumers as the ultimate winners.

But Chris, I'm wondering whether my next replacement "TV" could actually be just a bare-bones desktop computer - but with a nice, big hi-res screen.

While modern smart TVs and my old chromecast-assisted one can show streamed content, its still a hassle using the remote and virtual keyboards that the likes of Apple TV have. Nothing is quite so straightforward as bringing up video content directly on a computer and watching it directly on that computer's screen.

That would imply the addtional use of a FreeView tuner that could also feed any required live TV to the computer. In fact, isn't a so-called Smart TV really just a computer plus a tuner with a large, hi res, computer screen?

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Sky is a dinosaur and deserves to fail- they had the market share, size and scale to keep ahead of the pack but buried their head in the sand and continued to gouge pricing. They should move their focus to being a sport content provider for digital platforms as they have excellent infrastructure and IP in this area.

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Agreed.

But you wont get a change for a CE with an angry face like that.

NZ Rugby will be concerned about the drop in subscription numbers. TV is a big part of their revenue platform. Rugby need to change focus, and start attracting people to the grounds. Play it at a decent hour, so the next generation can attend.

How many people get up in the middle of the night to watch rugby games anyway, when they are so many. Along with Fellett, Tew needs to go as their ideas are stale.

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Couldn't agree more. A 5:30pm kick off so that kids can come from afternoon games and Mum and Dad can get out and about afterwards if they are still of a mind. The grounds need to come to the party also with a better offering in terms of food and a craft beer wouldn't go amiss.

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Bye bye Sky

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Would Amazon really be interested in rugby rights? Irrespective of how the game is viewed here it is a minnow on the world stage with football, Formula 1, NFL and the NBA dominating eyeballs and consumer entertainment budgets. Also, unlike rugby rights for NZ there are plenty of opportunities to simply rescreen existing coverage for these sports versus having to cover the investment of onsite broadcasting equipment and production resources. Plus the problem with sports is that someone else owns the content and the costs go up every time the rights are renewed, far better to make your own, better margin and you get to set the price - see Netflix strategy to move more toward creating their own programming much like Amazon has started to do.
Also, if as you say Amazon may not be interested in NZ surely they would look at AFL or rugby league before they turned their attention to what is the fourth most popular ball code in Australia.
Think as you say Spark is likely to emerge as a more realistic competitor to Sky than Amazon, provided that Sky/Vodafone don't submit a joint rights offer.

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Agree. Jeff Bezos' modus operandi is all about scale, so Sky's best hope is that the All Blacks are just not a big enough franchise to attract his interest, even with their offshore following thrown in.

However, with the talks starting in April and the doco in the works, Amazon is obviously actively accessing the situation.

The nightmare scenario for Sky TV would be Amazon used All Blacks rights as a loss-leader to draw people into its $US99/year Prime service en-masse (remembering the omnibus Prime includes not just video and music content, but free delivery of goods bought on Amazon), the better to quickly ramp up its e-tail and retail presence in NZ.

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Amazon might be interested in rugby rights from an international view too, particularly in UK where they're big. Audiences there big and rich. Eg. Over 120 mln watched Aust-vs-NZ RWC final and many millions watched games involving UK teams. Might be useful as part of the global package. http://www.sportcal.com/News/FeaturedNews/39963?sportID=225

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I am sure everyone wants the All Blacks but what about provincial games or school games that have been broadcast. NZ Rugby needs to make sure that the 'broadcast bundle' is solved for not just the ABs to keep nz public on side.

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There are many things the market doesn't know yet in terms of what the SANZAR package will look like post 2020; I doubt NZRU does.
1) If South Africa left the stable to create their own comp in their time zones, what you an attractive comp to replace Super rugby look like? I would say NZ, AUS, SIN or HK, JPN, one Pac Island team and then 2-3 from West Coast North America. That's where Amazon would be interested in a multi-territory deal to realise untapped value in Japan and North America. Unsure about ARG. Next Olympics in Japan, Paris and LA. USA 7s team improving rapidly. Big scope for rugby to become more popular.
2) Some comments here point to market fragmentation making the consumer the winner. That rarely happens. If you are a multi-sports fan you'll be chasing all sorts of subs to watch long-form live content. Sky has been very clever to keep themselves as a one stop shop but even $100 a month is cheaper than a lot of subscribers pay in other countries for watching their favourite sports content.

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And will Amazon pay as much tax to the Treasury as Sky TV does? No, I didn't think so. So for all those jumping up and down on the spot clapping their hands with glee, you might want to think on that. Someone has to pay for our welfare state and it won't be Amazon.com!

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All those rugby players pay tax on their salaries and I assume the NZRFU pays a bit of tax too so the company tax Sky pays is not significant in the scheme of things.

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Sky may not be thinking of the All Blacks as an international brand as is the Super Rugby . There are more subscribers outside of NZ already on Amazon that would happily consume some world leading rugby entertainment. Is Amazon moving into the UK - yep, France/Italy - yep, South Africa, Argentina, Australia- yep. NZ is just a great content creator for rugby fans worldwide.

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Went to Fiji for holiday last week - Skys online offereings Fanpass & Neon which I subscribe to were unavailable due to screening rights only local in NZ. ... however, Netflix works. This is the difference here, if Sky TV is not thinking globally about content rights then they will lose. Amazon will not be interesting in screening for local markets only - they are global, as is Netflix. Amazons prime competes with Netflix. Fast forward 5-10 years it seems as if there will be major players only as they have scale and funding for purchasing new rights.
Recommendation: Sell SKT unless they change up their business model and move to content rather than devices. Or perhaps time for a fresh face at the helm, someone not from traditional media?

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I have said for many years SKY TV will no longer exist in 2 to 5 years time because their business model do not allow them to move with time. They are stuck in the 20's (or so it seems) and given their CEO who have been in that role for over 15 years, I am NOT surprised. Competition is healthy and I am glad someone came to disturb SKY TV.

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