BT tries to find a way through the content maze

BT is a business under a bit of pressure right now, and the latest quarterly figures won’t do much to ease the headache developing in CEO Gavin Patterson’s office.

Jamie Davies

November 2, 2017

5 Min Read
BT tries to find a way through the content maze

BT is a business under a bit of pressure right now, and the latest quarterly figures won’t do much to ease the headache developing in CEO Gavin Patterson’s office.

From a financial perspective, total revenues are down 1% to £5.949 million, while profit before tax stood at £666 million and basic earnings per share down 7% to 5.3 pence. None of these numbers are going to make investors particularly happy, which might have a few BT executives sweating. The new Chairman Jan du Plessis, a man known to be a bit of a tough cookie, is about, and it wouldn’t be a massive surprise if we saw a few changes over the next couple of months.

That said, the performance of the overall business shouldn’t be the biggest concern of Patterson and his cronies. Sure, the number of mobile subscribers is lower now than it was 12 months ago, but broadband subscriptions are up, as are ARPU’s across the board. Where the team should be a bit more concerned is around the content business.

“More than double consumer line losses is a worry and TV net additions was extremely disappointing,” said CCS Insight’s Paolo Pescatore.

“More so in in light of the new European football season given the huge focus on sports and TV services. Despite its strong assets, the company is struggling to cross sell more services into its existing subscriber base. Marc Allera (who will take over as the CEO of the new consumer business) faces some tough decisions with the integration of the consumer units and the forthcoming Premier League rights auction.”

Over the course of the last three months the TV business adding 7,000 subscriptions. Now when you put 7,000 people in a room, you won’t have much space left over, but in the context of a challenger content business, such small gains will not be well received.

This is an area which was a bet a couple of years ago and it was an initial success. BT decided to step up the game and challenge Sky in the football world, which was seen by some as a sensible move and by others as suicidal. To be a major player in the UK sporting world, you have to have football. BT spent big, securing the Champions League and the Premier League. It was supposed to be the rise to the top, the chance to usurp Sky.

Having outbid Sky for the Champions League (a deal worth £1.18 billion), BT then paid £960 million for 42 Premier League games a season. That is a lot of money, for some pretty low returns this quarter. Whenever you get a new boss into the office you want to do your best to impress; with these figures, senior guys in the BT offices have some very good reasons to be worried. The football bet does not seem to be paying off.

Perhaps more worryingly is the future of football. BT could argue it has laid the foundation for future growth, but it will have to dig deeper into the bank account to retain the rights. While Sky is very likely to put up some stringent competition, rumours are the OTTs are looking into some sort of global distribution deal as well. Increased competition, fragmentation and cost to play are not trends the BT team will want to see bed in.

But this is only the tip of the iceberg. BT is facing some serious issues all over the place. While its sporting platform is pretty good, to make further waves it is going to have to up the ante on the number of games it has, while also making an assault on Sky’s dominance on Sunday programming. Pescatore thinks this could be a game-changer for the sporting landscape, but it might end up costing an extra £1 billion. You have to wonder where this money is going to come from.

Elsewhere in the content business there needs to be further consolidation as the team are currently supporting two competing platforms in EE TV and BT TV. Work is also needed outside sport, as the overall content platform is sub-standard compared to Sky. There is more to video than sport, and a relatively solid position in the sports market does not seem to be translating elsewhere. BT needs to start spending in other genres if it wants to be considered a real content player alongside the likes of Sky and the OTTs.

Looking at the threats in the sport world, it isn’t just the powerful OTTs where the worry is, smaller companies such as The Perform Group, which owns the DAZN platform, are starting to make waves. Pescatore highlighted to us DAZN is doing a great job of sweeping up various rights and is providing a pretty comprehensive alternative to what we would consider the traditional channels.

Overall it is a bit of a glorious mess, and this seems to be translating over the convergence side of things as well. This quarter the team has said the average number of services held by each customer is 2.01. This is up from 1.95 12 months ago, but progress has been very slow. BT has all the assets for an effective quad-play, but nothing has come to fruition to date. This is another area where the team need to spend money.

The to-do list is starting to get quite big, and the bills are starting to look quite expensive. You have to wonder where BT is going to get all this cash to make content and convergence work.

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