Sky plc and British Telecom's multiyear content sharing deal is the latest shakeup in the Premier League rights auction that is widely expected to top its record £5.14 billion agreement with the two pay TV groups, which surged 71% from the previous deal.
Under the terms of the agreement, Sky will obtain wholesale supply of the BT Sport channels, allowing it to sell the channels directly to its customers. Meanwhile, BT will be able to market and sell Sky's NOW TV service, including Sky Sports, Sky Cinema and the Sky Atlantic channel, to its TV customers.
Sky is part of Walt Disney Co.'s deal to acquire a host of assets from 21st Century Fox Inc., announced Dec. 14.
Analysts agreed that the cross supply arrangement, announced Dec. 15, places both companies in a position of strength as they are going into Premier League negotiations in the coming months, amid rumored interest and added competition from over-the-top players such as Amazon.com Inc., Alphabet Inc.'s YouTube, Twitter Inc. and Facebook Inc.
"All eyes will now be on the Premier League and whatever the outcome, both BT and Sky will be in a strong position to air all the league matches on their respective platforms," according to Paolo Pescatore, vice president of multiplay and media at CCS Insight.
Amid expectations of inflated prices and mounting competition from digital players, analysts speculated that the Sky part of the Fox asset sale to Disney, alone could fork out as much as 40% to 45% more for the rights, amounting to an extra £600 million annually. Soon after, BT hinted it would scale down its rights ambitions.
"I don't think either of them can afford to pay much more," argued Richard Broughton, research director at Ampere Analysis.
Following rising sports rights costs, broader competition from streaming players and the resulting declining margins for both groups, the newly announced cross supply arrangement could result in "significant downward pressure against the previous inflationary trends," he explained in an interview.
Liberum analyst Ian Whittaker agreed with this view, adding that the deal largely represents an alignment of interest between the two parties.
"Increasingly the view is that both BT and Sky don't want to get into an aggressive bidding war. With this wholesale deal, it could be argued that any offers from Sky and BT are somewhat strengthened," Whittaker said.
He added that expectations of further price inflation within the Premier League are now "starting to come down" as a result.
The deal would also prompt questions about whether the total potential proceeds for domestic rights has peaked, Whittaker suggested.
"I think moving forward, where the Premier League is going to focus are international rights, not domestic. And that is where they will start ramping up in terms of money," he said.
The agreement between BT and Sky follows on-and-off negotiations that spanned a number of years and will come into force from early 2019.
Sky's newfound access to a complete set of sports rights as a result of the agreement is particularly valuable in the run up to the upcoming negotiations, independent analyst Ben Keen said in an interview.
The BT Sport channels' live rights include all of the UEFA Champions League matches and Europa League until 2021. They also consist of 42 Premier League football matches a season, as well as live rights for FA Cup, Scottish Professional Football League, BoxNation, Moto GP and women's tennis.
Meanwhile, BT's wholesale arrangement with Sky provides it with an opportunity to further monetize its big bet on sports rights over the years. As such, BT's CEO Gavin Patterson described the deal in a Dec. 15 statement as "the next logical step" for BT's TV and content strategy, which has so far been centered on exclusive sports rights.
"To some extent, you can see this as BT trying to close its funding gap, having paid out all this money on sports rights," Keen added.
The deal also provides a content boost for BT's non-sporting offering.
Describing it as an "ailing TV service which has been struggling to see meaningful net adds over recent quarter," Pescatore said the addition of these premium Sky channels, along with the hugely successful BT Sport, would make BT TV more attractive for consumers.
