BSkyB shares fall after PL rights results

Shares of Rupert Murdoch’s British Sky Broadcasting Group Plc dropped as much as 5.1 percent after BSkyB paid more than expected for English Premier League rights, and earned few games.
 
The company paid 29 percent more for the football league’s rights, and took only four of the six 23-match packages offered by the Premier League. Irish pay-TV broadcaster Setanta took the other packages, effective for the 2007 season. Setanta is carried on BSkyB's platform, so BSkyB subscribers can pay to receive games broadcast by Setanta.
 
BSkyB still held on to the coveted 4 p.m. Sunday match slot, the most desired package, according to experts.
 
Still, BSkyB fell as much as GBP 27 pence to 501 pence. Investment banks, including Lehman Brothers, ABN Amro and Deutsche Bank, reduced price estimates on the stock.
 
With increased competition for bidding rights, Murdoch’s company will pay more than GBP 1.31 billion pounds over three years, compared with GBP 1.02 billion for the current three-year deal for all live rights. Analysts thought BSkyB would get five packages, the maximum allowed under new bidding rules.
 
Lehman Brothers cited “the high price paid for the Premier League rights,” when lowering a price estimate GBP 20 pence to 580 pence. The deal raises “a number of important questions for investors in BSkyB and other pay TV companies, not least what the price of football rights will be in future renegotiations,” analyst Matthew Walker noted to clients. He has an “equal weight” rating on BSkyB. ABN Amro reduced its price estimate from GBP 550 pence to 510, and Deutsche Bank lowered its estimate to GBP 620 pence from 650 pence.
 
“We see five areas for potential downgrades,'' Credit Suisse analysts mentioned in a research note entitled “More Money Less Football.” The areas of concern include higher rights cost, lost pay-per-view revenue and lower revenue per subscriber.
BSkyB has “avoided the worst-case scenario of losing a substantial amount of football, and to a competitor” such as cable company NTL.
 
UBS AG reduced its price target GBP 40 pence to 710 pence while noting that “strategically this was a good result” for BSkyB because no packages will be broadcast on free-to-air terrestrial TV or a rival platform such as NTL's.
 
“While in our view the shares offer good value and we now have visibility over football, they are likely to be impacted by the high price paid,” said the note from UBS analysts, who have a “buy” rating.
 
The outcome, while “not a disaster” was “another reminder, after a couple of years of programming cost deflation due to low competition for rights and a weak dollar, of Sky's vulnerability to competition for sports content,” said analyst Conor O'Shea of stockbrokers Teather & Greenwood.
 
Setanta, whose leading shareholder is Benchmark Capital, paid GBP 392 million for its two 23-match packages.
 
BSkyB won three 23-game packages in the initial round of bidding 28 April, and won the 4 p.m. Sunday package in the second round announced 5 May.
 
The broadcaster has more than eight million subscribers, many of them attracted to its live football matches. BSkyB now broadcasts all live Premier League games, which influenced the European Commission’s order to the league to see that another broadcast entity could pursue the matches.
 
BSkyB is nearing an agreement with Setanta to start pub screenings of the packages won by the Irish company, the Sunday Telegraph reported, citing an unidentified person close to the deal. BSkyB’s 40,000 pub and club subscribers will pay BSkyB to screen the games, with a large proportion of the revenue going to Setanta, the newspaper said.