rights

Virgin Media and the Premier League

The Win

Judging from recent interviews across the media, Virgin Media CEO Tom Mockridge is out and about shouting loudly about his company’s complaint about how the Premier League sells its UK TV rights. His complaint is broadly that the league only sells 168 of the 360 fixtures each season, artificially limiting supply to keep prices high.

The media fusillade includes pieces in The Guardian, the FT, the Telegraph and the BBC. He also popped up on Radio 4’s Media Show.

But this isn’t new news. The complaint was actually made to Ofcom last year ahead of the most recent Premier League rights auction. Furthermore, Virgin Media asked Ofcom to suspend that UK TV rights sale ahead of making a decision on this investigation – something Mockridge sidestepped a little during the Media Show interview. Ofcom refused that, and the auction went ahead with the new rights deal running for the 2016/17 – 2018/19 seasons.

The Premier League currently packages up fixtures into seven packages valued differently depending on a variety of measures including which “pick” of the weekend’s fixture that package entitles the broadcaster to. There are lots of rules about ensuring that every team gets a minimum TV exposure, when games can be scheduled (particularly with teams involved in Thursday night Europa league footabll), and when is optimal for TV viewing figures.

What that means is that not all seven packages are equal. In the most recent rights rounds for the period starting next season, Sky retained its 4pm Sunday slot and got back Saturday 12:45pm package from BT. These get most of the best fixtures – along with the Sunday 2pm slot which Sky also owns. BT will be taking over the 5:30pm Saturday slot.

But let’s look at some of the arguments Mockridge makes as part of his case.

What about his argument over how rights are sold in domestic leagues elsewhere in comparison to the Premier League?

Well he’s right to say that most games in US leagues like the NFL, MLB and NBA are televised, but it’s a complicated web of sales there, combining national network TV, local TV and digital offerings.

The biggest sport in the US in terms of television money is the NFL, and it’s notable that NFL games avoid Friday nights (High school football – “Friday Night Lights”) and Saturdays (College football – itself a big TV money spinner). So games are mostly played on Sundays, with a Monday night game and more recently some Thursday night games. That’s effectively the NFL’s way of having the equivalent of having a 3pm-5pm “blackout” as we have in the UK when there is no live domestic football.

Few would argue that it’s sensible offering televised Premier League football during that window unless you want to destroy the fabric of the game down through the Football League, SPL and beyond.

Mockridge’s solution seems to be one of two things: the Premier League offers more money to the lower leagues to offset this, and to use regional blackouts as used in the US.

In the first case, I’m not sure that holds up. Mockridge is asking for something that by his reckoning will keep inflationary rights in check – in other words limiting what the Premier League can make. That would mean that the league would surely be less inclined to deliver revenues to lower league divisions?

As for regional blackouts? Well that’s complicated, and Mockridge is missing one massive difference.

The US model works something like this in the case of the NFL: home markets are broadly defined as a 75 mile radius around the team’s ground. The idea is that if a game is not sold out 72 hours in advance, the game cannot air locally. This is to encourage fans to attend live games rather than simply stay at home. Plus full grounds look and sound better on television. In reality the rules are bit more complex. But key is the fact that the FCC has recently lifted its rules on blackouts, and this season NFL teams have lifted the rules too.

Different sports have different blackout rules, but it’s really unclear to me how they’d work in the UK.

Mockridge talks in interviews about blocking out a Manchester United games to Manchester viewers and Arsenal games to London viewers if they’re played at 3pm. And it’s true, technology could allow this.

But that’s completely missing the point of US-style blackouts.

The NFL blackout rules were put in place to ensure full stadia for NFL teams, not to support a wider American football eco-system. As I’ve said, the NFL does that by not clashing with high school and college games.

In the UK, there’s no need to prevent Manchester viewers from seeing Manchester United play on TV because they, like most Premier League teams, sell out pretty much all their home games. Across the Premier League this season, grounds have been 96% full on average thus far.

We’re talking about people staying at home to watch any Premier League games rather than going out to watch Macclesfield, Brentford or indeed any teams outside the Premier League.

Blacking out United’s games in Manchester would still leave another four or so live games for Manchester fans to choose from at 3pm on Saturday. Lower division gates would suffer as fans stayed at home and watched another fixture.

Other sports leagues around the world think only of their own leagues. We actually have an ecosystem that considers the full league structure. There’s no relegation or promotion in the NFL/NBA/MLB – so the leagues don’t especially care beyond college sport.

Then there is Mockridge’s underlying thesis that offering every game would somehow curtail inflationary rights revenues. I’m just not sure that’s the case. The reason we have the inflation we do at the moment is because in the UK there are two major players in BT and Sky who have both seen sport as a core part of their offering. In fact, while broadcasters have seen massive inflation overall in rights, they’ve not actually needed to increase their subscriptions to that degree. Sky has increased its prices a little, but not remotely close to the 70% Mockridge talks about. Sky says it’ll find the savings it needs elsewhere. BT bought a lower priced package this time round, and is better able to swallow the price increase without introducing price increases (That’s not to say it won’t of course).

In the end bidders can only pay what they think the market will bear. In the same way that Virgin Media sets the price of its broadband for customers based on what they believe consumers are willing to pay for high-speed internet access. That price Virgin Media charges is based on lots of things including what it costs to provide the service, but also what others in the market are charging.

Furthermore, just because there are more games on offer, it doesn’t necessarily stand to reason that the value of each game would go down. It’d all depend on how the Premier League retailed those games. A third bidder might enter the market – Virgin Media for example. Additional bidders boost prices.

I can’t see the Premier League choosing to do anything other than offer games in packages as they do now. Currently every game outside the 3pm slot is part of a package.

In radio, there are two packages that include the 3pm slot – Five Live has one and Absolute Radio the other. Since the number of games played on Saturdays at 3pm is quite variable, and all the “top” games have already been shifted out of that slot, then I can only really see Premier League offering a complete package of those remaining fixtures. But that would probably just bring extra revenue for those games into play as either Sky or BT bid for those games as a red-button offering.

While that might mean the average price per game overall falls a little, the actual total rights payments handed over would increase. And an overall increase surely means more total cost to customers?

Virgin Media’s complaint seems to be specifically about “collective” selling. It’s unclear to me whether whether they expect every fixture to be sold independently – perhaps auctioned on a fixture by fixture basis. I’m not sure that doing that would be any more helpful to fans. You’d never know what channel was showing what game. Broadcasters are bound to stick with offering monthly subscription rather than offer fixtures pay-per-view model (Sky previously tried this you will recall).

So were more than two groups to bid, consumers wanting full access would have to pay more than ever.

And the last thing the Premier League should follow would be a Spanish model where the big sides – notably Real Madrid and Barcelona – generate the vast majority of television revenues leaving a league that is heavily weighted towards those two clubs. A per-game model would vastly favour big clubs like Manchester United, Arsenal, Manchester City and Chelsea.

Well maybe not Chelsea 🙂

Finally the claim by Mockridge that additional money generated by changing the rights sale process would deliver might be returned to fans in the form of cheaper tickets seems laughable. Much as I’d love to see increased TV revenues meaning cheaper tickets, that simply doesn’t happen now, and it wouldn’t happen under a new model. Instead, the vast majority of those revenues go straight into players’ pockets via increased salary demands.

You can’t have it both ways. If the Premier League offers more games live, then either the overall revenues increase or decrease. If they increase, then fans, overall, pay more. If they decrease, then that would seem like a massive market intervention, the likes of which has not been made anywhere else in the world. And inevitably those revenues would benefit the bigger clubs much more.

In the end, it is surely for the Premier League to determine its own best model. They’ve had their hand forced to ensure that there are at least two bidders. But as it happens, the model they have currently actually seems to work really well for them, and they’re second only to the NFL overall TV rights revenues. With trickle-down money going beyond the Premier League, that must be positive for the game in general.

If rights get too expensive, then subscribers will stop paying.

It’ll be interesting to see Ofcom’s conclusions to this complaint, but I’d be flabbergasted if Ofcom did anything aside from throw it out.

How Should Spotify Pay For Its Music?

Ooh Chris Martin on your Radio

Yesterday I got into a bit of a discussion with James Cridland on Facebook about the rights and wrongs of how services like Spotify distribute their revenues. And I thought it was worth sharing and expanding on some of my thoughts on the matter.

This comes off the back of a Medium piece from Sharky Laguana.

But I’ll preface things by reiterating that I don’t think the flat subscription model works at all well for the music industry. Go back and read this piece to understand why I say that.

Sharky explains how Spotify uses what he calls the Big Pool method of distributing royalties. He believes that the Subscriber Share method would be fairer.

Big Pool

The Big Pool method takes all the revenues that Spotify earn and attributes to rights holders – about 70% of the money subscribers give them – and then it divides that pot of cash by the total number of streams delivered. In his example, which uses December 2014 data, that means $0.007 per stream. Spotify then pays out that money accordingly, based on the number of streams each song has had.

I’ll leave you to read why he thinks this method is bad. But in essence it means that a large proportion of the money you personally give to Spotify each month goes to artists and rights holders that you don’t yourself listen to.

Subscriber Share

The Subscriber Share model works in a different way. It looks at each user’s listening habits and apportions the relevant money that subscriber pays (~70% of your monthly fee) to those artists/rights holders. Ed Sheeran might be one of the most popular artists on Spotify, but because I don’t listen to him, none of my subscription goes to him – it just goes to artists that I listen to.

So which of these methods is fairer?

I would actually argue that they’re both legitimate ways of dividing the spoils. The difference between them depends on how you look at an offering like Spotify.


  • Do you consider your usage in isolation: you have £9.99 to spend on music each month, how do you spread that out? Which artists do you apportion that money?
  • Or are you paying £9.99 for a service. Your cash pays for access to 30m+ tracks which you can listen to as much or as little as you like?

Spotify as a Service

Spotify treats the money in the latter manner. And this is not an uncommon way of doing things.

Think of your pay monthly phone tariff. For a flat fee the operator gives you unlimited calls and unlimited texts. I might be a relatively light user of the service, only speaking for a couple of hours a month or sending a handful of texts. You might live your life on the phone and send hundreds a texts a day (OK – I know all the kids are on WhatsApp or whatever, but you get the point). The operator prices its products on the overall usage. It has inter-network fees it has to pay, and it needs to make sure that the overall spread of usage is balanced out by the subscription fees it collects.

Or think of a gym membership. You and I both pay £50 a month. We can go as often as we like. But I’m lazy and I only go once a month. I should really cancel my membership. Each visit is costing me £50 a time! You go daily, and you get great value from your membership – use of all those facilities and only £1.50 a time! The gym needs to ensure that it collects enough subscription revenues to pay for itself and not be full the entire time.

At its very simplest, this is how our taxes work too. I don’t have children, but some of tax money is spent on schools. You might have a serious medical issue, and the NHS may offer treatment vastly in excess of the income tax or National Insurance you pay.

In terms of Spotify, some people get amazing value from the service – they listen morning to night and stream thousands of tracks. But most subscribers stream far fewer. There’s nothing to stop them streaming more, just as there’s nothing to stop you going back for seconds at an all-you-can-eat buffet. But some people are full after one trip, while others are students who want to get full value!

In terms of how artists and rights holders get paid, should this depend on how much I personally use the service? Or should it depend on the overall usage by all the service’s subscribers? After all, even without considering rights payments, someone who streams Spotify 10 hours a day is costing more in bandwidth than someone who streams for 10 minutes a day.

Think of it in “Entertainment Hours.”

Ed listens for 10 hours a day or 300 hours a month, while Taylor listens for just 30 hours a month.

Should each Entertainment Hour delivered to Ed be worth less than each Entertainment Hour delivered to Taylor simply because Ed uses the service more?

Indeed the Big Pool share is pretty consistent with how music is paid for in general. In UK radio for example, stations have to return a list of all the tracks they play, and royalties are calculated by simply dividing the stations’ royalties fees accordingly.

If I want to start an online streaming radio service, I will quickly discover that royalties are charged on a per-song/per-stream basis. In other words if there are 10 people listening to my service when a particular song is played, then it costs me 10x that per-song/per-stream price.

We Don’t Have The Data… But Denmark Does

None of what I’ve argued here should discount the Subscriber Share model as being a legitimate alternative method to paying out royalties, although I think you’d have to consider what Spotify is as a very different beast.

But to truly calculate the impact of one method of payment to another we need data. It requires a big bulk of real usage data sampled properly from the full Spotify subscriber base. Because it’s simply not possible to calculate which artists do better out of which system without access to that data.

In Sparky’s example, he points out that Alt-J might earn $1.75 from a single subscriber under the Subscriber Share method assuming that user plays them 25% of the time. Based on the same average usage, the band only receives $0.35 based on the Big Pool method.

But what that ignores is the overall playing of Alt-J across all users. If the Ed Sheeran/Taylor Swift playing mainstream, who account for the bulk of subscribers, also stream just a single Alt-J track, does that add up to more money? Under the Subscriber Share model, the amount might be incidental. But added up across many more listeners, could the Big Pool revenues actually add up to a similar amount? Without the data we simply don’t know.

Via a comment to Sharky’s Medium piece, I was directed to this fascinating Danish report based on a month’s worth of Danish streams via WiMP (available in Denmark, Germany, Norway, Poland and Sweden).

The report looked at the top 5,000 artists played across that month. Unsurprisingly the top 1% of artists accounted for 28.2% of streams, with the top 20% of artists accounting for 80.1% of streams. The tail gets long very quickly.

What the report also clearly showed is that people who listen to less popular artists also listen to more artists. And that doesn’t help the economics for those smaller artists.

“Because the most popular artists have the least intensive listeners, per user distribution [Subscriber Share] would generally move money from the tail towards the head.

“Among the top 5,000 artists, per user distribution would primarily benefit the most popular artists at the expense of the less popular. The top 1% among the top 5,000 artists would go from 28.2% of payout with the current model [Big Pool] to 31.0% of payout with the per user model [Subscriber Share]. Artists between 1,000 and 5,000 would go from 18.1% of payout with the current model, to 15.9% of payout with the per user model – a relative decrease of 12.1%.” [My emphasis]

This also goes back to my contention that the music industry loses out massively from its biggest fans by letting them have everything for a flat rate when they were previously spending much more.

Other Considerations

What happens to your subscription money if you don’t listen in a given month? Under the Big Pool method, it makes no difference. Your 70% rights share gets thrown into the pot. But under the Subscriber Share where does it go? Does Spotify just bank it? This isn’t quite as niche a case as you might think. Globally some mobile phone operators include Spotify Premium subscriptions in their packages, and not all of those subscribers will take them up on those deals, but revenues are probably collected. I know that I used to have a Deezer subscription via Orange that I essentially never used.

The major labels may also have determined minimum pricing per stream. Under the Subscriber Share model, it’s possible that the price paid per stream would drop, and that may cause issues.

And it’s worth noting that while I’ve no doubt that the Big Pool method works satisfactorily for the major record labels (they wouldn’t have signed up otherwise), it must surely do OK for the independent labels represented by groups like Merlin. Spotify et al need indie labels for their services. As well as some major superstars like Adele appearing on Indie lables, the services simply wouldn’t have the requisite breadth without them.

Summary

As I said right at the start, I wouldn’t argue that the Subscriber Share method isn’t a valid one, but it’s not as black and white an issue as might be painted. Spotify is a service, and like every service you use it to a greater or lesser extent. But it does at least treat artist equally, and each play is valued the same. So in that sense it’s equitable.

And the Danish report suggests that it’s actually a better deal financially for smaller artists. In fact it’s the biggest artists who should be complaining.

The £5 Billion League

You know how this is supposed to be austerity Britain? Well you wouldn’t know that looking at the sums announced earlier today as the conclusion of the next three years’ of live Premier League coverage were concluded.

The total cost of the rights was £5.136 billion for the seasons 2016/17 to 2018/19.

Sky has retained the lion’s share with 126 games a season compared to BT who have 42 games a season.

The Premier League tweaked the model this time around and upped the number of games they’re selling from 154 to 168 a season. Matches are sold in 7 packages: 5 packages of 28 games and 2 packages of 14 games.

The Premier League also tweaked who get what picks. There is a complicated system in place to let TV companies determine which games they put into which slots. On top of this, there are issues surrounding clubs participating in Europe and potentially issues with policing of games (ie. the times police are happy for derby matches to take place).

Let’s go through some numbers.

While the talk was of there being an increase from £3.1 billion to perhaps £4.4 billion, we in fact saw a 70% increase in rights.

If the comments of Richard Scudamore are to be interpreted correctly, other parties showed an interest in the rights (possibly Qatari owned BeIn Sports and Discovery), but BT and especially Sky maintained their stranglehold.

The cost per match – on average – goes up from £6.5m to £10.2m.

I thought it’d be fun to put this in perspective with some other TV costs.

(These are based on recently reported figures – but the entertainment industry’s economics are opaque. And yes, you get more hours of television for your money from a Premier League fixture than an episode of a TV series. That said, these rights fees don’t include production costs.)

What’s interesting is that BT has constrained its costs to a much greater extent than Sky.

BT points out that it is paying 18% more per game than under the current agreement. Whereas Sky is paying 69% more per match than previously. And because Sky has more games than before that means an overall 83% increase.

That does mean that BT has fewer first choice fixtures than previously, but the packages they have are now predominantly the Saturday 5.30pm fixtures alongside some midweek games. Whether this is because BT has already forked out nearly a billion pounds for Champions’ League (and Europa League) rights from the 2015/16 season isn’t certian.

But it does mean that BT could potentially keep their sports channels free and only charge for the Champions’ League.

While Sky has the cash to do this deal, at the end of the day, they have to make those rights pay for themselves. So do we see big increases in what Sky Sports costs to subscribers? An 83% increase has to be accommodated.

And do we see the rights paid for other sports start to diminish? Although BT has bought some rights that Sky previously had, leaving Sky with some cash in hand, it’s a drop in the ocean really. So this might begin to hurt other sports.

For example, the current Sky deal with the Football League represents a 26% decrease in what was paid previously.

Will Sky more and more want to shore up the rights they really need – Premier League football, Cricket, Golf, Rugby League, Rugby Union – and pay much less for other rights?

And you know how the Championship playoff games is always billed as the biggest game in football? Well it’s only going to get bigger. The jump from Championship to Premier League is going to be extraordinary. While getting into the Premier League could be fantastic, the fall in future could be shocking.

It’s widely reported that the NFL is the only sport earning more for domestic rights now. The NFL has deals with all three major free-to-air networks, as well as ESPN and a satellite deal with DirecTV. According to Wikipedia, that means something north of $6.5 billion per season from 2015. This chart puts the Premier League deal in perspective.

But of course the US market is something like five times the UK one. And of course it’s interesting that nearly all NFL games are played on free-to-air television. (I should note that there are local TV deals not accounted for here for the NFL. But then arguably Premier League clubs also have revenues from online video and their own channels).

But perhaps the biggest question coming from this deal is working out how do clubs stop the money just putting all this extra money straight into players’ pockets? The players deserve what they earn, but there is more than the Premier League, and fairer distribution even within the clubs will be important. In particular, some club employees are actually pretty poorly paid.

And there are still international rights to come! And those get shared equitably – which is fantastic for smaller clubs. If there’s anything like the increase in rights that the domestic rights have seen, that could be a £10bn league.

So who’s rubbing their hands today?

Park Lane car dealers; Hadley Wood and Cheshire estate agents; football agents the world over.

And who’s done badly?

Well us. If you’re a football fan, then those rights need to get paid for somehow.

At a time when inflation is low, but wages are lower, when do subscribers finally say, “That’s too expensive – I’m going to have to stop subscribing.” I’m not convinced that people won’t eventually cancel subscriptions if the costs go up too much.

The Open Goes to Sky

As has been widely anticipated in the press, today saw news that Sky Sports has won a five-year contract beginning in 2017 to broadcast The Open golf tournament exclusively live. The BBC will have a two hour 8pm-10pm highlights package.

Sky is said to be paying twice as much as the BBC, and they will no doubt throw loads of resources at the coverage. Of course viewers will get advertising as well, but those who find Peter Alliss a little “long in the tooth” will be happy.

The downside is that one of the only remaining golf tournaments on free-to-air television is gone. All that is left is the final two days of The Masters (Sky having all four days after an F1-style sharing agreement was reached a couple of years ago).

From my perspective, I’m not too bothered about golf per se. I don’t play it. I’ll watch it if it’s on, but when The Open is played, I tend to prefer to be outside myself enjoying the summer rather than holed up in my living room with the curtains drawn to avoid sun causing glare on my TV.

But while this deal offers a nice cash injection to the R&A, it’s really short-term thinking to remove a sport from national coverage when it’s in decline.

With the greatest will in the world, two hours’ highlights on BBC2 when anyone who cares already knows the result, is of little relevance.

Since I last wrote about this subject, when rumours mounted that live coverage of The Open would be leaving free-to-air TV, Sport England has released the full results of the most recent sweep of its Active Sport survey with the full year results up to and including October 2014.

So I’ve updated the chart I published previously, which shows at least once a month participation in sport:

Specifically it shows that the percentage of the population who play golf has fallen from a high of 3.73% (2007/2008 – towards the end of Tiger Wood’s unparalleled reign over the sport), to just 2.57% in the latest sweep. To be clear, Sport England reports that this is a statistically significant decrease. Indeed that represents almost a third fall in people playing the game.

Hiding your sport behind closed doors wouldn’t seem to be the most sensible thing to do.

Notably at the weekend, Lee Westwood was reporting the impending deal as being “an absolute disgace.”

“I wouldn’t have got into golf if it wasn’t for watching Nick Faldo win the Open in 1987. I would watch every minute of the coverage, and you want today’s kids to have the same opportunity. The BBC is doing golf no favours at all by letting the Open go.”

I’ll remind you again that Lewis Hamilton beat the more deserving (IMHO) Rory McIlroy, almost certainly because the average man or woman in the street has perhaps caught a bit of F1 on television. Frankly, you’ll be doing well to see much of McIlroy.

Recently I heard Kevin Pietersen on the radio talking about the success of Australia’s Big Bash Twenty20 cricket tournament. He was enthused about how well the league is doing, and how the franchise system works.

I’d suggest that the reasons for it’s success are less to do with the franchise system (which works well for players getting big paydays of course), and more to do with the tournament being broadcast on the free-to-air Network 10 channel is Australia.

I would humbly suggest that the ECB could re-jig the domestic Twenty20 tournament as much as it liked, but unless there’s some way to watch games live on free-to-air TV, the long-term decline in cricket participation will also only continue. It’s down nearly 20% since the Sport England survey began in 2005/6 – and yes there is a small uptick this year, but it’s not statistically significant. Sky, remember, won exclusive rights to Test cricket in 2006. And highlights – particularly for something like Twenty20, are fairly worthless in the scheme of things.

Rugby Union is the next sport that should be taking some notice. The spread of availability of rugby seems a reasonable combination of free-to-air and pay TV. The Six Nations is free on the BBC, and the World Cup is free on ITV. ITV/ITV4 has highlights of the Aviva Premiership, while BT Sport has live coverage. BT Sport and Sky share rights to the inaugural European Rugby Champions’ Cup, and Sky shows England’s autumn internationals, with the BBC having other home nations coverage and highlights of the England games. Finally there is also BBC Wales, Scotland and Northern Ireland coverage of the Pro12 (formerly Celtic league), often on the red button.

But rugby too has to be careful. The most recent Sport England Active People survey results show 0.59% of the population playing rugby at least once a month. That’s down from a high of 0.76%.

So it’ll be interesting to see what happens with the Six Nations contract next time around. Sky or BT may offer more money, but as a regulator, is it in your interests, to maximise your revenues today, or think about the future of your sport tomorrow? It feels more of today’s regulators are only considering the former.

And one further thought. Should sports who choose to remove free-to-air coverage of their events still be in receipt of grants from bodies like Sport England? According to their most recent accounts, they award close to £300m of lottery and exchequer money to support the take-up of sport by more people (which in turn improves the health of the population and lowers costs to the NHS).

Is your sport deserving of these funds if they’re making it harder for young people to watch top flight action?