It’s do or die for Sky
UPDATE: Sky has announced to the NZX this morning that it has won the rights to NZ Rugby until 2025 - and that NZR will take a 5 percent stake in Sky as part of the deal. Read Mark Jennings' story here
Spark Sport’s six-year deal with New Zealand Cricket has dealt another blow to Sky TV. The company’s share price sank to an all-time low and as Mark Jennings writes, its future existence depends on it winning the rugby rights.
Last Thursday morning Sky TV executives were stunned to learn they had lost the rights to cricket in New Zealand just a few minutes before Spark announced to the media it was the winner. For Sky, it was a shattering end to a relationship with New Zealand Cricket that had run for more than two decades.
Across town, the two men driving the deal for Spark, Jeff Latch and David Chalmers would have been high-fiving each other. They had convinced their boss, Spark CEO Jolie Hodson, to pay a whacking great sum to New Zealand Cricket.
Latch, a former TVNZ executive who heads Spark Sport, is well known in the media Industry.
Chalmers is not so well known but he is a key figure in the telco’s aggressive push into sportscasting.
Chalmers is Spark’s Chief Financial Officer but his official job title also describes him as “executive lead – sport”. Before he took up the Spark job in late 2016, Chalmers was CFO at Mediaworks and is keenly interested in digital media. Companies don’t diversify into areas like sports streaming that require hundreds of millions of dollars without a CFO who is committed to the cause. Chalmers is standing right behind Latch with a chequebook in his hand.
NZ Cricket boss and former first class cricketer David White would have let go a “howzat” as well, because this looks like a great deal for New Zealand’s number two sport.
After losing the Rugby World Cup to Spark, Sky would not have held back in its bid for the cricket. Its CEO Martin Stewart would have been on high alert. So, if Spark’s bid is not uneconomic it must be perilously close.
Spark Sport probably put about $20 million a year on the table. To this, it will need to add about $10 million in production costs – covering five-day test matches is not a cheap business – and perhaps $2 million in marketing costs. Recovering $32 million a year from subscriptions is a huge ask given that fewer than 200,000 have signed up to stream the Rugby World Cup.
On reflection, the size of the bid and Spark’s determination should’ve been expected.
Latch and Chalmers would have been telling Hodson that losing to Sky would have placed Spark Sport in a vulnerable position. It needs at least one major local sport that provides it with a steady stream of content if it is going to be a long-term player in this game. There are only two in New Zealand – cricket and rugby. If Sky had managed to renew both, then Spark had nowhere to go.
Sky has been busy tying up rights to international cricket. It recently extended its deal with the ICC to include the next World Cup and next year's T20 World Cup. It also has rights to the Women's World Cup to be played here in 2021.
A canny move to sign a six-year deal with Cricket Australia will see it screen this year's highly anticipated Boxing Day test between Australia and the Black Caps, two other tests and three ODIs. And then coverage of three ODIs from Australia the following summer. Rights to the Big Bash in Australia also gives Sky access to plenty of cricket action in the next few years. Plus a deal with the Board of Control for Cricket in India (BCCI) has secured Sky coverage of the Black Caps' tour of India in late 2021.
This war of attrition high was kicked off by the decisions of the two former CEOs of Spark and Sky. When Simon Moutter at Spark decided to go hard out for the RWC and John Fellet at Sky declined to pay over the odds for the one-in-four-year event, the dye was cast.
Moutter committed his successor, Hodson, to spending hundreds of millions, a case of “go big or go home,” while Fellet opened a door that Martin Stewart is now finding very hard to shut.
Hodson and Stewart have talked but, with the cricket deal, Hodson has bowled her competitor a pretty quick bouncer.
The battle between Spark and Sky is turning out to be a major plus for TVNZ. Sky has its own free-to-air outlet in Prime TV but Spark needs TVNZ to broadcast matches so it can provide a safety net for streaming failures and also ward off politicians like Winston Peters and Shane Jones, who think all major All Black and Black Caps games should be accessible to everyone.
At the moment, Spark also needs TVNZ to do most of its production as it lacks both the facilities and expertise. TVNZ will be paying something for the cricket as it is getting nearly a third of the domestic matches live, but it is unlikely to be more than $2 million.
Over the weekend, Stuff and the NZ Herald both ran stories saying Sky had pulled off a $400 million, five-year deal with SANZAAR and NZ Rugby - which includes All Blacks tests, Super Rugby and Mitre 10 Cup matches.
The Stuff story quoted an NZR spokesperson denying any agreement had been signed with “any party or parties.”
Sky's current deal expires after the 2020 rugby season.
There is no question Spark, with a capitalisation of $8 billion compared to Sky’s $400 million, has the ability to write the bigger cheque.
A key will be the rugby bosses' appetite for risk. Cricket’s David White was unconcerned, telling reporters a media company in India was streaming games to 250 million fans without any major dramas. The NZR board though, might be more conservative, giving Sky an edge. If it went with Spark and there were problems in a deciding Bledisloe Cup test, NZR would now cop as much backlash as the telco.
Sky’s experience and world-class expertise in covering high level rugby will also be something the rugby bosses will consider carefully. Spark would have to poach most of the pay TV company's staff if did get the rights.
If both outfits bid similar money then expect Sky to come out on top. From a company perspective, Sky simply has to win. Success will come at further cost to its already declining profitability but without the rugby its chances of competing with Spark, Netflix, Amazon, Disney, TVNZ and piracy look close to nil.