StarHub – DMG
UEFA 2012 to Kick Off Cross Carriage Ruling
StarHub announced that it has obtained exclusive broadcast rights for the UEFA Euro 2012 football tournament, which will be jointly hosted by Poland and Ukraine from 8 June–12 July 2012. The rights fall under the government’s cross-carriage ruling that took effect from 1 Aug, which requires any content inked on an exclusive basis to be shared with other pay-TV operators.
Learning from the EPL days. We gather from media reports that the rights were awarded through a negotiated process, as opposed to conventional bidding, which probably also explains the relative cost discipline exercised by StarHub under the current cross-carriage regime. Management had previously stressed that economic sense would prevail in the subscription of exclusive content and that it would not be pursuing a loss leader product (foregoing the EPL rights to SingTel in 2009). Further details on the cross-carriage and pricing plans will be announced in due course.
Still keenly followed; a boost for sports content. Organized by the Union of European Football Associations (UEFA), Euro is a highly popular quadrennial football event that enjoys an almost cult following in Asia that is matched only by the popularity of the English Premier League (EPL) and World Cup. During the Euro 2008 championship, gross takings from the tournament across all media (TV rights, media sponsorship and ticketing) reached a whopping EUR1.3bn (20% or EUR280m from commercial rights alone), a 53% increase over that from Euro 2004. Euro 2008 broadcasts attracted on average 155m viewers globally per match (31 matches in total). We believe that management has taken into account various factors – such as the relatively high viewership ratings (possibly second only to the EPL), the boost to subscription and advertising revenue recorded during Euro 2008, and the value attached by sports subscribers to the Euro franchise – in procuring the exclusive rights for Euro 2012, after losing the EPL rights to SingTel in 2009.
Tapping into the fast expanding mio-TV base. We expect StarHub to make available the Euro 2012 matches across its pay-TV, mobile and broadband platforms in cementing its “hubbing” proposition, with price plans that are similar to Euro 2008. That said, the final subscription price to be levied would depend on commercial agreements entered into by the recipient/provider of the carriage with respect to carriage fees. StarHub is expected to ride on the new ruling to crosscarry content across SingTel’s mio-TV platform, allowing the former to tap on the latter’s strong pool of 335k subscribers, a sizeable proportion of which are former subscribers of its own sport package (prior to the lost of the EPL rights in 2009).
Minimal ARPU increment likely. For the Euro 2008 broadcast, StarHub offered a “Season Pass” for a one-off fee of SGD20/mth for sports group subscribers and SGD50/mth for non-sports group subscribers. We note that StarHub’s pay-TV revenue grew 5% q-o-q in 2QFY08, coinciding with the broadcast timeline, although this was offset by the 6% q-o-q expansion in cost of services line (where content cost is parked), which was likely driven by rights for Euro 2008. StarHub reported a 2k contraction in pay-TV subscribers vs the 23k added by SingTel in 3Q11.
Maintain NEUTRAL based on FV of SGD2.80. We make no changes to our earnings forecast for now and believe that higher programming costs arising from the Euro 2012 rights and renewal of other content would generally offset the incremental subscription and advertising revenue to be derived from one-off sporting events. While we are slightly positive on the exclusivity on the belief that rationality has prevailed in its procurement, which was coupled with the potential upside from the-cross carriage, we are still concerned over the longer term dilution in StarHub’s pay-TV franchise in view of the sticky content cost and the fact that SingTel is a formidable competitor with deep pockets.