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.

OUR TAKE

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.

StarHub’s Euro 2012 victory not a nailbiter: analysts

No real impact seen, in reducing SingTel’s subscriber base nor in raising StarHub’s

Even with StarHub’s exclusive rights to the UEFA Euro 2012 in the bag, not much will change the tug-of-war for subscribers between it and SingTel, analysts reckon.

‘Overall, we do not expect the latest development to have a huge impact on SingTel’s subscriber base nor will it aggressively increase StarHub’s subscriber base,’ said OCBC’s Carey Wong in a note yesterday.

As at end-September, StarHub had 542,000 residential pay-TV customers, while SingTel’s mio TV had 335,000 customers.

While StarHub has exclusive rights to air Euro 2012, Singapore’s relatively new cross-carriage law will make it compulsory for StarHub to offer the matches to mio TV viewers who ask for them, at the same price.

While football fans might have plenty to cheer when the tournament runs from early June to early July next year, analysts have greeted the news with a yawn.

‘The impact on StarHub’s earnings should be minimal in either direction,’ said DBS Group Research’s Sachin Mittal in a report yesterday.

CIMB Research analysts Simeon Koh and Kelvin Goh noted that StarHub’s subscriber base rose only 0.6 per cent quarter-on- quarter during the Euro 2008 quarter.

For Euro 2008, in which StarHub was an exclusive broadcaster – ‘exclusive’ in a much stricter sense of the word, pre-cross-carriage law – its sports package customers paid $10-20 to watch the matches, while those not subscribing to StarHub’s sports package paid $50. Rates for Euro 2012 will be announced only next year.

Just how much Euro 2012 is costing StarHub and what viewers will in turn have to pay is something that analysts are divided on, compounded by how the usual bidding process might have been replaced with a negotiated deal this time around.

CIMB’s Messrs Koh and Goh ‘are not overly excited given that the broadcast rights may be very costly; and this one-month event may not give StarHub sufficient firepower to claw long-term market share’, they said in the report.

DBS’s Mr Mittal, however, believes otherwise. ‘This is not the most popular piece of content, and there was an absence of bidding. As such, we assume that content cost should not be a big burden for Star- Hub. SingTel appears to have stayed away as they paid a huge price tag for English Premier League (EPL) rights,’ he said.

Even if cost isn’t an issue for StarHub, the same cannot be assumed for mio TV viewers. ‘While cross- carriage regulation may help mio TV subscribers to watch these matches this time around, they could end up paying more, in our view. Consumers can subscribe directly to StarHub (with or without the sports package) rather than going through SingTel’s mio TV to enjoy savings through bundling discounts,’ Mr Mittal added.

In 2010, SingTel wrested a three-year deal to air the Barclays Premier League (BPL) matches from StarHub in a triumph of bidding, but reportedly paid $300 million for it.

Even StarHub’s decision to go solo in gaining exclusive rights to Euro 2012 has given some analysts pause. OCBC’s Mr Wong said: ‘We are quite surprised by the move, as a joint bid – as in the case of the recent World Cup 2010 – would make more sense, both economically and logistically.’

StarHub’s counter closed 9 cents, or 3.1 per cent, lower at $2.82 yesterday, while SingTel’s fell 6 cents, or 1.9 per cent, to $3.06.

Do exclusive content rights matter?

What’s new?

StarHub has clinched the exclusive rights for the UEFA Euro 2012 football tournament. This would trigger Singapore’s cross-carriage law for the first time since it took effect in August 2011. It is reported that these rights were negotiated mutually and there was no bidding process.

Our view

The impact on StarHub’s earnings should be minimal in either direction. This is not the most popular piece of content and there was absence of bidding. As such we assume that content-cost should not be a big burden for StarHub. SingTel appears to have stayed away as they paid a huge price tag for English Premier League (EPL) rights, leaving less headroom to pay for more content in our view.

Cross-carriage regulation does not address the bundling issue. In 2008, StarHub’s sports package customers paid S$10-S$20 to sign up while those not subscribing to StarHub’s sports package paid S$50. While cross-carriage regulation may help mio TV subscribers to watch these matches this time around, they could end up paying more in our view. Consumers can subscribe directly to StarHub (with or without sports package) rather than going through SingTel’s mio TV to enjoy savings through bundling discounts. In either case, StarHub would take care of billing the customers for UEFA Euro matches and will have a chance to re-engage them through promotions.

We prefer StarHub & SingTel over M1. We continue to like StarHub for its 7% yield. We also like SingTel for over 5% yield, slow migration to National Broadband Network (NBN) and growth prospects from emerging markets. M1 is least preferred due to slow progress on NBN and use of fair value accounting for smart phones.

Maintain BUY on StarHub with TP S$3.05.