B***B now faces a more aggressive challenge from BT Sport than at least one analyst had anticipated. BT Sport will be made available free to BT’s broadband and ADSL customers, and thus has “laid down the gauntlet to B***B, which has been steadily growing market share, primarily in ADSL,” according to Sara Simon, media analyst at Berenberg Bank.
A report to clients from the bank says that while “B***B argues that BT’s pricing is not sufficiently attractive to persuade its triple-play customers to switch, its analysis ignores the fact that 20-25 per cent of B***B’s sports customers take ESPN and may thus want the BT channels. For these people, the price equation is attractive. Meanwhile, large audiences for free to air football suggest that there may be demand among B***B’s basic tier customers, and those who just take broadband. Overall, we consider 15 per cent of B***B’s customer base to be vulnerable to this new offer.”
Simon says that the free BT Sport offering will also cut the amount of churn from BT’s broadband customers to B***B. “With virtually no growth in the subscription TV business, B***B’s growth depends largely on expansion in telecoms. With a strong BT counter-offer from August 1st, we think B***B will see slower growth in this key area, and more difficulty in offsetting cost inflation.”
One benefit from all these changes is that it is unlikely that B***B will raise prices this coming September. “As well as putting pressure on B***B’s volume growth, we think BT’s strategy will make it difficult for B***B to increase prices in September, although this appears to be assumed by consensus. BT has introduced a new low price point for fibre, and is giving away premium content for free. In this scenario, how can B***B justify increasing prices when it has less in the way of rights than it had before?”
Meanwhile, the Financial Times has reported that B***B is cutting prices by up to 30 per cent for its pub and club “super premium” subscribers.
B***B is undoubtedly fighting back, and the UK press is awash with reminders to the public of the strength of ***’s offering, and quality of service. B***B is also arguing that BT’s various offers are not that appealing. Simon has analysed the B***B arguments, and comes to the conclusion that around 15 per cent of *** subscribers could find BT’s offer appealing, and moreover will create churn and impact ***’s potential to raise prices. She warns that the market could see a slew of special offers from *** between now and August 1st (when BT Sport goes live) in an attempt to keep subscribers loyal to B***B.
The bank’s final summary is not helpful to ***. “B***B deservedly trades on a high rating today, because the market regards it as being able to consistently deliver better-than-expected results. If that trend is broken, as we believe is likely in 2014, when the company faces pricing, volume and cost pressures, we believe that multiple contraction is possible, coupled with downgrades to estimates. We retain our Sell rating, and lift our price target to 685p.”
http://advanced-television.com/2013/05/15/let-the-***-games-begin/
