Loss of English soccer rights clouds StarHub’s outlook

October 8, 2009
Singapore Democrats

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StarHub Ltd. may be losing some luster amid expectations of a mass exodus for its pay-television subscriber base after it was stripped of broadcasting rights for the immensely popular Barclays Premier League soccer games.

Se Young Lee
Wall Street Journal

StarHub Ltd. may be losing some luster amid expectations of a mass exodus for its pay-television subscriber base after it was stripped of broadcasting rights for the immensely popular Barclays Premier League soccer games by rival Singapore Telecommunications Ltd.

SingTel, seeking to overtake StarHub in the pay TV market, said last Thursday it got the rights to show the soccer games for three years starting August 2010. It also got exclusive rights to sports content from ESPN Star Sports starting mid-2010.

Losing the soccer rights is a blow for StarHub, which has been broadcasting the English league matches since 1997 and was widely expected to keep them. Analysts say the content is a key differentiator with no equal substitute, leaving StarHub increasingly vulnerable in a highly competitive domestic market. While there is little risk of earnings erosion in the near term as StarHub controls the sports content until mid-2010, it could impact the Singapore telecom operator’s long-term earnings.

Partly on those concerns, StarHub shares lost more than 9% of its value in the past four sessions combined. Midday Wednesday in Singapore, shares were up 0.5% at S$1.98. Several brokerage firms including Nomura and Citigroup downgraded the stock’s rating and target price.

“Much more of the cable TV revenue and revenue share will be at risk for StarHub than just the [sports] revenues come June 2010,” Citigroup said, noting that the loss of the soccer rights is a serious blow to its strategy of using the pay TV service as a centerpiece to bundle other services such as mobile phones and broadband.

Citigroup estimates that about 250,000 of StarHub TV subscribers, or about 45% of the total base, currently pay for sports content, the majority of whom Citigroup believes are likely to defect once StarHub’s broadcasting rights for the soccer league expire.

Nomura cut its forecast for StarHub’s earnings per share in the next three financial years by between 1% and 11% and said that as much as 300 million Singapore dollars (US$214 million) in revenue and S$70 million in earnings before interest, taxes, depreciation and amortization could be at risk.

Jeannie Ong, StarHub’s head of corporate communications, conceded that the company’s top line will be affected by the loss of the English soccer rights in mid-2010. But she said the number of customers who use the company’s pay TV services for the soccer content alone is a “very small number.”

She also said that StarHub would look to re-price its sports package once costs for the “negative margin” English soccer league and ESPN Star Sports rights are removed to retain subscribers.

The company still has rights to other sports content such as the Spanish soccer league and two of the four major tennis tournaments, and it plans to use the cash freed up from the English soccer and ESPN Star Sports content to bolster the lineup for its pay TV platform.

Several analysts have said the Singapore government may intervene in the local pay TV market, citing possible anti-competition issues because SingTel is expected to remain aggressive in getting additional content to bolster its pay TV service, which had 101,000 subscribers as of June 30.

A person familiar with the situation said Friday that SingTel paid more than S$280 million for the English soccer rights, which is about 90% of StarHub’s full-year net profit last year, and that SingTel likely cannot recover the cost from the pay TV business.

“Effectively what SingTel’s done is throw the balance sheet and crowd out the competitor,” CLSA analyst Ashwin Sanketh said Thursday. “If this is a precedent for any content coming up, then you basically have the incumbent using their size… which is obviously not an ideal situation.”

The Media Development Authority, which has jurisdiction over the market, said in an e-mail statement that it is monitoring the situation and will evaluate whether a direct intervention is “necessary and appropriate within the context of international trade practice.”

The authority didn’t elaborate how it might intervene, but analysts say the MDA may force SingTel into a content-resale agreement or eliminate the exclusive-content structure.

SingTel said it isn’t aware of any regulatory issues that may arise due to the rights, and it has no plans to re-sell the content. The company has said it won’t charge more than what cable subscribers currently pay for the soccer games and ensured 100% coverage of all households by August 2010.

Even if the government steps in, however, Citigroup said changes in content structure wouldn’t change the fact that SingTel will be “gunning for share.”

http://online.wsj.com/article/SB10001424052748703298004574458350789092442.html