UP494 The Bundle - Women's Euromania; F1 and Apple, RTL and Sky Germany; Ligue1 contagion

22:06Murray Barnett:lose money anymore effectively is it just on the price so 150 million i mean so comcast paid what for everything in 2019 39 billion dollars is that right is this not incredibly cheap why is this so

22:19Yannick Ramcke:cheap why are they selling sky generally which i you know let me let me resume my point um what's next just because you had a lot of heavy lifting and this was also like with deep cards on the cost side including on the people side and personal side you downsize pretty much the business to profitability or let's say to break even that doesn't mean starting next year you all have a thousand scale in profits it will always be like limited in profitability and best case is probably low single double digit millions in bottom line ebit ebda profit whatever profit metric you want to choose. So it's not that all of a sudden, and this has been the case with Sky UK, that all of a sudden you're printing money for the next five to 10 years.

23:10Yannick Ramcke:So I think this what's next was a big question for Comcast. I mean, it was like an open secret that they looked for options and alternatives for a long time. There was always the option of divesting or acquiring, like making it a business that is based on more than one segment you can get into the telecommunication business as they have done in the uk or like some add-on business that it's not a pure content play anymore and like until a couple of years ago also the other main contenders to acquire this guy since it has been on the market in germany for some time for example they are telecommunication companies because the stool play triple play etc i mean this blueprint had been highly established i think now Comcast wanted to have an exit or wanted to double down.

24:02Yannick Ramcke:I think that shows the exit, but ultimately you are purchasing a lot of legacy. You are purchasing a lot of financial obligations in the form of media rights contracts with limited profitability, if at all, without strategic value attached to it. And I think this is the reason why you come up with the sales multiple that you come up with. If you look at it from an EBIT or profit multiple, it's actually not that low, given the fact that the business doesn't make big profits. And even if it escalates, there's an escalator in the purchase price. If I think RTL shares are doubling within a certain period of time, it will actually escalate quite significantly, can more than double or almost double the purchase price.

24:51Yannick Ramcke:But I can tell you in the scenario that RTL share price is doubling within that timeframe, they will be more than happy to pay, I think, up to$377 million for Sky.

25:04Murray Barnett:There was quite a good quote from somebody at Omedia that said, sorry, Omdia, that said, this move positions the combined business with enhanced scale in both content and technology investment. from a market perspective this deal underscores the importance of scale brand strength and cross-platform integration in competing effectively with international players i thought that was quite a good summation of why it makes sense i mean devil is always in the detail right if you talk

25:33Yannick Ramcke:about scale i think if you're adding up the different subscription bases you are at i don't know 11.5 something like this yeah half of rtl subscribers are through a wholesale agreement with Magenta TV, which are low ARPU, low margin, if at all. So David, always in the detail, I'm also super interested in how, for example, the tech stack is developing or migrating because Sky has been super busy ever since they were acquired by Comcast to migrate to the Comcast tech stack. RTL doesn't really... It's always fun migrating across tech stacks. The problem is RTL doesn't really have a proprietary tech stack.

26:14Yannick Ramcke:So do you license a Comcast tech actually? So I think there are still so many unknowns. And the biggest unknown probably is also on the antitrust side of things.

26:27Murray Barnett:So just on that, though, I think there's going to be a wave of consolidation. Presumably, to Murray's point at the beginning, there will be other examples of this. Is this media set and Sky Italia, Sky Sports Italia? is this you know going to happen in France um I think there's a couple of different scenarios that this could ripple through what's the UK version ITV buying who ITV and Sky ITV and TNT

26:57Yannick Ramcke:and it will have downstream implications right for example I mentioned the second local champion which is Poseidon Z1 which is a similar sized media conglomerate which has been And back and forth with Mediaset for like, I don't know how long, which are hovering around, I think, the 30 % equity stake threshold, like right one share below until this must be filed or they must do a mandatory offer for the shareholder. So they are now under pressure. So how will they react? So this whole topic of consolidation, it's just industry going through a cycle, right? And we are entering the phase where consolidation.

27:34Murray Barnett:So if I'm if I'm selling, if I'm Formula One, tennis, cricket, rugby, football, Champions League, if I'm looking at the German market, this is not great news. And I wake up and see this. I'm thinking, OK, well, one of my buyers, Sky are always going to be on my hit list of people are going to be in competition. Even if they're not interested, I'm going to bung them into the papers to say they are interested. So they've taken that out of play. So there is someone, a significant figure in the sports market. that's that's going to take it i mean i'd be curious on yannick's view of this but i've always thought that that sky have largely been an outlier when it comes to the international sports rights market in the sense that you know i've never found germany to be a particularly competitive market for rights other than maybe a very few very key um section you know if you're out there trying to sell i thought i thought why why is that you know traditionally in the last few years sky has just not paid anything you know they'll they'll show them but they've been very reticent to really come to the party and any rights sort of so yeah i mean what's the site the german sports rights market is i mean it rivals the uk's isn't it i mean it's like a big it's it's the first or

28:51Yannick Ramcke:second in europe it does so if you look across europe uk is by far uh the biggest one but Ultimately, the sports rights market is always a function of or some function of the GDP. Given that the size of the German economy is, I mean, knock on wood, is relatively sizable and being the biggest economy in Europe. As a result, you will have somewhat of a sizable sports rights market. But if you look at spend on sports rights per GDP per capita or something like this, like UK, Italy, much higher than in Germany. Reason being, ultimately, as a sky, for example, and there's a reason never been profitable because Germany is a tough market for pay TV.

29:40Yannick Ramcke:Reason being, you can only pay on the one side in the sports rights market, what you make back in the sports programming market. and Germans have been quite advantaged with a strong free-to-air. Public broadcasters have always been strong. It's well-funded in Germany. They cover a lot of the even tier one sports properties, at least on a select basis, but also above and beyond sports. The last thing to say on it though, Yannick,

30:09Murray Barnett:is we've got to tip our hat to Rupert Murdoch, haven't we? You know, he saw Comcast coming, surely.

30:19Yannick Ramcke:He forethought, obviously. And then we are also cheap. Spending on pay TV or spending on also content subscriptions for a long, long time hasn't been a thing in Germany. I mean, with the emergence of Spotify, for example, the market got re-educated, which also helped Sky and then especially the Zone to get a toehold in the market. But I think it's just the German market itself. Pay has always been a challenge. And that's primarily for the willingness or lack of willingness to pay for content because it's free to air or freely accessible.

30:57Murray Barnett:In the analysis of this, I came up with another new phrase for the sports business, which I really liked, which is sport are engagement anchors. I'll be careful how you say that. Yes, go on and explain. What does that mean? Again, you might have to explain that. One of the reasons why RTL likes acquiring Sky Sports Germany is that Sport, Live Bundesliga, Premier League, F1, aren't just programming, they're strategic pillars or engagement anchors.

31:30Yannick Ramcke:okay i mean now we can revisit and we had this i don't know a couple of years ago when i started to talk about the portfolio strategy you have different assets in your for you some are there to acquire customers some are there to engage customers who ensure retention all of this and sports is certainly critical but at the same time also able to do it on their own because we all know the limitations of the pure sports content play

31:56Murray Barnett:OK, let's jump from here to from Germany to France, again, in a very nice pan-European way, because, again, we talked about this quite a bit. But Ligue 1, the French professional football league, has voted to ditch outside broadcasters and launch its own direct-to-consumer streaming channel for the 25-26 season. So that's starting presumably next month. The service will carry eight of the nine Ligue 1 matches each weekend. Qatar-owned BN Sports keeps the 5 p.m. kickoff through 2026. obviously owned by the same bloke who owns Paris Saint-Germain. So I can imagine who's going to be playing on a Saturday at five o 'clock quite a lot of the season.

32:36Murray Barnett:And price point, introductory retail price is€14.99 a month. To see every match, fans will still need a B-in-1 subscription, taking the all-in outlay to about€30 a month. This is obviously post DAZN walking away from the league and the 400 million euro domestic package that they bought in 2024 unraveled after payment disputes and piracy complaints, leaving a rights black hole and only weeks to find a new carrier. Can our plus said no. I'm reading this off our mate Carlo's excellent bloke with a scarf newsletter on LinkedIn. Murray, this we've touched on this in the past, but again, always with these stories, it's like the last one, the sort of RTL buying Sky.

33:27Murray Barnett:We then jump to the make it, you know, from the specific to the universal and say, well, this is going to happen across the board. We're going to get aggregation. Is this what's going to happen? You know, is this part of the play, the playbook for others? Or is there something specific in France which has been a car crash of, you know, or a slow-moving car crash in terms of its relationship with sport? What do you think? We talked a lot about this in the past, and we don't need to rake over kind of how they got here and why they're doing it. But as you said, I think the key thing here is there's going to be a mixture of trepidation and anticipation that comes, I think, from a large number of the other European football leagues who will be, on the one hand, very thankful that they're not currently in this situation, but then also very hopeful that Ligue 1 are successful because it gives them another out when they get to the next round of rights negotiations.

34:21Murray Barnett:So the thing which I think is really difficult to sort of see is why does Ligue 1 think that they can make it a success when, you know, a supposed expert in their business like DAZN couldn't make it a success in a direct a consumer type world. And I think we can argue about the various failures of DAZN and coming into it late, not really understanding the French market, some issues around some of their pricing structures, which Ligue 1 have certainly addressed in terms of, you know, I think it's a fairly reasonable price point. They're not being completely crazy in terms of saying that they want to get to about 1 million subs in the first year, with an ambition to get to somewhere like two, two and a half eventually.

35:02Murray Barnett:So they're not, you know, they have learned a little bit about not being completely crazy about where they think that this can go. I just still think it's a massive, massive ask. You know, DAZN allegedly got to somewhere around half a million. And each, once you get past, you know, Yannick's favorite low hanging fruit, the higher up the fruit tree, you have to go to pick the fruit, the more expensive and the more difficult it becomes. And I think the more specialist you need to be at attracting those fans. So I think it's going to be, you know, I think there's obviously a certain amount of needs must here.

35:35Murray Barnett:But I wonder if they're also sort of thinking, well, we're going to try and, you know, build the plane as it's taking off. And we'll adapt as we go along to try and figure out how this can work because we don't have any alternative.

35:48Yannick Ramcke:Yeah, I think it will be scrutinized by a lot of other Tier 1 properties. and it will give ammunition to either one or the other, either broadcasters getting it black and white that whatever threat the leagues are putting out there to go D2C to do it on their own will even be less credible. Or actually there's a T1 property proving the case. And you made a couple of good points that when it comes to subscription targets and what are the adjustments to the strategy compared to how, for example, a DAZN or a MediaPro before went to market. These are all good points, less ambitious, at the same time, significantly lower price point, which ties into this whole topic of piracy.

36:37Yannick Ramcke:I mean, Richard, you mentioned that what is so specific about the French market that OTT players, I mean, we had Teelefoot from MediaPro, we had DAZN from DAZN, didn't make it with the tier one property in France. piracy is the one thing that I always mentioned, backed up by data actually, that quite high penetration of adoption among consumers of pirating content. And that France is simply not an OTT market yet. So we have all the telcos that are really like gatekeeping the audience, but lower price and ubiquitous distribution strategy. So they are really aiming at being everywhere. So they're not talking to like two or three distributors.

37:21Yannick Ramcke:They are talking to everyone who has some consumer touchpoint who could wholesale their streaming service. So I think there will be very little D2C. Ultimately, it will be a distributor for business by a far margin. but I think this combination of secondary lower price point, ubiquitous in distribution can get them to, I think, their business case. So I think the business case is reasonable. I think they have put out a four to five year business case. I don't think we will see year three, four and five. I think as soon as they have a valid and viable guaranteed bid on the table again, that they could turn back the thoughts.

38:06Murray Barnett:Just on that, the numbers are in Le Keep and the LFP Media, which is the entity within Ligun that's going to be running it. And again, we don't know, I don't think who is going to be the production partner or what platform it's being. We have announced it. Yeah, it's a French company. So the shortlist was MediaWan and 21 Production. Yeah, it was MediaWan.

38:30Yannick Ramcke:media one okay yeah so but both on the production side and also on the technical side i think i don't know but it makes sense that they extend the g2c business that they had launched in the uk

38:42Murray Barnett:with endeavor streaming so just on that just to finish this off though so lfp media again this is lequique's numbers and they call them ambitious in inverted commas growth targets for this year 100 1.1 to 1.2 million subscribers which equates to 151 million euros of revenue that runs it then cranks up 1.5 million up to 320 million next season then to 2 million subscribers 407 million euros and then 2028 29 which is the fourth year 2.15 million subscribers and 470 million euros of revenue so that is that's obviously no costs put against that but that is the you've got to imagine the absolute best case scenario that they're putting out in the public domain yannick

39:29Yannick Ramcke:Which I think as said is a fair enough business case and more realistic due to a couple of factors that we mentioned before. Just want to call out two things. One thing is if you just multiply number of subscribers times monthly price, come up with a revenue figure and you assume zero churn and 100 % retention month over month. If the 1.1 is like an average monthly active subscriber base per season, fair enough. by just that one call out. And the second one, which we talked about, production and technical backbone, there's a huge difference in the nature of licensing revenues and these kind of subscription revenues when it comes to the margin profile.

40:14Yannick Ramcke:License revenue pretty much margin only. Yes, you have a couple of like, if you haven't mandated, either the sales agency gets a commission or you have an in-house sales team, MediaRite sales, but these are high margin revenues. here what we see or consider revenue that is not comparable to media rights income because whether it's on the text on the content production side on the hook for all of this and this is a long item list on the cost side that needs to be deducted from the top line also yannick just

40:44Murray Barnett:on your first point it's basically you have to make the assumption that they're only going to get a psg game every other week which they're assuming that they can get these subscriber numbers on effectively a non-exclusive basis where the one club by far and away dominates the viewership in France is challenging. I've just got to ask this question before we move on to something else. Why not YouTube? If YouTube the other option, I'm told all day, every day that YouTube is the answer to all my questions. So why they would build on their own rather than go to YouTube? And I'm assuming it's to do with money.

41:21Murray Barnett:But can you just enlighten me? YouTube is an answer, not the answer.

41:26Yannick Ramcke:Very good. And I also think we are still talking about the dual revenue stream at the top of the sports rights market. It's not a single model where you go free to air ad supported. And the final point here, I think actually the sum of things, the sum of visitors of local distributors who have local customer relationships might be as powerful, if not more powerful, than YouTube distribution, especially when you talk about a paid product.

41:56Murray Barnett:And I'm sure that there'll be a whole ton of content that goes onto YouTube. It just won't be live. So having just talked about LFP and going direct to consumer, there's kind of a sort of antidote or an opposite that's happening in the US with ESPN buying into the NFL networks, which I thought was kind of an interesting play. For the last four years or so, ESPN has been in negotiations with the NFL, which has kind of ramped up just pre the last Super Bowl to acquire NFL Network and NFL Red Zone, which the owners are expected to vote on before the start of the next NFL season. And much as we talk about the decline of linear, and we've mentioned this a number of times in relation to the US, when you look at ESPN's revenues, which is somewhere around$18 billion, dollars, still 10 and a half billion of that is associated with affiliate fees.

42:50Murray Barnett:So the more they can do to continue propping that up, the better. And certainly, you can't think of a better way of doing that than acquiring NFL Red Zone, which is the sort of the network for when it gets to the most important plays of each game, a kind of a whip around service. And then NFL Network, which carries NFL films and replays and a whole bunch of other NFL related content. And the other interesting part about the story that's been reported is that it's NFL will take an equity stake in ESPN. That could be as much as two, two and a half billion dollars, which would equate to roughly 10 percent of ESPN.

43:30Murray Barnett:So in terms of where the line between what the NFL is and what ESPN are is very blurry, presumably. Well, the timing is no accident because you have the ESPN app coming out in Q3, early Q4, I think it is. So they're definitely wanting to get as much hype around that. And we know that NFL is by far and away the biggest thing in the US. But perhaps more importantly, the NFL has a right to open most of their rights negotiations between 28 and 30. and you've got to think that when you have NFL as a shareholder of ESPN, it sort of positions ESPN much better for those future rights negotiations. What is the app?

44:16Murray Barnett:I've seen this next era. Yeah, so we talked about this, I think, last episode or the one before that. It's effectively, it's just called ESPN and it's the one home for all content. You know, the sort of holy, supposedly the holy grail for the sports fan in the US, where you get a fully customizable app that follows all of your teams, directs you to where all the content is, whether it's on ESPN or not, whether it's part of your subscription, whether it's a bolt-on subscription. And just theoretically, it's going to reduce a lot of friction about you finding the content that you care about the most.

44:56Murray Barnett:So it's a sort of front door into sport in the US, basically. That's what they want it to be, yeah.

45:02Yannick Ramcke:in addition to the fact that it's the first time ever that you can pretty much sign up to the espn or to pop up espn programming without uh signing up to its additional pay tv package but i think we discussed the fact that the main users of that app will probably be traditional pay tv customers or subscribers since you get access to this holy grail app with all the bells and whistles that you probably can imagine if you are a traditional cable slash satellite tv subscriber so how incremental this is how much new signups that are only signing up for the channel through the espn app i think is something to be determined i think estimates have been ranging around one to two million for the first couple of years but just as we you know we talked a lot

45:57Murray Barnett:already in this episode about how things about contagion how how these stories affect other other parts of the market i thought it's worth framing this up as a sort of you know nfl media or nfl films rather is struggling as as it kind of gets into a more challenging and fragmented media environment so why not let somebody else take the risk when it's not their sort of arguably their core business they've already used it as a stalking horse made a ton of money out of it so So that's kind of an interesting idea to sell it to somebody else. But then, and Anthony Kruppi, I think his name is, in Sportico had a really nice quote about this, which is, a successful marriage between the country's biggest sports media outlet and the indomitable National Football League is the stuff that futures are built on.

46:46Murray Barnett:So you could imagine it doesn't take a massive leap to say, why wouldn't there be some kind of more symbiotic relationship or more symbiotic relationship than there already is between say sky and premier league and i understand that there are regulatory issues and so on but you can see that that the blurring of lines between the rights holder and the media sports media companies is getting more and more fuzzy as we go along what i don't quite get about that i can sort of see it but what does that do to sort of tension in the rights market because if you aren't you sort of just buying one of your biggest customers in which case the incentive for the espn to bid for nfl you know just it's so fragmented already the nfl have got five six rights holders now so arguably it's de-risked there because they're not relying just on sort of espn and a couple of competitors i think they'll also say that espn will still be treated very much at arm's length because they're only a minority shareholder and they'll still be expected to bid as they would do normally um but for espn you know it's it's two sides of the same coin isn't it it's like you can argue that this is a very bold move in a very challenging sports media rights market um or you can say it's it's actually uh much much more desperate than that and and i think um i've always talked in the past and you know having worked a long time at espn i still think espn and disney are some of the smartest people in the room when it comes to media and i think that they're actually on to something really interesting here about securing their long-term future by bringing their most important rights inside a rights holder inside

48:34Yannick Ramcke:the tent yeah i i don't i don't think it's uh from the nfl's perspective that nurturing uh espn to keep them at the table i mean we discussed core competency of a rights holder is to make sure you have one more better than packages i don't think it's about uh it's about that because they are all at the mercy of the nfl in the us and i think from an nfl perspective it is more about completely selling out to broadcasters because NFL media has done a job. It did secure affiliate and carriage fees for a decade, especially at the height and peak of traditional pay TV. It was always this competitive threat in the marketplace that stirred competitions for the packages.

49:24Yannick Ramcke:It was also like a mouthpiece to some extent for the league to get certain messages out there. I just think NFL media has outlived its utility for NFL. And now it's just selling out to maximize media revenues. And I think there's a lot of uncertainty actually what this transaction actually entails. Is it a pure asset sale? for example the regular season games that are included seven or eight is this like for this right cycle is this a permanent asset sale like how um how durable are those assets that are sold here and if a red zone channel is this for the current right cycle or is this in perpetuity that espn buys the red zone channel so i think it's a asset not fire sale but asset sale by NFL because it's the best way to monetize those assets at the stage.

50:26Murray Barnett:Be clear, it seems like it's a full-on acquisition. This isn't like a rights renting scenario because they only have a limited number of games on it. The question, as you say, is whether those will continue to appear on those networks forever or whether they'll redistribute those amongst other rights packages, which undoubtedly they're going to have the carve out to do.