Distributors will pay for Rogers’ rich hockey deal: analyst

Broadcast distributors across the country are likely to pay for a big chunk of the billions of dollars for which Rogers Communications Inc. is on the hook as a result of the deal it struck for 12 years of exclusive national broadcast rights to National Hockey League games, says one analyst. In a research note issued Monday, Scotia Capital’s Jeff Fan said Rogers and Quebecor Inc.’s TVA, which sublicensed rights to French-language games through Rogers, are in positions of strength as they negotiate their next carriage agreements with TV-service providers. Fan said it’s believed carriage agreements for Rogers’ Sportsnet with Telus Corp. and Cogeco Cable Inc. have expired, or are about to. “ may very well be timing those negotiations to the point when it can put its best foot forward (i.e., negotiate near the start of the NHL season),” Fan said. Rogers announced in November a $5.2-billion contract with the NHL that takes effect next season, for which pre-season games start in September. In Fan’s note, he said the arrangement is actually worth $4.5 billion, explaining in an email to The Wire Report that a deal BCE Inc. made with the NHL after that Rogers announcement to secure regional rights to Montreal Canadiens games on RDS lowered the value of Rogers’ contract. Rogers spokeswoman Jennifer Kett said in an email the company has “no further comment” beyond the “top-line financial number of the agreement” given in November. Fan said in the research note that the cost of sports content has been rising quickly in recent years, and Rogers’ contract with the NHL will push that trend further. He said the average price for sports content in TV packages was $3.66 a month per subscriber in 2011, and that rose to $5.41 by last year. By 2015, he predicted, that will rise to $7.21. Distributors will be taking on much of the higher costs, he said, except perhaps in Quebec where over-the-top TV services are not as much of a threat to service providers. He said to hike prices on subscribers to cover the costs of this rich hockey deal and other sports content could drive more people away from paid-television service. “We believe higher sports programming cost will continue to drive down Canadian broadcast distributors’ margins and gross profit due to limited room for TV ARPU growth,” Fan said. Fan’s figures showed Rogers’ sports channels are generating less revenue per capita than those controlled by Bell. For example, TSN is getting an average of $2.55 a month per subscriber, while its French-language RDS is getting $2.85, according to figures provided by Fan. Rogers’ Sportsnet gets $1.70, Sportsnet One gets 91 cents and it’s 20 cents for Sportsnet 360, according to the data. TVA Sports, it showed, gets 68 cents per subscriber. Fan said “we believe this is one of those opportunities that believes it can close the growth gap against its peers.” He said if Rogers focuses on closing this revenue-per-user gap, its Sportsnet properties should see subscriber revenue gains of more than 20 per cent annually over the next four years. Fan said in an email that subscription revenue from all Sportsnet operations was about $270 million in 2013. Canaccord Genuity analyst Dvai Ghose said in a phone interview that costs for sports content will likely rise, but there will be a few factors offsetting the extent to which this happens. One is that if pricing disputes between broadcasters and service providers go before the CRTC, the government’s pro-consumer agenda is likely to tip the scale toward service providers. “I think that the regulators realize that if you charge the BDUs too much, they will charge the consumers and they will be unhappy voters,” Ghose said. He added that “what end up paying incrementally to Rogers, they end up paying less to Bell.” Brian Schecter, a media consultant with Puddle Duck Productions in Vancouver, said in a phone interview there is a precedent for companies that secure sought-after sports content to use “the hammer of their content over distributors.” He likened Rogers’ NHL deal to how the Yankees Entertainment & Sports (YES) Network managed to get price concessions out of carriers for access to New York Yankees games when it launched more than a decade ago. “They always cave,” he said of the service providers. “The pressure is just too great not to do it.” Besides being a content provider, Rogers is also one of the biggest TV service providers in Canada, Schecter noted. He said this is an enviable position to be in because the company can absorb the higher carriages costs that will offset the additional money coming in on the media side of the company. Schecter agreed that broadcast distributors would be pushing their luck to pass on additional costs to customers, given the growing popularity of online-TV services as an alternative, and also because many who are not sports fans are becoming increasingly unwilling to pay more for content they are not interested in. — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Peter Henderson at phenderson@thewirereport.ca

Distributors will pay for Rogers’ rich hockey deal: analyst

Broadcast | May 27, 2014

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