As the Rugby World Cup 2019 approaches, pay-TV operator Sky Network Television and telco and streaming service provider Spark are in a race to secure future content. This is likely to lead to a bidding war as a re-energised Sky prepares its next move.
Sky is looking to land a king-hit on Spark with a huge offer for rugby rights, according to an industry insider.
Sky is said to have put a $400 million offer on the table to NZ Rugby and Sanzaar for the next five-year cycle, the source says. The deal would include All Blacks tests, Super Rugby and Mitre 10 Cup matches.
The pay-TV broadcaster has never specified what it paid for its current five-year contract with Sanzaar, which runs from 2016 through to the end of the 2020 season.
But the insider says it runs to $70m per year (close to Forsyth Barr's recent estimate of $65m), or $350m in total.
That means Sky's apparent offer for the next cycle represents a $10m per year increase.
But although it's a sizable rise, the word is that it has not been enough to immediately persuade Sanzaar and NZ Rugby from ruling out a rights split that could see separate broadcast, online and mobile deals - providing a possible angle for Spark.
The $70m a year figure is purely for rights. With outside broadcasting costs, Sky is said to spend a total of around $90m a year on rugby. Sky's lock on OB infrastructure has historically been seen as a barrier to rugby-rights challenges, but Spark has struck a partnership with multinational outside broadcast outfit NEP that gives it an avenue to shoot games.
New Sky TV chief executive Martin Stewart has made no secret of the fact he thinks it was a strategic mistake to lose the Rugby World Cup to Spark, and that he's willing to bid hard to keep season-long rugby competitions within Sky's stable.
At Sky's full-year results briefing last month, he outlined several steps Sky has taken to build a war chest for new technology investment and sports rights fights. Those moves included suspending the company's dividend and opening a new $200m credit line with banks.
None of that is a particular surprise. Since he arrived in February, Stewart has been signalling that he'll loosen the purse strings, and absorb some short-term pain if that's what it takes to see off Spark.
But last month, Sky made an unexpected move, buying global streaming player RugbyPass in a deal worth up to $62m. RugbyPass holds Sanzaar rights in 60 countries (39 exclusive) across Europe and Asia-Pacific. None of them are top rugby countries, but collectively they give RugbyPass approaching 40,000 paid subscribers for its US$15/month service - and its Kiwi founder Tim Martin is gunning for two to three million.
Sky bought RugbyPass in part to broaden its market, but it could also prove its ace-in-the-hole in talks with NZ Rugby, given its global streaming service provides a vehicle to reach a new generation of All Blacks fans worldwide.
RugbyPass could also help make up for what the Herald understands is a softening market for international rights through more traditional channels
"The combination of RugbyPass's online distribution model and its broader fan engagement capability will add capability to Sky that should have a positive impact on its ability to deliver on some of the things the Rugby Union will want from a successful bidder," Jarden's head of research Arie Dekker says.
However, Dekker says production capability and the headline price as the two biggest factors. The Jarden analyst thinks Sky will keep rugby. He sees the amount it will ultimately have to stump up to get over the line as the key point of interest.
The new Sky boss says new partnerships will also be part of his strategy (the pay-TV provider's new initiatives include its Press Box tie-up with NZ Herald publisher NZME).
Talk around the industry is that Sky has just finished a three-month period of exclusive talks with Sanzaar and NZ Rugby, who will now have a sniff around the rest of the market.
A spokesperson for Sky said, "We don't comment on confidential rights negotiations. Sky's Sanzaar contract goes through to the end of the 2020 season, so there is plenty of time. As with all rights, there are ongoing discussions and different stages of the negotiations."
The Herald's insider says a conservative bent at NZ Rugby gives it a bias toward sticking with Sky (NZ Cricket is seen as potentially more open to change).
But against that, Tew announced mid-year that he would step down at the end of this year. His successor has yet to be announced.
In the Spark camp, new chief executive Jolie Hodson has struck a more reserved tone than her predecessor on sport, emphasising the telco will only bid for season-long competitions "as long as we can get a commercial return."
That contrasts sharply with Stewart's recent statement that, "If someone outbids us, they're going to go broke."
She also focused the value of Spark Sport's existing stable, which includes Formula 1 and Premier League football (for which it is said to have paid between $12m and $15m - big for soccer but small beans next to rugby), where her predecessor had been more keen on emphasising expansion.
Despite Stewart's front-foot approach, there are still angles for Spark.
Hodson might be being coy. She could in fact take a very broad definition of "commercial return", using AB and Super Rugby rights as a loss leader to draw people to her company's broadband services, or up-sell them to more expensive plans, as BT initially did in the UK with football (its notable that Spark is offering its Rugby World Cup Tournament Pass free to new broadband customers, or to existing broadband customers who take a Spark mobile offer).
If she does, then it's worth noting that while Spark and Sky were of roughly the same size, commercially, five years ago, they have had drastically different fortunes since. Spark, whose shares have surged, now has a market cap of just over $8 billion. Sky's shares hit an all-time high of $6.95 in 2014. They were recently trading at an all-time low of $1.11 (I wasn't lying about that short-term pain) for a market cap under $500m.
That means Spark has the wherewithal to trump a $400m bid, if that is what Sky has put on the table at this point in negotiations - at least, if that's where it wants to focus its energy.
It's also conceivable that Spark will try to convince the Sanzaar and NZ Rugby to split rights, and do separate deals for broadcast, streamed and mobile content. It seems this possibility is still on the table, and there are lots of precedents in the UK, Australia and elsewhere - and such split deals can be a vehicle to milk the maximum sum from all bidders (though on the flipside, that money has to be recouped, which can mean higher subscription feed for consumers).
Stewart is gambling that if he bids hard now, he'll scare off shareholders and board members who might prefer the relative safety of the telco's core business - and more so if Spark Sport wobbles during the RWC.
Sky's doomsday scenario, however, is that it could absorb a lot of pain (and extra debt) in a successful bid to see of Spark, only for a new foe like Amazon (which has already dipped its toes with its All Blacks documentary) to enter the next round of Sanzaar bidding in five years' time.