Sky TV’s $1 purchase of TV3 changes rugby broadcasting, allowing a split between subscription and free-to-air channels.
Sky is expected to extend its rights with New Zealand Rugby, offering $75 million-$80m annually.
The deal could increase rugby’s free-to-air exposure, despite a likely reduction in domestic media rights value.
In making a $1, debt-free purchase of TV3 and its associated brands, Sky TV has not only made itself the kingpin of a revamped media sector, it has, for the next five years at least, dramatically changed the way Kiwis will be able to consume rugby.
The mechanicsof how Sky’s purchase of TV3 will play out in the field of rugby broadcasting have not been revealed, but there is now a low-cost, high-return pathway to splitting the rights between subscription and free-to-air (FTA) channels.
NZ Rugby is known to be a strong advocate for more rugby to be shown on free-to-air channels. Photo / Photosport
In what can only be described as the ultimate have-your-cake-and-eat-it scenario, Sky is expected to soon announce that it has agreed a five-year extension as the rights holder to New Zealand Rugby’s content portfolio.
Speaking with the Herald before the announcement of Sky’s deal with TV3, NZR chairman David Kirk said: “We are working through the latest media deal with Sky and they have been a good partner for a long time and we are looking forward to getting something concluded with them.
“There is more international content so there will be more in the next cycle with the Nations Cup and the Greatest Rivalry and other things.
“That gives us more international media revenue but there is a certain pool that in this cycle, is not going to be massive, particularly as we come off a very strong cycle.
“It is not going to be massively built on. There is not massive opportunity for new revenue above what we have. We are just working through it. There are lots of moving parts still there.”
The unknown consequence of buying TV3 is what it will do to Sky’s rigidly-held position on the price it has offered NZR.
Well-placed sources say Sky’s offer is in the vicinity of $75 million-$80m per year (down from the existing circa $102m it currently pays annually), but NZR has long-maintained that figure is well below fair market value.
Sky has refused to budge, citing a need to cut its costs while presenting the current figure as an outlier forced by a brief period of competition in the market when Spark Sport was operating as a viable sports broadcaster.
Black Ferns winger Portia Woodman-Wickliffe scores against the USA. Sky TV is now in a position to potentially buy the rights to all NZR content, including teams in black. Photo / Photosport
But having announced that the TV3 acquisition will increase revenue by around $95m per year and add an estimated $10m in earnings before taxation, depreciation and amortisation, Sky may have to up its offer.
NZR for its part, may have to revise the nature of the deal, too, and drop any plans to carve out FTA content for TVNZ.
NZR had been in talks to sell partial content rights to TVNZ – some live NPC games and weekly highlight packages – the exact volume of which being dependent on how much money the state-owned broadcaster was able to offer.
Instead, the option has now opened for NZR to sell exclusively to Sky, where the latter buys the rights to all rugby content – NPC, Super Rugby and teams in black – and is then able to on-sell to other media parties.
The expectation would be that Sky would use TV3 as its FTA channel – and will be able to determine how much rugby content it can place behind a paywall and how much it can make accessible for free without necessarily having to worry about the cannibalisation of its audience.
NZR will understandably be pushing hard for Sky to re-evaluate what it is willing to pay to own the paywalled and FTA rights and be able to monetise both.
Sky has clearly crunched the numbers and determined that it will be financially lucrative to own and operate its own FTA channel, which won’t pay a fee for the content, but will generate advertising revenue.
In November last year, Sky posted a 13% increase in advertising revenue and sources familiar with its operation say that it simply doesn’t have the requisite inventory in its live broadcasts to meet client demand.
It’s a deal that effectively gives Sky the chance to simultaneously win subscription income and advertising revenue without impacting the viewing experience of those who pay for the former.
NPC matches could reach a wider audience after Sky's deal to buy TV3. Photo / Photosport
And because there would be no formal transaction between Sky and TV3 for content, there should be an element of strategic flexibility to play around with how much rugby is put behind the paywall and how much is on FTA.
Leaving aside the issue of price, NZR is known to be a strong advocate for more rugby to be shown on FTA.
For the past two years, Sky has shown a weekly (delayed live) Super Rugby match on its Sky Open channel (formerly Prime), but the increase in overall audience it delivered was minimal.
NZR has long wanted the NPC to be available to a wider audience – playing more games on FTA would showcase a lively and relatable brand of rugby to the next generation of aspiring players. It will also potentially give provincial sponsors greater exposure and, in time, potentially lift the value of commercial deals.
NZR also feels rugby could do with a major content refresh in the way it sells itself to younger audiences in particular, and that a new slate of magazine and analysis programmes on a new media channel would rejuvenate interest.
It’s not quite the perfect scenario for NZR, because while the FTA component of this new deal will inevitably see rugby’s audience grow significantly over the next five years, it’s still (despite the possibility of a late price increase) likely to see a heavy reduction in the value of domestic media rights.
But longer term, Sky’s purchase of TV3 has paved the way for NZR to have a best-of-both-worlds domestic broadcast agreement that is high-value in dollar terms and accessible to all of New Zealand.
