Time to rein in runaway bidding for sports rights

The world-beating prices Singapore viewers will have to pay to watch World Cup 2014 left many wondering if anything can be done to rein in this runaway price increase.

Although the Media Development Authority (MDA) stated that the cross-carriage rule implemented in 2010 was not intended to lower or control prices, it did seem to be promisingly consumer-friendly. But since then, prices have risen by up to 59 per cent.

Which raises the question: Can anything be done to bring sanity to the situation? One response is that nothing can be done.

In a free market, businesses should be free to set prices and consumers should be free to accept or reject them.

We do not subscribe to this approach that nothing can be done.

In Britain, the regulator has a "must offer" rule. This obliges the exclusive rights winner, in this case Sky, to sub-license its football content to its rivals.

British regulations allow Sky's rivals to price, package and brand the football leagues as part of their own suite of content, instead of merely "cross-carriage", as in Singapore.

The European Commission has adopted a different approach.

Following its system, rights to key football leagues are split and sold to multiple pay-TV operators to ensure that no single player holds total exclusivity.

Yet, neither Britain's sub-licensing nor Europe's multiple-rights approach has arrested escalating bids and price increases in these countries.

In 2010, Sky's bid for English Premier League (EPL) broadcast rights in Britain rose by more than 70 per cent with the entry of British Telecom into pay-TV.

Meanwhile, the multiple-rights approach in the rest of Europe meant that each key sport is offered by a different player.

As TV rights for live matches remained central in bidding wars, prices continued to rise.

In Singapore, the cross-carriage rule arrested the trend of exclusive content on pay-TV.

This was true for branded entertainment channels, which had been increasingly offered by both operators - SingTel and StarHub. However, the rule did not produce a similar salutary effect on sports. Many sports rights continue to be offered to a single pay-TV operator.

Why is that?

We think a key difference is that entertainment channels are sold at a variable per-subscriber rate or on a revenue-share basis.

By contrast, the rights to sports events such as EPL and the World Cup are sold at a fixed lump-sum fee.

A sale based on a fixed lump- sum fee creates an "all-or-nothing" exclusive sale. This produces a fear of losing a perceived "crown jewel". Further analysis reveals a surprising corroboration.

In contrast to individual sports rights, branded sports channels such as Fox Sports and ESPN have been shared by both Singapore operators since the cross-carriage rule took effect. In other words, where there was no bidding but per-subscriber sale, the outcome of acquiring sports programming was no different from that of other entertainment channels.

When they charge the pay-TV operator on a variable basis, the branded sports channels seek to maximise distribution revenue, just like other entertainment channels. This is because their payoff is directly tied to the number of subscribers in the market on a per-subscriber fee or revenue- share basis.

The variable rate also changes the frame of reference of the pay-TV buyer. It forces the buyer to consider the incremental cost and profit potential of the sports content instead of the win/loss ultimatum.

In short, our research proposes that regulations mandate that sports rights be sold on a variable rate tied to retail prices. This will turn the focus of rights sellers of sports such as the World Cup or EPL to maximising subscribers in the market instead of pitting pay-TV operators against each other in a bidding war.

Rights sellers would then have an incentive to exhaust all channels, possibly even selling the sports programmes directly to consumers.

Regulations that impose obligations on these external rights sellers are not unprecedented.

Europe's rights-splitting puts the onus on sports owners to sell in multiple packages to different pay-TV operators, even though they would have preferred a single, all-exclusive sale.

Similarly, Australia's extensive anti-siphoning scheme dictates that international sports such as the Olympics and World Cup must be first offered and sold to free-to-air TV.

The spiralling prices viewers pay for sports programmes suggest a need for rules to protect consumers. Many would agree that the runaway competitive bidding for sports rights should be dampened, if not stopped.

This would allow resources to be diverted to innovations in pay-TV, which MDA has set out as one of the industry's objectives. Let's not score an own goal in football.

Mabel Tan, a former assistant vice-president of content at StarHub, is pursuing her master's degree by research at Wee Kim Wee School of Communication and Information at Nanyang Technological University. Ang Peng Hwa is a professor and director of the school's Singapore Internet Research Centre. This is an excerpt of an article that first appeared in The Straits Times.

This article by The Straits Times was published in MyPaper, a free, bilingual newspaper published by Singapore Press Holdings.

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