Total Sports Asia Sdn Bhd will be bidding on TM’s behalf against Astro “in a couple of weeks” for the rights, a source adds.
If Singapore’s experience is any indication, the bidding war for rights to the mega sporting league, promoted as “The Greatest Show on Earth”, in Malaysia is expected to push the bids to “well over RM500 million”.

It is understood that Astro forked out some RM400 million for the exclusive rights to broadcast the current 2006/2009 EPL season, which was more than what it paid for in the previous season. It was then that Astro, for the first time, faced competition for the rights via a joint bid by TM and Media Prima Bhd, which controls all four of Malaysia’s free-to-air television channels.

According to unconfirmed reports, Singapore Telecommunications Ltd (SingTel)’s winning bid was to the tune of S$400 million (US$283 million), almost double the US$150 million that StarHub Ltd shelled out to clinch the EPL rights in 2006. These figures could not be officially confirmed.

SingTel’s win was a great blow to Singapore’s incumbent integrated pay-TV provider, Starhub, whose CEO Terry Clontz had earlier told shareholders that it “intends to retain” the EPL rights in line with its aim to maintain leadership in content.

StarHub’s loss was not its first. SingTel, which launched its IPTV offering “mioTV” on July 20, 2007, had last year pulled off a coup on StarHub when it bagged the screening rights to the UEFA Champions League, UEFA Cup 2009-2012 as well as the Italian Seria A football matches.

At least four brokerage houses — DBS Vickers, Nomura, Kim Eng Securities and Citi Investment Research — cut recommendations for StarHub to “sell” following news of SingTel’s EPL rights win last Thursday. StarHub’s shares tumbled 17 cents or 7.8% over two days to S$2 last Friday, wiping out S$291 million in market capitalisation.

StarHub’s loss also came as a shock given that there had been speculations early last week that both SingTel and StarHub may have submitted a joint EPL bid to cut costs amid soft economic conditions. StarHub’s winning bid for the 2007/2009 EPL season that will end in May 2010 had reportedly cost at least three times more than before.

When contacted last Thursday, a TM spokesperson said: “We wish to confirm that at this moment, TM has not put in a bid for EPL broadcasting rights”. Media Prima’s spokesman declined comment.

Both TM and Media Prima have so far not ruled out completely the possibility of entering a bid for the EPL rights. TM’s executive vice-president (consumer) Jeremy Kung, hired to spearhead the company’s IPTV business, in June told The Edge that TM would not be bidding for content “at all costs”, and is “open to form partnerships in content offering”.

While the 101,000 customers with SingTel’s mioTV service (another 134,000 customers on mioPlan and mioHome customers as at June 30, 2009) is a small fraction of Starhub’s 530,000 pay-TV subscriber base, SingTel is in a better position than TM to bid for the EPL rights.

For one, SingTel’s mioTV is more than two years old while TM had only just begun trials for its IPTV service, with commercial rollout slated for 1QFY2010. SingTel’s some 1.7 million fixed working lines are a platform for its mioTV IPTV service, while TM’s rollout of its high-speed broadband (HSBB) network is still at a nascent stage. SingTel had 48% broadband market share and 500,000 broadband lines as at end-June.

TM plans to cover 1.3 million households in the first three years of the rollout of its HSBB network. It is uncertain how much rollout TM can achieve by May next year. Conversely, Astro’s pay-TV subscriber base was 2.78 million or 47% of Malaysian households as at end-July this year.

It is believed that Media Prima will be brought into the equation because of TM’s limited subscriber reach. Another industry source speculates that TM is likely to sell the EPL content back to Astro, should it clinch the rights, to boost returns on the huge upfront investment for the rights.

Besides, SingTel is currently in a better position than TM to capitalise on its investment in EPL, given its relatively larger balance sheet as well as its market leadership in the fixed line (89% market share), broadband (48%) and mobile phone (46%) segments.

Apart from selling mioTV as a standalone service to its fixed-line subscribers, SingTel also sells “mioHome” which bundles mioTV with its broadband and fixed-line services. There is also the opportunity to market its “mioPlan” (which bundles fixed line, mobile phone and broadband) to customers to take on its mioTV IPTV service.

TM has the lion’s share of Malaysia’s fixed-line network, but most broadband-ready lines in Malaysia can only deliver low-definition pictures that can be seen on the likes of YouTube.

TM’s leadership in the broadband market is also being encroached upon by mobile phone operators using the 3G and 3.5G or HSDPA network as well as WiMAX players like Green Packet Bhd’s Packet One Networks Sdn Bhd (P1). TM’s former mobile phone arm Celcom (M) Bhd, for instance, had in recent months beaten TM in wooing new broadband users.

Moreover, the need for TM to make sure it recoups its investment, should it clinch the EPL rights, is greater, given that it needs to generate enough cash flow to pay for the rollout of its HSBB network as well as honour its dividend commitment of at least RM700 million a year to shareholders. Without this dividend promise, there would be little reason to support TM’s share price at current levels, given the competition it is facing in its traditional market and the uncertainty surrounding the pay-back period from its huge upfront investment in HSBB.

And content is an expensive business to be in. Astro’s content cost was close to RM1 billion for 2009 ended Jan 31. Astro’s content cost has grown by some 19% CAGR (compound annual growth rate) over the past five years. Content cost as a percentage of TV revenue, which historically stayed close to 30%, jumped to 32.4% in FY1/2008 and to 34.5% in FY1/2009.

Two major sporting events in 2008 — the quadrennial UEFA European Cup (Euro 2008) and Summer Olympics in Beijing — shored up Astro’s content cost for FY1/2009 to 30.2% of total content spending, up from 25.5% the year before.

Come 2010, it will be another expensive year, content-wise, for Astro, which is spending some RM200 million on upgrades to offer high-definition TV. Besides the EPL rights, 2010 will see the start of the FIFA World Cup.

Considering the circumstances, the “winner” of Malaysia’s EPL broadcast rights may not have much to celebrate should a bidding war break out, especially when politics makes it hard to pass on all the cost increase to consumers.

This article appeared in The Edge Malaysia, Issue 775, Oct 5-11, 2009.