UPDATE - 23 June 2009. I wrote this article a week ago trying (and failing) to understand Setanta's business model. Surprising nobody the company ceased their British operation today.
The sports broadcaster Setanta is reportedly in trouble but this weekend it appears to have been 'rescued' by a Russian-American oligarch - Len Blavatnik and his company Access Industries.
It is reportedly £500million in debt and struggling to find funds needed to pay sports bodies (notably football authorities) for broadcast rights. It failed to pay £3m due to the Scottish Premier League last week and this Monday is due to pay £30m to the English Premier League.
Running out of cash, it was reported that preparations were in place for the company to enter administration next week. It stopped taking subscriptions and one of its partners BT Vision (a terrestrial digital / IPTV hybrid) removed Setanta from its advertised product. The writing was on the wall but it seems Blavatnik's 11th hour rescue (said to be £20m for a 51% stake in the company) is a stay of execution. It has this weekend started to take on new subscriptions again. Goodness knows how many it has lost in the last week through the bad publicity.
Why would Mr Blavatnik and his business partners be interested in what appears to be an ailing company at best, and a doomed business at worst?
paidContent:UK has speculated that the deal could lead to an invigoration of the company in the new media sphere - online video on demand, pay per view and associated advertising distribution networks. It highlights Blavatnik's involvement withTopUpTV (a small scale UK digital terrestrial pay platform, which carries a single Setanta channel now and has limited bandwidth to expand further) and with Perform Group - a UK video distributor. paidContent's headline suggest the possibility of an 'Online Sports Powerhouse' being created.
It could, but Setanta has been here before with its business plan.
It possibly thought that it would have to pay big for a share of the English Premier League rights in 2006 (and it did at £392m for three years) but by the next round of bidding in 2009 it anticipated the market would be different and the costs would be lower.
In 2006. speculating about the imminent bid, Setanta's Leonard Ryan (one of the company founders), told The Independent:
The price paid may go up this time around, but three years after that (2010) it will come down because the media landscape will have been decided by then. Viewing audiences are fragmenting because of technology. IPTV will impact on choice. It will be like going to a newsagent and choosing which magazine you want from the vast array that are on offer. You pick what you want to watch, when you want to watch it.
Well, are we really there? The impact of IPTV on choice? Hardly a bruise. The media landscape decided within three years? Not even close, and I'm confused by how Ryan on the one hand was predicting some paradigm shift in media (but seemingly not sure of how it would evolve) and on the other claiming that it would stop there allowing Setanta (as opposed, presumably to Sky) to be a successful and dominant player. This is the problem when you predict how technology will change consumer patterns. The world is changing the way we access our media and the internet (and probably IPTV) will continue to be an increasingly significant factor moving forward. We're just nowhere near this point yet. (At least I think so, but thankfully I'm not investing hundreds of millions into a business hoping it will fit into place somehow).
If the TV landscape has changed in the last three years it is to delay the adoption of the internet, not bring it nearer. HD is now a far bigger attraction for TV viewing than IPTV and the infrastructure for delivery of HD quality over the internet is not evident in the UK, even before persuading a critical mass to change their hardware. There are now as many if not more Sky customers, who have upgraded to HD (hardware and subscription) in the last three years than there have been Setanta Sports subscribers. That's impact, Mr Ryan.
Setanta does not broadcast in HD and it is fair to assume that given recent developments has no immediate plans to do so. This makes it less attractive to me.
All other forms of media delivery such as 3G on mobile phones, internet streaming and other on demand viewing are mere trivialities to the established mediums of cable and satellite. Inertia Mr Ryan, at least for now.
The take up of BT Vision (Setanta's IPTV partner) has been little short of a failure. The company has this week seen its chief executive Dan Marks leave inferring that it's product (and Setanta's) is not good enough when it comes to sport, choosing to blame Ofcom for failing to address Sky's dominance, not blaming a product which doesn't (at least yet) appeal, a product he portrayed rather differently a year ago. And it is unlikely that Setanta would even have the EPL rights were it not for the EU's intervention ruling in 2005 that no one broadcaster should have all the live games, a ruling which right now looks to have been counter-productive – it hasn't helped Setanta and it hasn't helped me as a consumer – I now pay more than I did when Sky had it all. More on that later.
And I just don't see how Setanta thought (or thinks now – given the Blavatnik involvement) that it would be at the vanguard, particularly when its overheads are so entrenched in old media sports rights. The room for innovation and improvement is limited for a (relatively small) company sticking to these models. If / when this changes who is the most likely company able to adapt? That'll be Sky. It is what Sky does. It never rests on its laurels, even if its customer base is slow to change. The recent announcement of a partnership with Microsoft to make Sky Sports available on the Xbox is a case in point.
The last sentence of Ryan's quote sounds suspiciously like pay per view, which has consistently been shown as a big fat fail in the UK. Events work (big one-off boxing matches can attract a big one-off payment) but football? No, not in big numbers. When Sky had a monopoly of exclusive live Premier League football they offered a pay per view add on to their bulk of live games on Sky Sports but it never really took off. It only worked when they offered a season pass of 50 extra games for £50 which I found far more attractive than picking and choosing individual matches at upwards of £5 for each game.
I would much rather have a clear recurring subscription plan for my tv than an a la carte selection where every viewing option is not just a decision on what to watch based on taste or impulse, it is a decision based on finances.. I don't want it and I suspect most people don't want it. I don't want it at all when the product on offer is an inferior version of something I already have.
Sky's old pay per view games and the 'quality' of them are very similar to the 46 Premier League games that Setanta currently has - on a subscription only model now at £12.99 per month (admittedly with other football and sports included).
They started broadcasting them in August 2007. Back then Setanta had 200,000 subscribers. At the time The Independent ran a piece with Setanta's executive director Richard Brooke which suggested that it hoped to have 1m during the 2008/2009 season.
It has been reported this week that it now has 1.2m, so target reached then?
Maybe, but it seems to fall short of analysts reports of a break-even target of 1.9m.
So, what was the plan? The bulk of the costs are clear. They are paid to sports bodies for the rights. Did they really think these costs would be much lower in three years? Maybe, maybe not.
Many commentators such as the BBC's Mihir Bose have this week argued that Setanta tried to be too big too soon. There is much weight to this argument, particularly when it comes to trying to replicate and somehow usurp Sky Sports.
Back to the 2007 Independent piece written by Vincent Graff:
Will football fans be celebrating the smashing of BSkyB's monopoly when the upshot is that they now need to pay Setanta as well as Sky?
Brooke denies fans are losing out. "We've heard people say all that's happening by splitting the Premiership package in two is that they'll have to take out two subscriptions. But it opens up competition in the pay sports market, where before there was none. And while in the short term that might be represented as having to pay an extra £10 per month, I think where there's competition, the viewer benefits."
In any case, he denies that fans will be out of pocket: last season, Sky Sports customers did not just pay their £34-a-month - many of the matches broadcast by Sky were pay-per-view and therefore cost extra. This season, there will be no pay-per-view matches. Brooke does not mention, however, that Sky offered a one-off £50 "season pass" for its pay-per-view matches, which works out cheaper than a season's worth of Setanta.
"Our matches are in addition to Sky's, so we offer a service you can have as well as Sky or instead of Sky. At £10 a month, it's great value," says Brooke.
Two years on and that £10 a month is now £13.
So, as an add on to Sky, customers are paying more. Not a good starting point. I fall into this category. I had Prem Plus (Sky's add on of 50 games) and I chose to subscribe to Setanta to maintain this availability of games in 2007. It was football (and specifically English Premier League football) that attracted me but I subscribed with some reluctance – I didn't want to pay twice. It has been and remains a luxury subscription compared to Sky which remains a far more compelling choice. I can go without Setanta and I'm strongly considering doing this now. I know many who would quite like Setanta but are not prepared to pay another £12.99 a month particularly as the product is inferior.
Setanta Sports: No HD, No 'big Premier League games, but they do have a puppet show.
If I'm limiting this to football and ignoring Setanta's other sports this isn't an oversight. Football is the key to mass subscription. Less popular and niche sports attract less subscribers. That 200,000 UK subscribers that it had two years ago – was probably still football driven by fans of the Scottish Premier League.
If Brooke really believed that people would be drawn to Setanta at £10 / month as an 'alternative' to Sky, he must have forgotten about ITV Digital. This failed digital pay project based on the limitations of the digital terrestrial platform was predicated on sport, and again principally football, before collapsing spectacularly (leaving many lower league football clubs in financial ruin).
ITV Digital aimed to take on Sky head on. It offered a similar sporting proposal as Setanta - and quickly, too quickly, tried to overtake Sky as an alternative, and if not, a complementary service (both of which failed).
ITV Digital made some foolish errors. It tried to make the (inferior) terrestrial digital platform a rival to established pay platforms of cable and satellite. It spent most of its money on sport yet never made its pay sports channels available on digital satellite (where the largest established pay sports customers were).
At least Setanta hasn't been that stupid but in almost every other analysis Setanta has made the same same mistakes as ITV, particularly with football.
At the time of ITV Digtal's collapse it offered exclusive live English Football League, League Cup and Champions League (the latter shared between it's pay and free to air channels). It also had the pay per view games that Sky too broadcast as Prem Plus (the 'extra' 50 or so games) which it offered as an add-on to the ITV Sport channel. The cost for all these games? If I recall it was very much the same price that Setanta now charges.
Sky retained the pick of the Premier League games for its own Sky Sports channels. You wouldn't find any of the big 'head to head' games between the top four (Manchester United, Liverpool, Chelsea and Arsenal) on ITV's sports channels.
Guess what? You won't find them on Setanta now.
Last season I can think of only one Premier League game on Setanta which was of significant interest (other than games showing my team) – Newcastle United v Middlesbrough towards the end of the season – a game where the losers would be stranded in the relegation zone with two games left. There was a lot riding on it, but one game in a season? Nowhere near enough to be a credible 'alternative' to Sky. Two weeks later for the last round of games it was Sky who had first pick of the games which would decide relegation. They had the key Aston Villa vs Newcastle United game plus Hull City vs Manchester United and Sunderland vs Chelsea. Setanta had to make do with West Ham United vs Middlesbrough, by which time Boro were all but relegated.
Setanta may also have the FA Cup and some England World Cup qualifiers but these are few and far between and if, of sufficient interest to non-subscribers, there's always the pub, a friend who has Setanta, or the (illegal) internet streams.
Sky remains the overwhelming choice for football. More (and bigger) Premier League games, the Champions League and, if I'm in the mood, a Spanish League game.
They are the games I want to watch, far more than Setanta's (admittedly larger but inferior) selection of football - PL games, the FA Cup, Scottish, German, Dutch, French, Portuguese and Conference games. I watch the odd French game (and some US PGA Golf and ESPN America) but I could live without it.
In the case for the prosecution of trying to be Sky Sports – look at the personnel Setanta recruited directly from Sky from off screen appointments such as Trevor East to presenters / commentators Paul Dempsey, Dominik Holyer, Kelly Dalglish (now Cates) and Ian Crocker.
On air, for all its posturing to be an alternative offering, the viewing experience is like watching a clone of Sky Sports, only a poor cousin. Ridiculously Setanta even has a 24 hour sports news service and they thought this would work. Launched with some encouragement and investment by Virgin in 2007 (at a time when Virgin had a dust up with Sky leading to Sky Sports News being unavailable on Virgin's cable service - since resolved) it is a blatant copy – just in different colours – rolling tickertape news, revolving logos, league tables and just about anything that replicates Sky Sports News's information orgasm.
Setanta has promised to be a voice for the fans. Oh please. If there is one thing that is going to make me switch channels it is phone ins and, worse still, a parade of fans in replica kits (Setanta's Monday night Football Matters show). All shows that Sky have peddled but even they have now largely dispensed with.
The coverage of the games is good, and the studio presentation / debate is sadly just as bland. It's inferior though. It ain't HD.
Experimentation with the medium helps makes Sky successful - constantly innovating and retiring ideas when they don't take off. Setanta just copies those ideas, even those which don't work.
So what is Setanta?
There's been plenty of debate on the Digital Spy forums about how Setanta could survive but there seems precious little love for the idea of Setanta as a Premier League broadcaster, at least as an 'alternative' to Sky here. Many, like me, would rather not subscribe to it and are unlikely to when the number of EPL games goes down to 23 in 2010.
This would suggest that Setanta has made a huge miscalculation in lowering its bid for the EPL and losing half of the games (and Richard Brooke) as a result. .
The Independent article I refer to, written two years ago, highlighted all of the doubts that so many people had at the time, doubts which are prescient now. It is not a surprise that that the company is where it is now.
The voices on Digital Spy that really want Setanta to continue in some form are the sizeable number (but still I suspect representative of a minority) who like Setanta for its array of channels that suit their favourite sports – fans of the US PGA Golf, UFC, SPL and the ESPN America channel (part of the Setanta package).
It seems that nobody has a real idea of how it can survive (at least the GB part of the business), even in the immediate future, with the weight of the GB sports rights deals too heavy a burden. Discussion has included selling off the non-GB operation, becoming a wholesaler to other broadcasters, renegotiating the existing rights (it would seem though that the FA and Premier League won't budge) or, as seems to me the only option short of administration, exercising any possible early cancellation agreements (if they exist) on the burdensome contracts. None of the options though really offer any security of a successful future or continued subscribers.
Maybe Setanta's mistake was even bidding for the EPL in the first place in 2006, instead of continuing to build on a limited but niche portfolio of sports.
If so, the Setanta brand would not be as toxic as it appears to be right now and it might, just might ,have been better placed to adapt to Leonard Ryan's vision of the changing 'media landscape'.
I suspect we will find out soon enough.