Sky Germany raises cash for soccer bid

Investment bankers Morgan Stanley, in a note to clients, suggest that Sky Deutschland is “likely to announce a News Corp-backed [investment raising] before the end of 2011.”

The extra cash is needed to make a strong bid for the upcoming sale of Bundesliga TV rights for the 2013-14 seasons, and is likely to be in the range €75 million-€100 million, suggests the bankers, and will probably be added to an extension of Sky’s current €525 million bank overdraft facility. The soccer TV rights package comes up for renewal early in 2012.

Morgan Stanley also say that this current year’s numbers, not officially unveiled until Feb 23 2012, will show this quarter’s net additions at about 125,000, taking the year’s net adds to 329,000 and well ahead of Sky-D’s own guidance (300,000). There could be an even better result, says the bank, with Sky-D beating Morgan Stanley’s own numbers and thus achieving the long-awaited 3 million “break-even” subscriber total.

But acquiring the soccer TV rights will come at a cost, says the bank, of about 35 per cent more than is currently paid (and which is €225 million-€275 million per season). Deutsche Telekom (DT) currently hold the IPTV and mobile live rights to Bundesliga games, and DT is the well-financed rival and almost certainly likely to make a bid against Sky Deutschland.

Morgan Stanley reminds us that DT has made public statements that it will look at all aspects of the Bundesliga tender. Niek Jan van Damme, Deutsche Telekom CEO for Germany commented at its Q3 call: “As to Bundesliga, the official start of negotiations for the season 2013-2014 is scheduled basically now, at autumn 2011. And the idea is to have the tender completed at the latest, in May 2012. Content will be advertised for sale for all three distribution channels, that is, for broadcast, linear TV, IPTV and Web TV. And you will appreciate that I cannot comment on specific Deutsche Telekom plans we have, but I can assure you we will examine all alternatives, including Bundesliga content, because we want to offer these significant benefits to our Entertain customers, of course.”

He continued: “Just to give you an idea, more than 11 per cent of our Entertain customers at the moment are watching LigaTotal, and at the end of this quarter, at last quarter, we had a total of 154,000 subscribers, which we consider as very successful.”

DT has also just launched its satellite based Entertain Sat service via Astra, which offers 3-16Mbps broadband, a flat rate voice service and a basic IPTV package from €39.95 per month plus €5.95 for a 500Gb HD receiver. The TV signal is received by satellite, the broadband is via ADSL. The package includes the RTL/P7 HD+ service on the normal terms (free in the first year and €50 pa thereafter). Entertain Sat is designed to: (i) address the potential market created by analogue switch-off in 2012, and (ii) for customers unable to receive the IPTV service to date – mainly those with insufficient bandwidth speed to receive a reliable IPTV service. Reaction to Entertain Sat has been good, with 50k subscriptions sold in the first month alone.

Meanwhile DT has the resources to bid for the Bundesliga, says the bank’s note. The company has €15 billion of EBITDA and could afford, if it wished, the €350 million per annum or so for Bundesliga rights. So DT has substantial resources, a satellite-based distribution platform to complement its IPTV offering and an intention of at least looking at the pay TV rights. The Sky-D share price shows that the market is anticipating DT bidding for the rights.