Small change for the top ten tech companies

12 Sep 2012  |  Raymond Snoddy 

Raymond Snoddy on Sky, BT and the staggering wealth of technology companies (and the potential they represent)...

Sometimes you hear a really scary number that is big and bold enough to stop you in your tracks.

The top ten technology companies have accumulated no less than $425 billion in cash and the pile is rising as we speak. It might even be $500 billion by now, which means that they could buy up any of the most desirable TV and movie businesses and any rights to programmes and sports events if they wanted to - without breaking sweat.

The Premier League football rights in next year's deal at £1 billion a season would almost count as small change.

The staggering wealth of the unnamed technological companies and the potential they represent came courtesy of consultants Deloitte, who produced a series of custom research reports for the behind-closed-doors Leadership Summit at the just-finished IBC in Amsterdam.

Trying to work out how the new players coming from outside the industry will jump could turn out to be a key guessing game for media executives over the next few years. At the very least they should be looking over their shoulder because there is clearly stirring in the undergrowth.

Google, for example, is investing more than $350 million in 100 bespoke television channels and a fibre-based pay-TV service in Kansas City.

Netflix, which is determined to leave physical DVDs behind and increase its push into streaming, is changing the rules of content commissioning. The company recently paid $100 million up front for 22 episodes of an American version of House of Cards. Existing broadcasters did not get a look in.

Is this the first gentle wave that will become a deluge as technology, and indeed telecommunications companies, start to use their vast cash piles to outgun existing broadcasters and buy television rights and programmes?

In the UK there has been BT's ridiculously modest $738 million for 38 Premier League games a season.

It emerged at the Summit that things could have turned out much worse for Sky. The satellite broadcaster was apparently outbid across the board in the first round and could have lost everything. The broadcaster suspected, but did not know for sure, that the "mystery" high bidder was BT.

It was as a result of such an intense battle that the cost of the rights was pushed up by 71% compared with last time as Sky fought to hold on to its vital football rights.

Despite the huge rise BSkyB seems happy with the outcome and believes that it will not have to pass on additional charges to sports fans.

BT in the end only got 38 games and that is the number of games that had to go to a player other than Sky because of competition regulations.

It was also suggested that Sky was only forced to bid around 10% more than it thought it would have to - or around £100 million.

The overall Sky budget it seems is so munificent that a mere £100 million can be absorbed with proper planning.

BT faces a tricky dilemma now as a result of its "success" on only one package of games. Do they decide to tear up £50 notes and use the games as an exclusive promotional vehicle to boost the current 800,000 or so number of subscribers to BT Vision?

To stand any chance of getting their money back in the short term they would have sell on their rights to the nearly 14 million Sky and Virgin customers.

BT might just consider a middle course and restrict the coverage to Vision and Virgin to retain an element of exclusivity. Time to cue the Sky lawyers if that were to happen.

But what is likely to develop in the larger world of the top ten technology companies?

They might consider that the costs of something so intangible as sports or programme rights is still high and rising.

The US rights for the cycle of Olympic Games until 2020 have been sold to NBC for $4.4 billion.

The pilot for Broadwalk Empire alone was said to have cost $20 million and the first series of Game of Thrones came in at $60 million.

Success carries its own penalties. The salaries of the stars in Modern Family are contracted to rise from $65,000 per episode for the first two series to $350,000 per episode by the eighth series.

Deloitte does provide a little comforting analysis for media executives. A lot of the money is in effect tied up for potential acquisition in the tech sector and for new product development and launches.

Something like Cisco's $5 billion acquisition of NDS, the company behind the smart cards vital for the pay-TV revolution - an acquisition that gives Cisco a bigger role in the television backroom.

There are even technical accountancy reasons why the most dramatic outcome may not actually happen. As most of the really big media assets are in the US, this would mean the largely American tech companies would have to repatriate profits from around the world. Then they would be hit by taxes of up to 35%.

For content companies any arrival in the market by tech companies carrying large cheques would be a very good thing.

The impact of Netflix in the UK market is said to have pushed some rights up by as much as 10 times, even though all they have got so far are rights to the second window on films and library TV programmes.

Discovery, for example, has only sold library material to Netflix in the US and is even more cautious in Europe.

Deloitte concludes that despite all the money the tech companies may see broadcasters as partners - rather than trying to bludgeon their way into an unfamiliar market on their own.

The conclusion is probably right but a wise Sky executive when he goes for the next round of Premier League rights in three years time might be wise to have a serious look in the rear mirror. There might be bigger beasts than BT there.

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