The way in which Premier League football rights are distributed has always confused me.
With so much focus being on promoting competition within various markets in the UK, it seems rather absurd that one company can essentially dominate not only the Premier League rights, but use those rights as the main differentiator between it and the competition.
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However, it seems as though that has been the situation in the UK for many years now, with BSkyB enjoying something of a near-monopoly status as a result of its seemingly iron-like grip on Premier League football.
Indeed, BT (LSE: BT-A) (NYSE: BT.US) may just have broken BSkyB’s hold on the market. It successfully bid for over 100 live games and won. It then proceeded to offer them for free to its broadband customers in an attempt to win market share from rivals.
Although this strategy was initially viewed as little more than a good way to lose money, a deal struck with Virgin Media now seems to be something of a game changer and makes me, a long-term sceptic of BT, suddenly very tempted to buy the shares.
The deal with Virgin Media makes BT’s sports offering available to Virgin customers, and is expected to be a key means of the company recouping its £1 billion investment in the sports channels.
The three-year agreement was signed just before the first Premier League match kicked-off and extends the channels’ reach to over two million households. It is believed that the deal could net BT up to £80 million per year.
Of course, the really interesting part of the deal is that BT has forged an alliance with another of BSkyB’s major competitors. In doing so, it has clearly thought through its long-term game plan.
Indeed, BT may not yet be capable of competing with both Virgin Media and BSkyB, so why not gain an ally and together look to gain market share from BSkyB? Then, when BSkyB’s position is weakened, why not go it alone and try and take on Virgin Media, once BT’s position has been solidified.
So, rather than merely viewing the deal with Virgin Media as a means of recouping £75 million per year, I see it as a further step in BT’s ultimate mission to become the major player in broadband, TV and general media content.
For this reason, I think that BT could have an exciting future ahead of it and I must admit that its shares look tempting at current levels. Trading on a P/E of 12.1 and offering a yield of 3.1%, when the FTSE 100 has a P/E of 15 and a yield of 3.6%, makes me want to buy them at their current price of 327p.
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> Peter does not own shares in BT.