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Is BT Group plc A Real Challenger To British Sky Broadcasting Group plc?

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BT’s big deals

This 2013/2014 football season, BT Group (LSE: BT-A)(NYSE: BT.US) began broadcasting Premier League football for the first time. The broadcasting rights for this will cost BT £246m this year and next. BT now has broadcast rights for around one quarter of all live Premier League games.

The markets welcomed this as a clear demonstration of intent on BT’s behalf to diversify and compete. However, in doing so, BT was competing head-to-head with Sky (LSE: BSY)(NASDAQOTH: BSYBY.US), a strategy that has proved nearly fatal for others in the past. BT’s Premier League land-grab was at the time regarded as courageous (i.e. could backfire nastily) rather than inspired.

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The clever move on BT’s part was bundling free Premier League football with its broadband offering. This served to bring in more customers from rivals and incentivised existing customers stick with BT and consider trading-up to higher-speed services.

The Champions League gambit

Earlier this month, BT topped this, blowing Sky out of the water during the bidding process for European football rights. This will cost BT around £300m a season and give BT Sport exclusive live broadcast rights for every Champions League and Europa League game.

Just as Sky used football to cement its position as leading pay-TV provider, BT is using the same tactic to compete. From the 2015/2016 season, supporters will have a great excuse to dump Sky.

BT’s progress so far has encouraged investors, who have bid the shares up 20% in the last six months. By contrast, Sky shares are just 5% ahead in the same period.

My verdict

BT isn’t doing things by halves. However, its strategy must yield profits soon if managers are to justify continuing to outbid Sky. There is also the fact that non-football content on BT Sport is struggling to secure a meaningful audience. Contrast that with Sky, who have successfully invested in hits such as Battlestar Galactica and are today attracting audiences with Dracula and The Tunnel.

Sky is the UK’s pay-TV behemoth. BT might be able to chip away at Sky’s profits but will have to do much more if it is to win in the long term.

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> David does not own shares in any of the companies mentioned. The Motley Fool has recommended shares in British Sky Broadcasting.

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