Saturday, June 13, 2009

Setanta’s little helper: The rise and fall of a satellite broadcaster

My initial reaction was to laugh on hearing Irish pay television operator Setanta was in trouble. After all “Satan-ta”, as I preferred to call them made me pay for sporting content I used to watch for free. In the late 1990s, football games such as Ireland’s world cup qualifiers and Old Firm derbies were suddenly hoovered up by a company that knew they had a captive audience of football-starved Irish and Scots in Australia and made them pay through the nose to watch them. They made a lot of money out of it as the only way of following the games was either Setanta’s way or the information superhighway. So when I heard they were on the verge of bankruptcy this week, my first reaction was “good riddance”. But I was wrong.

Setanta fill a niche. It’s not their fault that greedy game rights owners decided they could get better deals for their products with the television networks. The founders of Setanta realised long ago that there was a gap in the market that they could fill. Two young Dubliners in London, Michael O'Rourke and Leonard Ryan, got into the game back in 1990 when they filled a gap on British television. Ireland were playing a crucial game in their first World Cup against the Ruud Gullit-led Netherlands in which both sides needed to get a result.

But the thousands of Irish fans in England had no way of watching the game. England were in the same group and playing at the same time. Both the BBC and ITV refused to show Ireland’s game. So O’Rourke and Ryan bought the rights to the game cheaply and charged west London dance hall patrons £10 to watch. The pair broke even after 1,000 Irish fans turned up.

The experience made them realise there was money to be made from the Irish Diaspora. O’Rourke and Ryan spent the next 10 years slowly buying rights for sports fans living away from home, developing niche channels in Britain, America and Australia. Ryan called the early days a “fight to stay alive”. Their clients were Irish bars in San Francisco and Sydney to whom they sold All-Irelands, Six Nations rugby and Irish football internationals.

In 2005 they made their first major breakthrough in Britain by buying the rights to the Scottish Premier League. It then struck south of the border by launching a successful joint bid with ITV to get the rights to FA Cup matches and England internationals for four years from 2008, effectively knocking out all of the BBC’s live football in the process. Setanta also won a three-year contract to show live Premier League games. Suddenly Setanta was second only to Murdoch’s Sky Sports in the UK. By 2007 another Murdoch outlet, The Times, was saying the pair were worth £35m each.

But the Australian media magnate was not taking the cheeky Irish challenge for granted. Sky had the monopoly on the Premier League since its inception and did not take kindly to the EU competition ruling in 2006 that insisted it be broken up into six television packages and no one company could have all six. Setanta won two packages giving it the right to broadcast 46 live games every season. But when the packages were rebid earlier this year, Sky upped the ante and won five out of the six for 2010/2011 onwards. In the middle of a global recession, Setanta suddenly had just 23 expensive games a year and Sky had ensured the Irish company were left with the least attractive games. It also had 1.2 million customers when it needed 1.9 million to break even. It didn’t help Setanta were shortly due to pay the English Premier League £30m. They also missed a £3m payment to the Scottish Premier League last week. The knives were out.

On Wednesday Setanta were forced to post a message on its website telling customers that it is not accepting new customers as it "attempts to secure the future of the business". On the table are a range of options, including spinning off its profitable US and Irish subsidiaries. They need additional capital of about £100m to plug the funding gap. But its City backers including private equity houses Doughty Hanson and Balderton, have refused to make more than £50m available.

Setanta is now looking for other companies to buy into it and has held talks with BT and ESPN. At the moment, ESPN is officially ruling itself out as a potential buyer. However this is likely to just be a bargaining position as the American cash rich sportscaster is keen to expand its UK sports portfolio. ESPN also bid for the English Premier League rights beyond 2010 but lost out to Setanta and Sky. If Setanta does default, the Premier League rights will revert to the holders who will try to find other buyers. ESPN is owned by Disney which is an even larger media company than Murdoch’s. Their actions may be well worth watching in the next few weeks as the big guns fight over the likely corpse of an Irish player that got too big for its boots.

1 comment:

Joestoke said...

Looks like they live to fight another day.

The Premier League rights was biting off more than they could chew.