Thursday, September 9, 2010

MUTV: “Is this the road paved with gold?” Probably not.

Arnold the optimist and a typical Hong Kong street
Earlier this week, the Press Association's Chief Football Writer Simon Stone wrote an article "Reds Rise to Commercial Challenge" in which he got very excited about United's latest commercial partnership. In case you missed it, the club have agreed a deal with Hong Kong telecom giant PCCW that:

"....makes the company the Official Integrated Telecommunications Partner and Official Broadcast Partner of United in Hong Kong".
This basically means that PCCW will have exclusive rights to broadcast MUTV, MUTV online and MU Mobile content in Hong Kong. These will be available on the "now TV" platform as well as PCCW's other "quadruple-play" services.

Stone's article describes the deal as offering "the first glimpse of how they [United] intend to maximise their massive global potential" and contains a series of quotes from a clearly excited Richard Arnold, United's Commercial Director:


""We continue to support the collective bargaining because it makes the Premier League incredibly competitive... But there are other rights that centre around the club and players, where our access is not paralleled anywhere else. It would be very surprising not to put into place something that allowed you to communicate with fans all over the world."
So far so sensible. Of course United will want to maximise the income that come from media rights that are outside the collective sales process. But Arnold goes on:


"Is this the road paved with gold? Put it this way, a football club has three sources of income; ticketing, sponsorship and media. Media has become the lion's share of that cake through collective bargaining. But the element left over could also be very significant."
Richard Arnold needs to ask Ed Woodward for a quick look at his big Excel spreadsheet as media, at 36% of last year's revenues, isn't even the largest source (that's "matchday") let alone the "lion's share".

Putting that to one side, could Arnold be right about the potential for club owned rights? Is this the road paved with gold?

Let's take a look at MUTV.

Manchester United own 66.6% of MUTV Limited having bought out ITV plc's 33% stake in 2007. The remaining 33.3% is owned by BSkyB plc. The club is very coy about the channel and to my knowledge has never published subscriber figures since the 2005 takeover. The 2004 report and accounts said that subscriptions for the year to July 2004 averaged 95,000 over the year. Last July, David Gill was quoted in Australian FourFourTwo as saying that (depending on the time of year) the channel had "anything between 80 and 100,000 subscribers".

Certainly, MUTV is not a substantial business. Turnover in the year to 30 June 2009 was £6.9m of which £4.9m came from the UK. The channel represents 6.9% of the club's media turnover, 2.5% of total turnover and a tiny 0.6% of EBITDA. Nor has MUTV grown over recent years, 2005 turnover was £7.4m. Although the channel made a pre-tax profit of £284,000, after paying the interest on loan stock of £11m (£6m from United and £5m from Sky), the most recent accounts showed a loss of c. £270,000. MUTV is not cash positive and has never paid its shareholders a dividend.

The channel's "problem", in common with other clubs' in-house TV stations is that its programming is not that compelling. All live first team games are sold collectively whether by the Premier League, FA or UEFA. This leaves MUTV with reserve matches, replays of recent games (after midnight the following day) and a mix of phone ins, interviews and features. Stone's PA article hypes up such highlights (note the following paragraphs are not a press release):

"It means, for instance, that supporters will have access to Sir Alex Ferguson's weekly press conference at 12 noon UK time, barely two hours after it has concluded.
With reserve team games, pre-match Premier League build-up as well as post-match phone-ins, it is the nearest fans are likely to come to the club without access to the actual matches themselves."

Wow.


I don't mean to be rude about MUTV, I've been a subscriber myself, but the fact remains that content like this will always be a minority pursuit. Outside the UK, the appeal of full re-runs of matches is of course further reduced by the fact that virtually all Premier League games are broadcast live. David Gill seemed to recognise the inherent limitations of MUTV in his comments to Australian FourFourTwo:
"It will never get huge numbers of people without the rights and we will never have them. What we have done are little things like pulling the advertising slots back so we can offer to our partners. It is not going to help buy a star player but it is a very important part of our future and I am content with where it is. Yes we would like it to have 300,000 but that is not going to happen - and if MUTV can't, no-one else can."
Returning to Hong Kong and Arnold's "road paved with gold", it's important to see through the hype. MUTV's 80-100,000 subscribers come primarily from the UK and Ireland, combined population c. 68m. How many subscribers will PCCW pick-up from Hong Kong's 7m people? How many will want to watch press conferences and re-runs of games they could have watched live?

No doubt United will do more deals like the PCCW one and that's a good thing, with programming costs fixed, profits will surely rise as more distribution deals are signed. But if the UK can only generate £5m of revenue for MUTV almost twelve years after launch, it is hard to see this as something that will ever make a significant difference to the club's finances.

The Glazers need to look for another road....



LUHG