Comment: Pay–TV price war is ready for kick–off

George Kerevan
George Kerevan
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FORGET Sir Alex Ferguson. The real sports news lies in the impending clash between league champions BSkyB and upstart BT, in the lucrative pay-TV market.

Under Glaswegian Ian Livingston, BT has found a new lease of life as a provider of high-speed broadband. Livingston has imposed tough cost controls, raising profits while generating the cash to invest in BT’s killer advantage – a national, superfast broadband network.

His nimble footwork has also allowed BT to amass a war chest to buy the vital sports programming that could turn the company into a rival to BSkyB.

Lately Livingston has shown an instinct for the jugular that Rupert Murdoch was famous for in his heyday. Rather than fence with BSkyB, he has gone nuclear by offering BT broadband customers free access to English Premier League matches. BT Sport will also be offered to pubs at 80 per cent cheaper than BSkyB, whose shares plummeted as a result.

Here’s the rub: the UK pay-TV market is now mature. You can only grow by getting existing customers to switch providers. That implies a bidding war that will squeeze everyone’s margins.

True, BT could grab market share quite easily. BSkyB customers can already access BT Sport on their Skybox, so switching to BT broadband (thus adding BT football for free) is very simple. However, BSkyB has roughly 13 times the TV customers of BT and has a forecast operating profit of £1.3 bilion for this year. This game is not over till the whistle blows. And Ian Livingston is a non-exec director of Celtic FC.

A kamikaze money policy that hits all

The markets keep on rising while the yen keeps on falling. There’s a connection. The yen is down by more than 20 per cent since last year because the new Japanese government is committed to doubling the money supply in a bid to end two decades of deflation, fuel a domestic property boom, and boost exports.

It seems to be working. However, this kamikaze monetary policy has implications for the rest of us.

Japan remains the world’s single biggest creditor with around £2.5 trillion in foreign assets. The nosedive of the yen obviously increased the real value of this nest egg.

Initially Japanese funds began selling their foreign bond holdings and repatriating the windfall gains. But the worm has turned. Yesterday, new data signalled that Japanese investors have purchased a net £3.5bn of foreign bonds in the last two weeks alone, helping to send the yen to its lowest value against the dollar since 2009.

The wave of Japanese money flooding the world’s financial markets should, all else being equal, raise bond prices and lower yields. This effect is being reinforced as other countries follow the Japanese lead by cutting official rates and easing liquidity: viz South Korea, Australia and the European Central Bank in the past fortnight.

A resurgent Japanese economy is also good for Asian growth, especially as the Chinese economy decelerates. If world growth prospects are up, and bond yields down, then where else are investors going to put their cash than equities?

A word of caution: many finance ministers gathering at the G7 summit in Buckinghamshire are not happy with Japan’s strategy. They fear it is inflationary and liable to touch off competitive devaluations. In economics, you never get something for nothing.