Examination of Witnesses (Questions 1024
- 1039)
TUESDAY 6 DECEMBER 2005
Mr Mike Darcey, Mr Vic Wakeling and Mr Martin Le
Jeune
Q1024 Chairman:
Welcome. Thank you very much indeed for coming. I think you know
really what we are about. As you know, we have done our first
report and there were a number of areas which we were conscious
that we did not have time to do justice to and we are now trying
to wrap those up in this second session, which looks as though
will also be in time, the way things are going, for the Government's
Green Paper which seems to be going backwards at the moment. Thank
you very much for your submission, the memorandum, which I thought
was very interesting. I wondered whether just very briefly Mr
Wakeling or Mr Darcey would like to talk about how you have developed
sports coverage over the years, because you have obviously done
so in a very major way, and why you have done it.
Mr Wakeling: If I go first on this one, Sky
Sports itself was actually launched in 1991, but Sky was covering
sport before then. The first thing we covered in fact, though
I was not there, so I say "we", but I was not there
at the time, but the first thing we covered in fact was the England
cricket tour of the West Indies in the winter of 1989/90. At the
same time, we were covering some, what we might call, "national
league cricket" and some football which was from something
called the "Zenith Data Systems Trophy", which does
not exist now, that competition. When the merger with BSB came
along of course, Sky then inherited some extra sports rights,
FA Cup rights, England international rights, some golf rights
and a few other things. Sky at the time of course had Eurosport
and then decided to launch Sky Sports in April of 1991. Because
of the interest that had been shown in the sport that we transmitted
over those two years prior to Sky Sports being launched, and we
launched in 1991, we had the FA Cup football, we had some overseas
cricket, there was more interest in overseas cricket coming in,
and then of course over the years as the interest has grown and
as more sports have become available to us from home and abroad,
we have launched Sky Sports 2, Sky Sports 3, Sky Sports Extra,
Sky Sports News, the whole five-channel package and we run those
as subscription services. We also do some pay-per-view sport,
football, boxing, wrestling and in fact we have done pay-per-view
darts, a one-off. I think it was a response to the interest from
those early days, and the huge interest in the first overseas
England tour to have been seen in this country live from the West
Indies, perfect times of course. The cricket we have covered since
then, and in fact we have covered 96 Test matches from home and
abroad over the last 15 years, the football has developed, the
hours have developed and we are now showing something like 38,000
hours of sport per year. I think the output has gone up across
other channels as well, by the way, over that same period because
if you look pre-Sky to 1989, for example, there were on free-to-air
TV, BBC, ITV and Channel 4 at the time 2,200 hours of sport and
last year, 2004, across those three channels and Channel Five
of course, there were 5,700 hours of sport. I think what has happened
is that we have been part of a huge explosion of interest in the
live sports broadcasting, we have played our part, but I think
that the other broadcasters, BBC, ITV, 4 and Five, have all come
in and they have shown a terrific amount of sport as well and
I think there is a marvellous choice out there.
Q1025 Chairman:
So you have not so much created demand, but you have responded
to an inherent demand, you think, from the public?
Mr Wakeling: I think we have looked at the various
sports as they are and, if you look at football, for example,
we show football at all levels. We show international football,
we show premiership football, football league, and every one of
the 92 clubs which feature in the premiership and the three divisions
of the football league have all been seen on Sky in the time we
have been covering the game and, in addition, another 30 non-league
clubs, we cover conference football and we cover the FA Cup from
the first round. No one was interested in the FA Cup from the
first round, but we established that there was an interest. We
have covered schoolboy football, every Shield series which has
been running for many years since the days of Stanley Matthews
and Duncan Edwards and these types of people playing this competition.
No one was interested in showing that. The under-21 internationals,
no one was interested in showing those. The FA Youth Cup Final
we show, and women's football. I think it is digging down and
discovering that there is interest in the various sports at all
levels, and it is the same with cricket, for example. We cover
everything that happens in English cricket, whether it be the
national cricket league, the Twenty20 Cup, the C&G Cup, under-19
cricket and women's cricket, and we cover them live because there
is the interest at various levels of course.
Q1026 Chairman:
And one impact upon you devoting these resources to sport has
been that the other channels have also responded.
Mr Wakeling: Correct.
Q1027 Chairman:
Have you rather sharpened up the game of the BBC as far as sport
is concerned?
Mr Wakeling: Well, I can only quote Peter Salmon,
who was interviewed earlier this year, and he was Head of Sport
at the BBC at the time and they have had four heads of sport and
I am a veteran of the industry—
Q1028 Chairman:
You have been there how long?
Mr Wakeling: I have been there for 12 years
and the BBC have had four heads of sport. Peter Salmon actually
said that Sky Sports, with the technical developments that we
helped pioneer in a lot of the sports, that we had actually given
the rest a kick up the backside. It was very generous of Peter
and I know exactly what he means because every now and then of
course, if you look at something somebody else is doing, you respond
because I think that in this day and age, apart from delivering
live sport which we started in 1989, and I keep going back to
the West Indies, I think people are aware that the technical developments,
whether it be Super Slo-mo, whether it be the extra camera positions,
the instant replays, the extra soundbites that we put in for most
big events, et cetera, I think the public is aware and they expect
it from us.
Mr Darcey: I was just going to comment on your
earlier question, did we create the demand or did we respond to
it. I think our overall view would be that the demand was there,
it was latent, and in some way when Sky arrived on the scene,
there were three major broadcasters with four channels, and they
had chosen for whatever reason not particularly to respond to
that. We did and I think it is just a general example that competition
is a good thing and it has brought forth a great deal more broadcast
sport and a lot of innovation.
Q1029 Chairman:
And this question of competition, you say in your evidence to
the Committee that unless there are overwhelming public interest
reasons, both sport and the public are best served by the holders
of sports rights having unrestricted freedom to market their rights
as they think best, and I think I would expect you to take that
general view, but what I was interested in is "unless there
are overwhelming public interest reasons". What are those
overwhelming public interest reasons which would prevent this
market from operating?
Mr Darcey: Well, I guess really what we are
talking about here is that the manifestation of this today is
the listed events rules, that a degree of market intervention
or a distortion in the market process that reflects a national
view, I suppose, a governmental view that there are certain sports
events which for some reason the country would prefer not to have
the potential to fall into the hands of some broadcasters, that
they should be made available to all on a free-to-air basis and
that the construction of that is around events of national interest
and that sort of thing.
Q1030 Chairman:
We will come on to listed events, but in your heart of hearts
do you really believe this or do you really think that it should
be that all sports events should be open to competition and bidding?
Mr Darcey: I think that is what we believe,
yes. Sorry, you say we will come back to the listed events as
if to suggest that we might believe that there might be a set
of events beyond the listed events.
Q1031 Chairman:
No, I was going to ask Lord Holme to ask a question.
Mr Darcey: I think generally that is where we
come from and I think that is the way Sky has grown up, and that
is the culture of the company. That is genuinely what we believe,
that competition and the market do a pretty good job and I think
we are sceptical of the idea that something should be reserved
and protected from competition. The listed events exist, we accept
that—
Mr Wakeling: And we have built to where we are
today without access to any of the listed events. We have always
said that actually it is a matter for the sports bodies themselves,
that if we make them an offer for whichever set of rights, we
have to pay a premium of course, but they should have the freedom
to decide in the interests of the finance they need and where
they invest it, and in the interests of their sponsors, et cetera,
they should be able to look at an offer from the BBC and an offer
from Sky and decide for themselves.
Q1032 Lord Holme of Cheltenham:
I would like to ask about the listed events and your attitude
to the A list and the B list, but perhaps I could just follow
the question of the Chairman's first. Would it be fair to say,
and there is absolutely nothing wrong with this, it is the way
markets work, that BSkyB have consciously used sport as a way
of driving subscription? If you look back over the 12 years, at
the front end there must have been quite a considerable investment
on the part of the channel in sport to get the level and competence
of coverage which you offer. Has that been a conscious commercial
strategy which, given the tastes of the British public, would
drive subscription, after all, you are a subscription channel,
by offering attractive sporting events and, if so, how successful
has it been? Is there any literature on this and is there something
we could read? Has somebody written up the success, which is what
it seems to be, of the commercial strategy?
Mr Wakeling: The only book that has been written
on it is by Matthew Horsman, I think, Sky High, who wrote
the history of Sky.
Mr Darcey: He was an investment banker at the
time.
Mr Wakeling: Yes, indeed. Was it a conscious
decision at the outset? Well, actually I was not there at the
outset, I joined about 13/14 years ago and took over as the Head
of Sports 12 years ago. Needless to say, if you go back to the
interest that was created by that early investment in overseas
cricket and then again when you start to look at the various sports,
you can see there are other rights here which are not being exploited.
Sky inherited the rights from BSB, for example, for the FA contract,
I happened to join at around about that time, looked at the contract
and said, "You've got the rights to under-21 football matches
here and you are not exploiting them", this was to BSB, and
they said, "Well, we don't think there's any interest",
and I said, "Well, I think there is". Again you start
to look at those opportunities and it builds steadily from there.
Of course we are always remembered, I suppose, for the first premiership
contract in 1992 which has been renewed, but again if you look
back to the last season of the old football league and ITV's contract,
where I think they did 18 live games from the old football league,
there were five clubs in the first division in that time who had
never been seen live on television. We went in, it was not our
number of games, 60, that was the number of games that the Premier
League put up in their tender document, but they talked to us
in advance and we said, "We will show all clubs. You tell
us the maximums and the minimums for each of these 22 clubs"
at the time, and we did that and we were happy to do it. Again
I think it is looking at the opportunities that were there which
were not being used beforehand. If you look at racing, for example,
the Grand National and the Derby are listed events, fair enough,
but we have actually gone out and we have shown for a number of
years now evening racing from various places around the country,
Hexham, Towcester, we have moved around the country and shown
those and they were never exploited in the past and there has
been no interest since, although there are now two racing channels
on the Sky platform where people can see more racing than they
have ever done in the past.
Q1033 Lord Holme of Cheltenham:
Well, I think both the depth and the width of the coverage is
impressive, but the point I was trying to get at is how far that
has been not, as was suggested earlier, responding to the demands
of your subscribers, but using those popular sports, and, as I
say, there is nothing wrong with it, and investing them ahead
of the profile in order to build subscription, and I am really
very curious whether that has been a commercially successful strategy
and whether you now look at it and whether you are finding the
law of diminishing returns, for instance, because it has clearly
worked extremely well for Sky in the early days and for their
predecessor. Have you reached some sort of plateau in that in
terms of diminishing returns for the investment you are making,
and I am talking commercially, not about the benefit of the sporting
enthusiasts sitting at home?
Mr Darcey: Well, I guess the first point I would
like to make is that there was no grand plan back in 1989 or 1991
or at any point which I think anybody foresaw where this would
end up, and it is tempting to sort of look back over 15 years
and see how that all evolved and say, "Wasn't it clever".
I do not think it really worked like that. I think the fundamental
thing which was going on was that there was a four-channel world
and suddenly there was a technology that was available to offer
many, many more channels and the very nature of that technology
says that suddenly you have a lot of capacity, a lot of opportunity
to put lots of things on, so you run around and you look for things
that are not being exploited where there might be some unmet demand,
and there were many places to look for that. Sport is one obviously
and it did do a good job for us, but it is far from the only one.
Actually we were probably more known as a movies provider in the
early years and we have offered a series of movie channels for
a very long time and for many people that has been a very important
part of the decision of subscription to Sky. Then the development
that came after that was the explosion in choice in basic channels,
general entertainment channels, documentary channels and so on.
Nowadays, there are hundreds of such channels on the platform,
some of them viewed more than others, but all of them have an
audience of some kind, a group of people, however large, for whom
they bring value. What has happened, I think, is that over the
last 15 years perhaps the balance between those sets of channels
has changed as regards what is important. Sport has played a major
role. It is probably not as crucial today in acquiring the marginal
subscriber as we are out there in the market today trying to hit
eight million by the end of the year, but it is still important.
When we ask subscribers, as we do every month, why they have decided
to subscribe to Sky, the most common reason is simply the breadth
of choice in the general sense. Sport is clearly mentioned by
them, but more common nowadays is now the sheer breadth of choice.
Q1034 Lord King of Bridgwater:
The evidence you have given here strikes me as very wrong really
because you said unless there are overwhelming public interest
reasons for the market to operate, and you do not think there
are actually.
Mr Darcey: Well, I think that was an allusion
to the fact that we are not a great believer in the public interest
reasons which have been put forward, but they have been put forward
and the Government has accepted them. The listed events—
Q1035 Lord King of Bridgwater:
But you do not believe it. It is contrary to your philosophy,
which is fair enough.
Mr Darcey: I do not think we see much need for
it. I guess the other point I would make is that increasingly
they are looking a little out of place, I suppose. You could see
the role they played at one stage and perhaps the logic is starting
to break down, or it might do—
Q1036 Lord King of Bridgwater:
Well, can I just ask this question: you are a very smart commercial
organisation and you know exactly, from the surveys you have done
which you have just referred to at the end, why people have decided
to sign up to Sky, so, as to Lord Holme's question, you have got
the answer to that question because what in the early days was
the percentage of people who gave, as their reason for signing
up to Sky, sport?
Mr Darcey: I do not know that surveys were being
done in the early days. I can only tell you about the surveys
which are being done now.
Q1037 Lord King of Bridgwater:
With great respect, Mr Murdoch does not waste his money on fanciful
dreams. He is an extremely shrewd man and if he decides to reinforce
the investment in sport it is by knowing precisely what it would
bring him in new subscribers, and you do this the whole time,
do you not?
Mr Darcey: Well, I think we make estimates and
we have to make commercial judgments. It would be nice to believe
that you could do research and analysis and eliminate risk-taking
and that sort of thing—
Q1038 Lord King of Bridgwater:
So your evidence to this Committee is that you have invested in
sport and continue to invest in sport without knowing why or what
it is doing in terms of the expansion of—
Mr Darcey: I do not think so at all.
Q1039 Lord King of Bridgwater:
Well, that is what you said. You obviously did surveys, it is
known that you did surveys, so what was the percentage?
Mr Darcey: I do not know what the percentage
is and I do not know that we did the surveys then that I am referring
to today. What I am saying we do today is that after the fact,
when customers come in to Sky, we ask them a series of questions.
We ask them how was their install experience, things like that,
and we ask them what they say is the reason, but I do not know
when we started doing that precisely. In 1992, and I was not there
in 1992, but when Sky formulated a bid for the Premier League
rights, as they were then, I do not believe that bid was formulated
on the basis of a survey and a detailed model to try and estimate
what people would pay—
Mr Wakeling: I was there at the time and, to
my knowledge, there was no survey done at that point.
Mr Darcey: A commercial decision for five years
to spend hundreds of millions of pounds was made and it was a
judgment.
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