Pay-TV operator NOW Broadband - a unit of PCCW (0008), which is awaiting an ownership reshuffle - has outbid rival i-Cable Communications (1097), paying an estimated HK$1.56 billion to secure the license to exclusively broadcast football matches of the English Premier League from next year to 2010, market sources say.
NOW's offer price was so high that - unlike previous years - it won the broadcast rights without having to go into a second round of bidding, the sources said. In 2003, the last time the license was up for grabs, it took four rounds before i-Cable won the bidding.
"The first bids made by the two operators were so significantly apart, the English Premier League decided against holding a second round of bidding," the sources said.
NOW's bid exceeded the higher end of market expectations of HK$1.2 billion, nearly doubling the price paid three years ago.
Analysts say i-Cable TV could see its earnings tumble after losing the Premier League rights, which are the pillar programs of its sports channel that generates the second-highest advertising revenue of its channels, trailing only i-Cable News, which generates the most.
But investment bank Bear Stearns says the loss is not necessarily bad news for i-Cable TV.
"We think the loss would be welcome at i-Cable," analyst Christopher Recouso said in a research note.
"Margins and cash flow would likely improve, and we expect subscriber and revenue losses would likely be smaller than consensus."
The annual cost of broadcasting the matches amounts to HK$400 million.
In contrast, analysts expect NOW to incur higher expenses and its breakeven date may have to be delayed. But if NOW did not win the license, it would have to wait indefinitely to see its number of subscribers climb over i-Cable's.
NOW's subscriber base reached 654,000 by the end of August - 84 percent of what i-Cable TV currently holds. However, i-Cable's average revenue per unit outweighs NOW by 77 percent because the PCCW-subsidized operator has given out some of its channels free.
With his 22.65 percent stake sale in PCCW to dealmaker Francis Leung Pak-to's consortium pending, PCCW chairman Richard Li Tzar-kai's bid for the rights is believed to be the last major investment he made on behalf of PCCW and NOW, which sources close to him said is "the last thing Li wants to let go."
Li has proposed buying out all the shares of the minority shareholders of his Singapore-listed Pacific Century Regional Development, which holds the 22.65 stake in PCCW, to ensure the stake sale for HK$9.16 billion meets with no resistance.
An extraordinary general meeting will be held November 30 for minority shareholders to decide whether they will approve the Leung deal.