As BT Group PLC (LON:BT.A) moves to divest at least some of its interests in sports broadcasting it begs the question whether this is the latest nail in the coffin for ‘linear’ TV or simply an unravelling of telecom group’s effective sales gimmick.

Perhaps April’s European Super League debacle was a wake-up call for BT executives to future costs of being in the football business. Or maybe it’s a pre-emptive move to mitigate the threat of its expensive Champions League rights being severely devalued should another breakaway emerge.

BT only recently renewed its existing exclusivity for European football in the UK, committing to pay £400mln per season for broadcast rights for the Champions League and Europa League competitions for three years beginning with the 2021/22 season.

That may now feel a bit rich.

Deal making could shift landscape

Who actually seals a deal with BT will likely shine some light on the broader industry narrative.

A partnership or outright sale to a streaming company like either DAZN, Amazon Prime or Disney’s ESPN (which is increasingly built around the ESPN+ app) may mark a changing of the guard, or maybe even the beginning of the end for set-top box pay tv as we know it.

READ: BT Group confirms talks over sports unit

Had the PR firm tasked with promoting the European Super League been given enough time to get their feet under the table, a key talking point might’ve have been how a super league aired via an online streamer would see a massive reduction on the £75 per month an armchair fan presently has to fork out to access the football calendar across Sky and BT.

A central streaming service pumping out games to millions around the world was rumoured to be key in the monetisation plan for the billionaire owners driving the breakaway championship.

In the end football has told Joel Glazer, Stan Kroenke and Florentino Perez where they can stick the ESL proposal.

Nevertheless, it appears the streamers are still looking for a foot in the door with top-tier European football. DAZN and Amazon are reportedly already queuing up for a seat at BT’s negotiating table.

ITV deal would reinforce the status quo

On Friday, terrestrial broadcaster ITV was also linked to deal talks at BT. If it were to land a deal, then it would look a lot more like the telecoms had simply dropped its sports gimmick and normal service had resumed. It would also put ITV back in the picture after BT pinched away its European rights when it debuted close to 10 years ago.

To many, the BT Sport launch was a surprise and novel move, albeit the cohabitation of telecoms and TV are very much the norm in the United States.

For BT’s management meanwhile the gimmick was in fact a deft counterpunch to fend off Sky’s encroachment through TV-phone-and-broadband bundling.

Over a contentious few early years BT and Sky were pitted against one-another, with the former bloodying the incumbent broadcaster’s nose a few times by outbidding for football rights. Consumer watchdogs would later make the pair play nice and cross-sell each other’s subscriptions.

Openreach drives BT

Significantly for BT’s bigger picture, the football business is less necessary than it used to be, thanks largely to the progress of Openreach and the group’s upgraded fibre network.

The success at BT’s Openreach network division was the basis of a rare and recent upgrade by JP Morgan. Downgrades at BT have been the theme for the past five years, but the US broker reckons this will now be changing.

The telecoms giant expects earnings underlying profits to rebound to £7.9bn ( EBITDA) by year-end March 2023, allowing cashflow to improve even with Openreach’s fibre upgrade.

Shares have rallied 50% on this prospect, but as it works through its network upgrade JPM sees Openreach’s earnings contribution rising by £1bn (85%) in the long-term. This will feed into BT’s free cashflow, which the broker sees almost trebling to £3.3bn in 2031.

If BT can convince investors of the opportunity in fibre, the shares will get a rerating, believes JPM.

In the meantime, there are plenty of other catalysts, JP Morgan added. These include better than expected results; dealing with the pension overhang; lower Premier League football costs; and price rises.

Monetisation of the sports broadcasting business will likely trump the more incremental catalyst envisaged by the American bank.

Investors will now have to wait and see where the deal talks land and what the result might mean for the broadcasting in the UK.

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