Sky Sports broadcast costs set to rise
Sky is putting up the price of its Sky Sports channels, raising the cost to BT and Virgin of broadcasting live events such as Premier League football.
BT announced on Thursday it will charge customers £16.99 a month for both Sky Sports 1 and Sky Sports 2, or £11.99 for just one of the channels.
But the wholesale cost of the channels to BT will rise to £19.07 in September.
This is because the wholesale cost is directly linked to the price that Sky charges its customers.
Sky is increasing the retail price of its sports channels from £35 to £38 in September. For customers who want just Sky Sports 1 or Sky Sports 2, the cost will rise from £26 to £29.
Sky told the BBC that it tended to review its prices in September each year, and would introduce the £3 increase to cover the costs of a new three-year deal to broadcast live Premier League football.
This deal cost the broadcaster £1.623bn, compared with £1.314bn for the previous three-year deal. It gives Sky the rights to 23 more matches than the last agreement.
"We're investing to bring customers an even better service next year. Sky Sports will have 25% more live Premier League games, alongside outstanding events like the Ryder Cup and the Ashes," said Mark Anderson, customer marketing director, at Sky.
These additional costs will be passed directly on to BT, following a ruling by the regulator Ofcom in March.
It ruled that Sky would have to cut the price it charged rivals to show its premium sports channels.
Specifically, it said Sky would have to sell Sky Sports 1 and 2 for £10.63 a month each to rival broadcasters.
If the two channels were sold together, Ofcom set a price of £17.14.
After Sky's announced price increase, these wholesale prices will increase to £13.42 and £19.07.
These are significantly higher than the prices BT is charging, and has led to questions about how BT will make money from selling Sky Sports.
"It's surprising that Sky are raising prices for their customers just when we're about to enter the market," BT said in a statement.
However, Gavin Patterson, BT Retail's chief executive, told the BBC: "We're confident that, over the long term, and we're in this business for the long term, we will be making money [by selling Sky Sports channels]."
BT is also offering Sky Sports 1 for £6.99 a month, or both sports channels for £11.99, to customers willing to sign up to other services, such as broadband and telephone, for a minimum of two years.
It said customers could sign up to the channels, on month-by-month contracts, from Thursday, in time for the Premier League season that begins on 14 August.
Toby Syfret at Enders Analysis said offering Sky Sports would "help BT a little. It will help stem the flow of customers from BT to Sky".
He said Sky had been undercutting BT's broadband prices, and so now BT was looking to undercut Sky's prices for live sports coverage.
Sky has already appealed against the Ofcom ruling, arguing that its unregulated wholesale price allows other broadcasters to make a decent profit.
The unregulated price is £19.15 for Sky Sports 1 and 2, and £13.88 for one channel. These would rise to £20.70 and £15.00 in September.
The appeal hearing is expected to take place sometime in the first half of next year.
But BT also said it would challenge the ruling.
"We think the wholesale price is too high and we'll be challenging that through the legal process," Mr Patterson told the BBC.
Ofcom's ruling followed a three-year inquiry after BT, Virgin, Top Up TV and the now defunct Setanta expressed concerns about Sky's dominance of the pay-TV industry.
Sky has an estimated 85% of the market.