The domination of Rupert Murdoch’s BSkyB in Britain’s pay television space looks set to face its greatest challenge since the launch of satellite broadcasting more than two decades ago. Changes in technology, delivery systems and ownership structures threaten to undermine Sky’s market leadership, under which it has gained more than 10 million UK subscribers.

The huge expansion of mobile devices, with their instant access to movies and sport via streaming, provides a generation of smart phone users who have other ways of accessing their entertainment than the TV set.
The use of movie applications such as Netflix and LOVEFiLM allows Sky’s generally inferior selection of films to be bypassed. The skilled laptop or mobile device user also knows how to access Premier League and international football by tapping into live feeds from overseas. As critical are the big beast commercial challengers. These include a transformed BT and Virgin Media that will shortly fall under the control of America’s “cable cowboy” John Malone of Liberty Media, a long-time rival of Murdoch, in the American battle of the airwaves.

Elsewhere, Vodafone has signalled its interest in cable and is looking at Germany’s Kabel Deutschland, and Comcast of the US has just paid GE $18.1 billion for full control of the NBCUniversal network.
British Telecom, under the leadership of chief executive Ian Livingston, is a very different beast from when the Scottish-Jewish accountant took over the chief executive’s seat in 2008. The overhang of big losses in provision of global services has been overcome; a strategy for dealing with the group’s whopping pension fund deficit has been put in place and the group has invested heavily in the provision of high-speed broadband.

The next frontier for Livingston is pay TV. BT has parked its tanks on Sky’s lawn with the acquisition, from August 2013, of 38 Premier League games a season for each of the next three years. It is also looking at buying ESPN’s sports rights in the UK. In bidding high for Premier League and other sports rights, BT Vision is learning the secrets of Sky’s success that was built on dominating sports and movie rights.

BT has the means of delivery through its broadband network and a relationship with almost every household in the country. As importantly, BT having cleaned up some of its past problems has as estimated £2.5 billion of free cash flow to potentially invest each year. This gives it the muscle to bid or outbid Sky for the rights to sports, movies and other content including high quality America television. It is clear from the price it is willing to pay for sports rights that BT views itself not just as a supplier of content, but a delivery pipeline.

The other new player in the frame is American cable giant, Liberty Global with its $20 billion bid for Virgin Media. Liberty, one of the biggest beasts in the American cable jungle, is a historic rival of Rupert Murdoch.

Until 2008 he was the most threatening shareholder of News Corporation with a 16 per cent stake and was only displaced when Murdoch agreed to sell the Liberty boss John Malone his 41 per cent interest in US satellite network, DirectTV. Malone has long been interested in extending his global cable empire to the UK having recently bought networks in Germany and Southern Europe. He has timed his assault well.
Nasdaq-quoted Virgin Media has for years been beset by legacy problems. It has sought to pay-off the debt built up by the predecessor companies, Telewest and NTL and struggled with problems of customer service and reliability. The UK cable firms acquired the Virgin branding when it merged with Sir Richard Branson’s telecoms, leaving the Virgin group with a three per cent stake and a licensing deal for the use of the name.
The recent re-opening of the corporate debt markets for mergers and acquisitions provided Liberty with the financial means to do the deal.

What is still unknown is Liberty’s intentions for Virgin Media. In recent times, Virgin Media has chosen to steer clear of content and expensive bidding wars and focused on being a “quadruple play” delivery system, offering customers cable TV, broadband, mobile and landline services. Malone has yet to show his hand in Europe and his first goal may be to squeeze out costs by bringing together Virgin Media with his other European cable operations. But it would be a surprise if his goals in Europe were so limited. Virgin Media, with the right amount of investment, could become a better challenger to BSkyB.

All of this is potentially difficult for News Corporation. It is the biggest investor in BSkyB with just under 40 per cent of the shares, It voluntarily withdrew its offer for the rest of the stock after its UK sister company, News International was ensnarled in the phone hacking crisis. Until now BSkyB has had a relatively clear run at the hugely remunerative UK pay television. The advance of mobile devices and the arrival of well-resourced commercial competitors could signal the end of its hegemony.

Alex Brummer is City Editor of the Daily Mail. He has been shortlisted for Business Journalist of the Year in the 2013 UK Press Awards.