Setanta struggles for survival: the dangers of a growth strategy

Setanta logo

Setanta was a successful entrepreneurial start-up which took on the market leader BSkyB in the UK’s pay-to-view satellite sports broadcasting business. Its demise makes for a gruesome but instructive case study

Twenty years ago, two Irish entrepreneurs Leonard Ryan and Michael O’Rourke spotted a gap in the emerging satellite broadcasting market and attacked it energetically and with great success. But eventually its strategy unraveled with disastrous results.

In June 2009 Setanta defaulted on its creditors as the company heads for extinction. Recently [June 9th, 2009] the on-line recruitment for Setanta’s services were blocked with the message “Oops! Something has gone wrong”.

What did go wrong?

As the Telegraph wrote at the time:

The company’s collapse has potential knock-on effects for funding of football in the UK, but also for Rugby and Horse racing.

The company went too far too fast

Maybe it was a classic marketing mistake allowing customers to join for only one month at a time.

Easy come, but easy go. And customers have not been coming. [This analysis of its marketing strategy is much easier to see in hindsight: Ed. Leaders we deserve]
The recession has certainly made matters worse. A second pay TV contract is an easy cut for families trying to scrimp a little. Setanta may simply have overestimated the appetite for sports programming. But the quirky design of the regulator’s auction BSkyB’s competitive advantage by encouraging [Setanta] be too optimistic in its bid.
There just might be a way out. Setanta could give up on direct selling – letting Sky or others to broadcast its games .. But much of the £450m put into the company by investors including Doughty Hanson and Goldman Sachs is likely to be lost.
Setanta managed to get into serious trouble without much borrowing. But – with the UK regulator’s enthusiastic backing – it collected roughly £500m of liabilities to content providers. There are next to no fixed assets, so the company finds itself at the mercy of its creditors.
That loss will only amplify a classic marketing mistake: allowing customers to join for only one month at a time. Easy come, but easy go. And customers have not been coming. Setanta 1.2m customer base is well bellow the estimated 1.9m required to break even. An operating loss of £95m is expected this year.
The recession has certainly made matters worse. A second pay TV contract is an easy cut for families trying to scrimp a little. Setanta may simply have overestimated the appetite for sports programming. But the quirky design of the regulator’s auction amplified BSkyB’s competitive advantage by encouraging the company to be too optimistic in its bid.
There just might be a way out. Setanta could give up on direct selling – letting Sky or others to broadcast its games. The EPL, which has the most to lose if Sky ends up with a pay-TV monopoly, might help by agreeing to reduce the £130m of fees it’s due this year. But much of the £450m put into the company by investors including Doughty Hanson and Goldman Sachs is likely to be lost.
Setanta managed to get into serious trouble without much borrowing. But – with the UK regulator’s enthusiastic backing – it collected roughly £500m of liabilities to content providers. There are next to no fixed assets, so the company finds itself at the mercy of its creditors.

Lessons?

What lessons are emerging from all this? I welcome views of strategically gifted colleagues for comment. Here are a few personal observations

The regulatory move which split football francises between competing organizations was designed to drive down costs through competition. It failed to solve the problem that the bidding arrangements left viewers little additional choice of service.

Are there similarities to the equally unpopular move which was inflicted on the country’s rail transport system? A lumbering monopoly had been restructured into several somewhat smaller monopolies.

4 Responses to Setanta struggles for survival: the dangers of a growth strategy

  1. Hi Tudor,

    This is all about the ‘order book’… Setanta had an order book that (as you say) was one month long. Had they secured one year contracts, they may well have restructured debts and found a way out. Once confidence wanes, the rats (clients) jump ship and the snowball effect kicks into overdrive.

  2. Tudor says:

    Thanks Chris.

    I just have a feeling that the strategy is a bit easier to criticize with hindsight. The thinking would have been that a one month tempter is the first step to securing longer term commitment.

    I’m hoping to get further expert comment from strategy/marketing colleagues.

  3. […] carry on reading. AKPC_IDS += "367,"; (No Ratings Yet)  Loading … Posted in Leadership | Tagged Growth […]

  4. D Henry says:

    Dear Tudor,

    I think you will find there was alot more behind the downfall than just a month by month contract. I happen to think it was a mistake to have a month by month and no annual contract in place. However Setanta was a good Sports service and was threatening Sky Sports. One of the same funders Goldman Sachs is a big lender to Murdoch’s BSkyB.

    Now I’d bet that when Setanta need more money a certain funder wouldn’t be to keen to help after a call or visit from Murdoch!

    There is a rumour that funds that were due to be handed over from one investor never turned up. As I said its just a rumour but if true then Setanta was ‘helped’ to fail in the UK. On the positive side Setanta is still in business in Ireland and Canada and down under. I for one hope they get back on their feet and rise up again in the UK.

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