The Economist Asia - 20.01.2018

The EconomistJanuary 20th 2018 Business 55

1

2 tages of their own. They can rely on a huge
home market in which foreign rivals are
unlikely to make much headway, not least
because of regulation. Laws force foreign
cloud firms to have a Chinese-owned
partner to operate local data centres. This
adds complexity and putsthem at a disad-
vantage. What is more, manysubsidiaries
of Chinese firms in other countries are like-
ly to opt for a Chinese cloud.
And then there is geopolitics. Alibaba,
in particular, will make a special effort, be-
cause it sees its cloud as part of China’s Belt
and Road Initiative, President Xi Jinping’s
ambitious infrastructure plan to connect
his country with other parts of Asia, Eu-
rope and Africa. Mr Hu recently said that it
is this initiative which made him confident
that his firm will be able to surpass AWS.
Perhaps, one day, the plan will be renamed
“One Belt, One Road, One Cloud”. 7

Sinostratus

Sources: Alphawise; Morgan Stanley Research

China, cloud services market share, %

010203040

Alibaba Cloud

China Telecom

Tencent Cloud

Sinnet/Amazon

Web Services

Huawei

21 Vianet/

Microsoft Azure nil

Wanda/IBM

2017 2018-20 forecast

F

OR years the cost of rights to broadcast

major sports in America and Europe

has trended in one direction—up. This grav-

ity-defying law shapes the economics of

modern sport: as television operators bid

ever more substantial sums, teams take in

more revenue and star-player salaries (and

transfer fees) climb higher. In 2017 that tra-

jectory continued asbroadcasters splurged

on rights for Champions League football

matches for 2018-21.

This year gravity is reasserting itself.

Top-flight football rights are out for tender

in two major European leagues—England

and Italy—and are expected to be put up for

sale this year in France and Spain, too. An-

alysts expect relatively small increases in

pay-outs (though Spain’s La Liga boss pre-

dicts a 30% rise)—and possibly a decline in

Italy. “The happy days are over,” says Claire

Enders of Enders Analysis, a research firm.

The chief problem is fundamental

weakness at the bidding companies. In

England, where bids for televising the Pre-

mier League for three years (from 2019) are

due at the end of February, competition be-

tween BTand Sky Plc nearly trebled rights

costs this decade to £1.7bn annually (see

chart on next page). But since the end of

2016 both have seen declines in subscrib-

ers to their high-priced packages, according

to analyst estimates, as customers opt for

cheaper internet-video services like Sky

Now, Netflix and Amazon Prime. In De-

cemberBTand Sky announced a cross-

platform wholesaling agreement that will

further depress bidding competition. (In-

ternational TVrights sales will help boost

Television sports rights

Keepy uppy

A weak European market for football

rights suggests a lower value for sport

Might Paul’s wages fall?

A

T AN investor briefing in 2015,

Masayoshi Son, chief executive of

SoftBank, flashed up a picture of a goose.

The company is like the bird of legend that

produces golden eggs, he explained. In his

quest to encourage more laying, Mr Son

has taken SoftBank well beyond its tele-

coms business. The firm also manages the

world’s largest tech-investment fund, the

$100bn Vision Fund, which has a slew of

wealthy backers, including Saudi Arabia’s

Public Investment Fund and Apple.

Using both the firm and the fund, Mr

Son has acquired stakes in tech companies

at a frenetic pace, by one count opening his

chequebook once every four days on aver-

age in 2017. Such shopping sprees do not

come cheap. SoftBank is one of Japan’s

most highly leveraged companies, with

debt exceeding ¥15trn ($139bn), not least

because of its purchase in 2013 of a control-

ling stake in Sprint, an American mobile-

network operator.

News reports this week suggest Soft-

Bank is now hatching a plan to raise ¥2trn

by floating 30% of its Japanese telecoms

business, SoftBank Corporation, on the

stockmarket later this year. (The company

says that listing is one of the options it is

considering but no decision has yet been

made.) If the IPOwent ahead, it would be

Japan’s largest since SoftBank’s rival, NTT

DoCoMo, went public 20 years ago.

With 39m subscribers, SoftBank Corpo-

ration is the third-largest provider in Japan,

catering to a quarter of the market. It is past

the phase of straightforward growth.

Prices came under government scrutiny in

2015, squeezing profits across the industry.

SoftBank’ssubscriber numbers have been

flat; a new competitor, in the form of an e-

commerce company, Rakuten, will further

threaten market share. But the business

still accounts for over two-thirds of the

group’s operating profits.

Investors appeared to approve of the

idea of a float, with SoftBank’s share price

rising by 6% on the announcement. The

IPOoffers a way to raise capital without

further straining the firm’s balance-sheet.

But few expect that Mr Son will use the

money actually to pay down much debt;

some will probably go into topping up the

Vision Fund, which has yet to close and

which has raised $93bn of a planned

$100bn. Mr Son has said before that he

would like to run such a fund once every

few years. The aim, Mr Son says, is to own

bits of companies that will power the glo-

bal race to develop ever more capable arti-

ficial intelligence. He has poured money

into everything from driverless-vehicle

technologies and e-commerce platforms to

agricultural technology.

Mr Son may also be hoping that floating

the telecomsbusiness shrinksthe discount

on SoftBank’s shares. Its market capitalisa-

tion is less than the sum of its holdings—

notably its 30% stake, worth $140bn, in Ali-

baba, a Chinese e-commerce giant. An IPO

could make valuing the group easier, but it

will remain a complicated structure. There

is also a risk for minority investors in Soft-

Bank Corporation, who could find them-

selves at odds with the majority-owner.

Even if investors in SoftBank approve

of the idea, they will worry about whether

the money will be well spent. With the Vi-

sion Fund, Mr Son is piling into a crowded

tech market where valuations are frothy.

And glittery though the investments may

seem, not everything he touches turns to

gold. His reputation as a dealmaker mainly

rests on his early bet, in 1999, on Alibaba.

Mr Son wants to plump the goose; share-

holders can be forgiven for carefully

inspecting the nest. 7

Japan’s SoftBank

Funding a Vision

TOKYO

Masayoshi Son considers floating his

telecom firm’s most reliable business