Philippa Kaur

THE ENGLISH Premier League (EPL), the world’s wealthiest domestic football competition, has just survived a nasty scare. The short-lived European Super League (ESL), launched, vilified and aborted all within a few days in April, would have been disastrous for it, threatening the source of its remarkable ascent: a huge increase in the value of its broadcasting rights. If attention had switched to the midweek ESL, the league would have struggled to command such big fees for its matches; and the windfalls given to the six English teams that were among the 12 ESL founding members would have further weakened the EPL’s power over them. But the ESL’s collapse is not the end of the Premier League’s troubles.Its domestic broadcasting contracts are up for renewal. This used to be a chance to extract even more money from its partners. Yet the broadcasting market has softened so much that the EPLhas for the past few years been in commercial retreat, and appears to be facing its stiffest test yet. So much so that this year it has asked the government for permission to abandon the auction process that has proved such a lucrative way of distributing broadcasting rights, in favour of rolling over its existing contracts on the same terms.In 1992, when the EPL was launched, Sky Sports paid £640,000 ($1.1m) for the rights to each of its matches. By 2016 the cost had risen to about £10m. During that time the league’s soaring popularity and Sky’s determination to fight off a series of competitors, most recently BT, drove up the cost of broadcasting rights until they became the biggest source of income for England’s leading clubs. Flush with cash, the clubs were able to compete with European powerhouses for the world’s best players, making the league a stronger commercial proposition and pushing up the value of the rights even higher. UEFA, European football’s governing body, now considers English clubs to be the strongest in the region.But the most recent auction, conducted in early 2018, was a dud. The amount paid by BT and Sky fell by 13% and if an auction were to take place this year—an option the Premier League is keen to avoid—analysts expect a similar fall. A truce between Sky and BT has depressed the price. Before the 2018 auction, the companies announced a content-sharing agreement that enabled subscribers to each service to receive matches bought by the other. Football fans no longer had to pay for both providers to watch every match. According to Jon Mackenzie, the head of content at Analytics FC, a football-data company, it was “the watershed moment”, when “the two companies realised it would be more profitable to collaborate”. Under less competitive pressure today than they were then, and still facing the threat of breakaway competitions, the two companies would probably adopt a similarly disciplined strategy this time.If there is a threat to the Sky-BT duopoly that could have injected more competition into the market, it has long been expected to come from one of the streaming giants. However, this is unlikely to materialise imminently. Amazon is the one technology firm to have bought EPL rights, but its strategy with sports coverage has so far been opportunistic: it has bought small packages that it believes are undervalued. In late 2020 it bought the rights to broadcast in India matches played by the New Zealand cricket team between 2021 and 2026. This seems a strange strategy, but during this period India will tour New Zealand twice. This made the deal a much cheaper way for Amazon to broadcast matches featuring the hugely popular Indian team. Earlier this year the firm also committed $1bn a year to buying rights to NFL matches in the US. Although the sum is huge and it has signed up for a decade, it again opted for a package of less prestigious games and is paying less than the big pay-TV broadcasters.A similar approach can be detected in its involvement with English football. At the 2018 auction it picked up a package of 60 of the less attractive EPL games for a reported £90m, a significantly lower cost-per-game than that paid by Sky or BT. The deal worked for Amazon, whose main purpose was to attract subscriptions to its Prime delivery service, and recorded a big bump in subscribers in the quarter when it broadcast its EPL matches. Yet rights for English football are very expensive compared with other sports events. And the EPL splits its domestic- and overseas-rights auctions, so, in the UK, Amazon’s audience would be limited to its Prime subscribers in the country. Going toe-to-toe with Sky and BT is just not that attractive a proposition.The mood surrounding football-broadcast rights elsewhere in Europe is also cautious. In Germany, the domestic rights auction a year ago resulted in a 5% fall in value. In France, the league began a record rights deal with a new rights partner, Mediapro, a Chinese-Spanish company, in 2020. However, amid the pandemic Mediapro was unable to attract the subscribers it had anticipated and the deal soon collapsed. The rights were retendered and were bought by the previous broadcaster, Canal+, for a song. Clubs in Italy accepted a deal in March worth €2.5bn ($3bn) over three seasons from DAZN, a streaming platform with a burgeoning sports portfolio, rather than a smaller offer from Sky. The current rights deal, which is shared between the two companies, is worth more than €2.9bn. That DAZN has bought rights in Germany and Italy is further evidence that streaming firms see greater value outside England.The subdued market is bad news for the EPL. The league is conscious that its clubs are facing a straitened future, having lost a year of match-day revenue since crowds were banned at the start of the pandemic. It needs to find higher revenue flows to placate its most restless members, like the ESL rebel six. The EPL’s chief executive, Richard Masters, has confirmed that it would like to launch its own streaming service, but that this is likely to focus on overseas subscribers. That it is exploring a private sale of its broadcasting rights is an admission of its weak bargaining position. An auction would be an invitation for Sky and BT to drive down the rights by a similar proportion to that seen elsewhere.The clubs are also being squeezed. Liverpool, which is among the better-run EPL teams, lost £46m in the 2019-20 season, compared with a profit of £42m in the previous year, because of precipitous falls in broadcasting and match-day revenue. The pandemic has ravaged both match-day and broadcasting income two of the clubs’ three income streams (the third being “commercial”—sponsorship, naming rights and so on). Meanwhile the wage bills—mainly for players—keep rising. Liverpool’s has increased by more than 50% in the past three seasons, so that salaries now gobble up two-thirds of total revenue. The EPL average is even higher, at 75%. Without chunky increases in broadcasting income, clubs will have to review the terms they offer to their players. Yet the size of the wage bill is the best predictor of on-field success.The broadcasters, too, have reasons to be concerned. Much of the increase in cost of the rights has been passed on to consumers. An analytics firm, Enders Analysis, has calculated that the cost of a Sky subscription has risen far faster than inflation, to the point where the company believes any further increases could result in lower overall revenue because of cancellations. The launch of a redesigned “super league”, denting the value of the broadcasters’ EPL rights, remains a possibility.Given the uncertainty faced by all parties, the EPL’s hopes of selling its rights privately may be welcomed on all sides. The clubs would continue to receive more in revenue than do their counterparts in Europe, maintaining their clout in the transfer market. The EPL could argue it achieved a better outcome than the Bundesliga or Serie A. And the broadcasters would hold on to their prized asset at a lower cost in real terms. As Claire Enders, the eponymous boss of the analytics firm, points out, for all of the talk of disruption from other broadcasters, streaming platforms and breakaway competitions, football leagues in England, France, Germany and Spain are all using the same providers as they were in 1992. Some fraught relationships are more stable than they look. More

“THE MOST powerful man at Volkswagen.” Ferdinand Dudenhöffer of the Centre for Automotive Research, an influential think-tank, was not referring to Herbert Diess, the German company’s boss. Rather, he reserved that title for Bernd Osterloh.In his 16 years as head of the carmaking group’s works council, which represents workers, Mr Osterloh organised his own roadshows and travelled with his own entourage (including a translator). His press team was bigger than Mr Diess’s. Some investors mistook him for the giant firm’s chief executive and wondered why he did not speak any English.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

IN THE BUCOLIC low-rise surroundings of Norway’s biggest lake, Mjostarnet stands out. At 85 metres tall, this building of flats, offices and a hotel, completed in 2019, is Norway’s third-tallest. It is the highest in the world built of wood. Similar structures have sprung up in other countries. So, in many more places, have wooden additions to existing buildings, which weigh around a fifth of what an equivalent steel-and-concrete one would, and therefore risk less damage to the building below.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

WANDER THROUGH central and east London, and you find traces of the East India Company. In its 274-year history, the rapacious colonial-era trader tore down poor houses, replacing them with sprawling depots to store tea, silk, spices and other exotic wares. Today those same sites are occupied by offices, restaurants and flats. Soon, they could once again be stacked with merchandise. A large plot near the historic East India Docks, which once processed goods from India and China, is being converted to a mix of flats and warehouse space dubbed Orchard Wharf.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

STEELMAKERS HAVE for decades embodied India’s failed plans for prosperity. Post-independence socialism produced many mills but little steel. A partial privatisation in the 1990s created capacity, but also large firms fed by feckless state-backed lending. Many were subsequently exposed as bankrupt. Even well-run private producers stumbled, as Tata Steel did with its disastrous acquisition in 2007 of Corus, a troubled European rival. Demand subsequently declined at home and aggressive Chinese rivals expanded abroad.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

IT IS A tradition of corporate architecture. A company’s top executives get offices on the top floor, often dubbed the C-suite after the “chiefs” who occupy it. The CEO resides in the “corner office”, with the biggest windows and best views. Junior staff suffer a few moments of trepidation when summoned upstairs.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

CHIPMAKERS’ CRAFT can seem magical. They use light to stamp complex patterns on a dinner-plate-sized disc of crystal silicon, forming arrays of electric circuits. Once cut out of the disc, each array is called a chip. The chip’s job is to shuttle electrons in a mathematical shimmer prescribed by computer code. They do the maths which runs the digital world, from Twitter and TikTok to electronics in tanks. Without them, whole industries cannot function properly, as carmakers forced to pause production because of microprocessor shortages are discovering.The most important firm in this critical business is Taiwan Semiconductor Manufacturing Company (TSMC). It controls 84% of the market for chips with the smallest, most efficient circuits on which the products and services of the world’s biggest technology brands, from Apple in America to Alibaba in China, rely. As demand for the most sophisticated chips surges thanks to the expansion of fast communication networks and cloud computing, TSMC is pouring vast additional sums of money into expanding its dominance of the cutting edge.This has proved to be a successful business model. Last year TSMC made an operating profit of $20bn on revenues of $48bn. It is, in the words of Dan Hutcheson of VLSIresearch, a firm of analysts, “the Hope Diamond of the semiconductor industry”—and, with a resplendent market capitalisation of $560bn, the world’s 11th-most-valuable company. It is also an astute geopolitical actor, navigating the rising Sino-American tensions, including over the fate of its home country, which China claims as part of its territory and to which America offers military support. In 2020, 62% of TSMC’s revenue came from customers with headquarters in North America and 17% from those domiciled in China. It has managed the geopolitical divide by making itself indispensable to the technological ambitions of both superpowers.TSMC was founded in 1987, and for the first quarter-century it made mostly unremarkable microprocessors. That began to change in 2012, with its first contract to make powerful chips for the iPhone. Apple wanted TSMC to push its manufacturing technology as far and as fast as it could, to gain an edge over rival gadget-makers. The notoriously secretive American firm liked the way Morris Chang, TSMC’s founder, made trade-secret protection one of his priorities; guests to TSMC premises would have their laptops’ USB ports sealed even if they only visited a conference room.Two years later the Taiwanese firm’s chips were powering the iPhone 6, the best-selling smartphone of all time. Revenue from the 220m units sold kick-started TSMC’s ascent. Some of Apple’s competitors also used TSMC as a supplier, and wanted the same thing. All paid handsomely for the chipmaker’s efforts.This windfall set TSMC steaming ahead. It overtook Intel, the American giant which once enjoyed a monopoly on the leading edge, then left it in the dust (see chart 1). Its remaining rival in top-flight chips, Samsung of South Korea, is barely able to keep up. Such is TSMC’s manufacturing prowess that Peter Hanbury of Bain, a consultancy, reckons it has given Moore’s Law, the industry’s prediction-cum-benchmark of doubling processing power every two years or so, at least another 8-10 years of life.Its lead over rivals is growing. It is pouring cash into cutting-edge chip factories (known as fabs) at an unprecedented rate. In January it said it would raise its capital expenditure to $25bn-28bn in 2021, up from $17bn in 2020. In April TSMC raised the figure again, to $30bn; 80% will go on advanced technologies. It plans to spend $100bn over the next three years.It has also stopped cutting prices—which in chipmaking, where processing power has only got cheaper, is tantamount to raising them. Its chief executive, C.C. Wei, has said it will skip a planned price cut in December 2021 and keep things that way for a year. IC Insights, a research firm, calculates that TSMC can charge between twice and three times as much per silicon wafer made using its most advanced processes, compared with what the next-most-advanced technology will fetch.This creates a positive feedback loop. Developing the latest technology before anyone else allows TSMC to charge higher prices and earn more profit, which is ploughed back into the next generation of technology—and so on. The cycle is spinning ever faster. Four technological generations ago it took TSMC two years for those cutting-edge chips to make up 20% of revenues; the latest generation needed just six months to reach the same level (see chart 2). Operating income, which grew at an average rate of 8% year in the decade to 2012, has since risen by 15% on average. Combined with revenues that chip-designers make from semiconductors ultimately forged by TSMC, the company and its customers account for 39% of the global market for microprocessors, according to VLSIresearch, up from 9% in 2000 and a third more than once-dominant Intel.This is an enviable position to be in. But it is not an unassailable one. The experience of Intel, which has fallen behind in the last two generations of chips because of technological missteps, shows that even the most masterful manufacturers can trip up. Chipmaking is also notoriously cyclical. Booms lead to overcapacity, and to busts. Demand may slacken as the rich world emerges from the pandemic, when purchases of gadgets that made it possible to work and relax at home were brought forward. That would hit TSMC’s bottom line and strain its balance-sheet. The company has $13bn of net cash, a modest rainy-day fund for a big tech firm. To help finance its most advanced fabs, it has issued $6.5bn-worth of bonds in the past six months.The most serious danger to TSMC comes from the Sino-American ructions. The company’s position at the cutting edge offers a buffer against geopolitical turmoil. Chip-industry insiders say that the Taiwanese government encourages all its chipmakers, including TSMC, to keep their cutting-edge production on the island as a form of protection against foreign meddling. Taiwanese contract manufacturers account for two-thirds of global chip sales.Reflecting this, 97% of TSMC’s $57bn-worth of long-term assets reside in Taiwan (see chart 3). That includes every one of its most advanced fabs. Some 90% of its 56,800 staff, of whom half have doctorates or masters degrees, are based in Taiwan.The firm has made soothing noises to America and China, offering to invest more in production lines based in both countries. But it is hard not to see this as diplomatic theatre. Its Chinese factory in Nanjing, opened in 2018, produces chips that are two or three generations behind the cutting edge. By the time its first American fab, designed to be more advanced that the one in Nanjing, is up and running in 2024, TSMC will be churning out even fancier circuits at home. By our estimates, based on disclosed investment plans, the net value of TSMC’s fabs and associated equipment will roughly double by 2025, but 86% will still be in Taiwan.In the past three years the American government has begun to disrupt the delicate balance. It has tightened export controls that prohibit any foreign company from using American tools to make chips for Huawei, a Chinese technology giant. That applies to TSMC, which in 2019 sold more chips to Huawei than to any other customer bar Apple. Most of these were destined for smartphones, and other Chinese handset-makers such as Oppo happily snapped up what Huawei (which on April 28th reported its second year-on-year decline in quarterly revenues in a row) could not.Further American attempts to prevent TSMC from doing business with China could invite meddling by the regime in Beijing, which refuses to rule out taking back Taiwan by force. President Joe Biden’s administration has also announced a $50bn government plan to revive chipmaking at home: it is doubtful whether subsidies will restore Intel’s supremacy, but the initiative could involve putting more pressure on TSMC to put cutting-edge production in America, a strategic trap the firm has been keen to resist.The rival powers have so far refrained from interfering with TSMC directly, perhaps concluding that this is the most reliable way of achieving their technological objectives. If the chipmaker’s importance keeps growing, one of them may decide that it is too valuable to be left alone. ■This article appeared in the Business section of the print edition under the headline “Living on the edge” More

THE ANNOUNCEMENT was timed to spoil the party. On April 20th, at its “Spring Loaded” event, Apple unveiled a clutch of new iGizmos, from purple smartphones and a new set-top TV box to “AirTags”, small connected trackers designed to help people find whatever objects they attach them to.On the same day a group of hackers going by the name of REvil declared that they had broken into Quanta Computer, a Taiwanese company that assembles several Apple gadgets, and made off with what they claimed was sensitive data. The group claimed that Quanta had declined to pay a ransom for the stolen information, and addressed Apple directly instead. The hackers posted several sets of schematic diagrams of Apple laptops to their blog, and suggested that, if the mighty tech company did not want more secrets revealed, it should “buy back” the stolen data by May 1st.Apple is a prominent victim of the booming business of “ransomware” . In its original incarnation, at the start of the 2010s, this involved spreading malicious software to ordinary people’s computers. The software would encrypt pictures, documents and so forth, transforming them into unreadable gibberish. If the victims paid a ransom, the hackers would provide the decryption key necessary to restore the scrambled files—at least, in theory.These days the practice is more professional. Hackers increasingly focus on big organisations rather than individuals, since firms are more likely to pay larger ransoms. Hospitals, universities and even police forces have been attacked. Besides Apple, REvil claims to have stolen data from Kajima Corporation, a big Japanese construction firm, the government of Fiji, Pierre Fabre, a French pharmaceutical company, and dozens of smaller businesses. And as big organisations usually store back-ups of valuable data, which makes scrambling attacks less damaging, hackers increasingly threaten their victims with leaks instead. Working out the size of the problem is tricky. Coalition, a firm which provides insurance against cyber-attacks, says ransomware assaults made up 41% of claims in the first half of 2020. (“Funds transfer fraud”, the second-biggest category, accounted for 27%). According to Palo Alto Networks, a cyber-security company,the average ransom demand rose from $115,000 in 2019 to $312,000 in 2020. (REvil has reportedly demanded $50m from Apple.) Ransoms are often paid with cryptocurrencies. Chainalysis, which analyses the blockchains that underpin cryptocurrencies, calculates that ransomware gangs took nearly $350m in cryptocurrency payments in 2020, more than four times as much as the year before.Cyber-insurance—for which premiums amounted to $5bn in 2020—can take the sting out of attacks for individual firms, at the cost of making things worse for everyone else. The willingness of insurers to pay ransoms, says a Western former cyber-security official, is one reason why ransomware is booming. That may change as governments become more interested. The head of GCHQ, Britain’s electronic-spy agency, recently called for “concerted action” to tackle the problem. A report published on April 29th by American law-enforcement officials and big technology companies, including Amazon and Microsoft, suggested that ransomware be treated as a national-security threat. The Justice Department has created a dedicated task-force. Not all victims stump up. When CD Projekt, a Polish video-game company, was attacked in February, it refused to pay. But “more often than not”, says the ex-official, those that do cough up will find that the crooks uphold their side of the bargain. After all, their professional reputation is at stake: if they keep their word, future victims are likelier to pay, too. More