Where Lloyds Banking and British Sky Broadcasting Meet

LONDON -- BSkyB's shares dropped over 6% yesterday after BT announced it would be giving away its newly developed sports channels for free to people who bought BT broadband services.

BT has spent approximately 1 billion pounds to get the content for these channels and to get them up and running... and they are going to give them away? You bet.

BT is making an aggressive play to steal customers from Sky after the latter announced a move into broadband offerings. And since BT has nothing to lose in the sports arena, any customer they can get to switch from Sky is a win -- potentially.

The real trick will be getting them to stay and start paying for services further down the line, but that is something for later. In the now, BT's ploy threatens Sky's essential monopoly and attractive margins.

You said something about banks?
This is not dissimilar to what the large U.K. banks are likely to be facing shortly. Just as Lloyds and RBS appear to be pulling themselves out of the financial crisis wreckage -- and, admittedly, Lloyds looks further along than RBS -- they are going to have to face a whole new set of challenges.

Or I should say, challengers. There are a lot of new names popping up in high-street banking. Tesco's offering is just gaining momentum after a delayed start as the company built out its banking IT platform. J Sainsbury has decided to take full control of its banking operations.

Then you've got private upstarts like Metro Bank and Shawbrook Bank looking to take a piece of the pie, while Lloyds struggles to repair its reputation.

Learning to share
With more players in the game, there is going to be more competition for deposits and loans, which will likely mean pressure on Lloyds' margins and profitability. If the competition is successful, it could mean lower growth, lower returns on equity, and lower dividends.

Shares of Lloyds Group have climbed nicely over the past year, and at just under book value, they still look historically cheap. Investors need to ask themselves: "Is historical performance relevant?"

With a changing competitive landscape, expecting Lloyds to rebound to what was once normal may not be realistic.

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The article Where Lloyds Banking and British Sky Broadcasting Meet originally appeared on Fool.com.

Both Nate and The Motley Fool own shares of Tesco. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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