Sport and media rights – the year in review 2018/19Andrew Ryan
“I’ve spoken about the Premier League becoming the ‘Netflix of football’, i.e., the video on demand platform that controls its own product. If you had 100 million subscribers on ‘Premier League TV’ like with Netflix at £8 a month, you’d be bringing in £10bn a year, not £8.7bn every three years like the current deal does.”1
This suggestion from the former Crystal Palace chairman Simon Jordan was reported in the Evening Standard newspaper in February of this year. After getting over the amusement of seeing something referred to as the “Netflix of [insert product]” for the umpteenth time, I wanted to give the proposal deeper consideration. For someone who consumes probably almost all of his sports content through “OTT” (over-the-top) services and has a clear history of trumpeting the benefits of distributing sports content through connected devices, my initial reaction was surprisingly negative – why was that?
In reality, it was nothing to do with the merits of the Premier League considering moving down a direct to consumer path via an OTT service (which is an option that certainly merits consideration), but that it took what is actually an incredibly complex question, one made even more difficult by market-by-market nuances, and turned it into a simple and unrealistic piece of arithmetic.
The direct to consumer broadcast question is one facing all sports properties at the moment. Thus, it feels like an appropriate time to use the Sport and Media Rights “Year in Review” to dig a bit deeper into the question of selling media rights to intermediaries as against taking the OTT route. Given the Simon Jordan suggestion, we can walk through some of the factors that the Premier League would likely consider when contemplating whether to turn their back on the incredible source of revenue that the pay television market has been over almost 30 years to jump into the world of OTT.
Do the numbers add up?
First and foremost, let’s get over the slightly unrealistic figures thrown around by Mr. Jordan. We could go into an analysis of the number of football or Premier League fans in the world, work out how many might have internet access and/or smartphone devices, apply a percentage to that and try to derive a likely or potential subscriber base. I’ll leave that sort of thing to the Premier League’s management consultants though.
Given he liked the Netflix comparison, then in comparison, the world’s most publicised and recognised subscription streaming service reported in January 2019 that they had just hit 139 million subscribers worldwide.2 This is underpinned by a USD8 billion annual content budget,3 a figure which does not take into account platform, distribution and marketing costs. Thus, the 100 million subscribers to “Premier League TV” feels like somewhat of a stretch for the moment.
Nonetheless, from an economic perspective, surely rightsholders pay rights fees to the Premier League based on a rational assessment of how much subscriber and/or advertising or sponsorship revenue they can derive from exploiting the rights? Is there any reason why the Premier League through an OTT service could not do the same and if so, what is the benefit of working with an intermediary in the form of a television broadcaster?
The Premier League premium
As always though, it isn’t quite as simple as that. The Premier League has been the beneficiary over a number of years now of premiums for their UK rights being driven by significant market competition, competitors utilising television (driven by sports offerings) to drive revenues across multiple business verticals (e.g. the “triple-play” offerings of Sky and BT), and certain content (such as Premier League matches) being viewed as absolutely essential for pay television broadcasters in order to have an effective or differentiated market presence.4
In other markets, the entrance of new media entities needing a major property to build their customer base (e.g. DAZN in Germany, with the rights recently reclaimed by Sky Deutschland in the subsequent license period;5 Optus in Australia6) has helped to add some steam to rights sales processes. In simple terms, sometimes sports media rights are of much greater “value” to a media company than simply the direct revenues generated from their exploitation.
However, there is some evidence that the justification for some of these premiums is starting to reduce. As noted in my overview of sports media rights for 2018,7 competitive tension was somewhat reduced for the most recent Premier League UK rights auction. Furthermore, in terms of the underlying commercial broadcast models, there is clearly a trend to offer consumers more tailored packages rather than requiring them to pay for incredibly broad offerings. This is possibly best demonstrated by Sky in the UK offering an option to subscribe to the Sky Sports Premier League channel only - albeit, still accompanying a basic “entertainment pack”.8
This last caveat though is an important one. Rather that just looking at the direct revenues that might come from retailing the Sky Sports Premier League channel in determining what “value” the Premier League rights have for them, Sky will no doubt also attribute a proportion of “basic package” revenues to the property. Without a subscription-driver like the Premier League, a reasonable number of those customers would not likely be subscribers at all (and thus, some basic package revenue is almost solely attributable to holding the Premier League rights). This is without getting into more complex areas of analysis, such as how much having a high-profile property enables you to bring in premium and high-spending advertisers to your service in the first place and how much benefit is derived from cross-promoting other content and services during Premier League broadcasts.
Given all of that, it does appear that for the near future, the fees paid in the UK for Premier League broadcast rights are still quite some distance off being a pure reflection of revenues from direct subscription and other monetisation activity.
The cost of additional risk
Even if this wasn’t the case though, and there was genuinely the potential for the Premier League to generate revenues from an OTT product which were comparable to their current rights fees, licensing to broadcasters as an intermediary provides significant financial security and predictable income. While broadcasters are taking an economic risk in buying rights given the need to determine in advance potential returns over a three-year period (the term for which Premier League rights are licensed), buyers such as Sky have been in the media business for a substantial period of time. Utilising sophisticated modelling, they can generate a reasonable estimate of what value various properties have to them.
By starting an OTT service from scratch with no rolling subscriptions in place, relatively limited customer data and an unproven product for delivery, the Premier League clubs would be taking an enormous financial risk in moving away from their traditional broadcast model, not to mention foregoing their advance payment structures. I am certainly not in a position to suggest what sort of appetite for this exists amongst the Premier League clubs at present, but sports leagues are not known for taking substantial risks with their most crucial revenue streams!
Importance of intermediary partners
If sports can stomach this risk though, there are numerous practical questions which OTT services have to face. Many of these involve someone else getting a cut of subscription revenues related to your product or adding to your technology cost base. On this front, the lack of fanfare when the Amazon Channels service launched in the UK back in 2017 surprised me9. It felt like a nice middle ground option for consumers – the ability to choose whatever additional subscription channels you wanted on an à la carte basis, accessed through a convenient single interface and with payment barriers reduced through the transactional efficiency and simplicity which Amazon is renowned for.
The service seems to be gathering some steam though with the MLB.tv Major League Baseball service recently added to NBA League Pass, the Eurosport Player and PGA Tour Live (in the US). This is not to mention some of Amazon’s directly acquired rights such as the National Football League’s (NFL) Thursday night games, ATP Tennis and from next season, Premier League football in the UK.10
But why, if you are a rightsholder making a direct to consumer play, would you make your content available on a service like this? Well, convenience and ease of access is a big consideration for some customers. Being able to access the service through something they already use every day also takes away a substantial transactional barrier for some. In addition, prominent visibility on a frequently used service is also a hugely helpful promotional tool, with this likely to have a positive impact on marketing costs.
From an accessibility perspective, you will also benefit from having your subscription product featured on a service which is available across a truly massive number of connected devices. It simply isn’t feasible to have just a web and app product anymore – services like Amazon Prime and Netflix invest huge amounts in tech development to ensure a dedicated app for their offering is available on smart TVs, gaming consoles, connected television boxes, streaming players (e.g. Roku) and many more.
Nonetheless, there are some drawbacks to these arrangements. From an economic perspective, you will likely be sharing some of your hard-earned subscription revenue with the delivery partner. To continue with our Amazon Channels example, Amazon reportedly shares around 70 per cent of subscription fees with content providers, although the applicable share for each partner varies.11 Clearly, particularly in territories with strong existing fan-bases, sports properties will be in a strong bargaining position to negotiate these terms. However, in a stark demonstration of the financial impact these subscription shares have, Netflix moved late last year to bypass payments via iOS Apps (by directing those intending to subscribe to their mobile website) in order to avoid sharing revenues with Apple after taking a similar approach with Google Pay earlier in 2018.12 The desire to maximise revenue retention clearly overrode any potential lost revenues due to a level of added transactional inconvenience for the customer.
Nonetheless, these mutually beneficial content distribution partnerships are a critical element of any efficient and effective distribution and revenue generation strategy in the connected world. While a lot of this discussion has centred around a service like Amazon Channels, more generally I expect that the debate between aggregated content services versus purely independent and separate OTT offerings will be one of the most interesting aspects of this industry to watch in the coming years.
What of data?
Those who make a living espousing the innumerable benefits of customer data and direct customer relationships would no doubt be aggrieved at allowing Amazon (in the Amazon Channels example) to effectively “own the customer”. However, “data” is not all just about customer contact details.
For instance, the NBA recently introduced changes to time outs and the length of breaks between quarters after analysing the impact of these on viewers of its League Pass Service.13 By analysing data provided from League Pass viewing, the league was able to determine relatively consistent patterns as to when users would drop off and have adjusted aspects of the game presentation accordingly.
The provision of consumption data and insight into how users are watching matches and interacting with other content was also considered a significant part of La Liga’s recent deal across the sub-continent with Facebook.14 Better understanding of what engages fans (and more importantly, what turns them off) is a really critical yet poorly understood benefit of sports properties being consumed via connected services.
Back to customer data though, a subscription-based OTT service is, for sports properties, potentially an extremely important part of an overall fan engagement strategy which covers both online and offline products. Many properties have or are in the process of implementing and integrating sophisticated CRM and analytics products and teams into their everyday processes – so much so there are now entire books dedicated to this specific topic.15 A premium subscription-based OTT product however is likely to be, in terms of the life-cycle of a “fan”, something that happens once a person has a more substantial level of interest in the product rather than a fan recruitment tool in and of itself.
The inclusion of a sport within a broader content mix on popular television services though has always been seen as a prime initial engagement opportunity to facilitate interest which will, over time, hopefully develop into a much more consistent and deeper level of engagement. When moving to a pure OTT strategy though, this is lost as a route to win new fans. As a result, it brings into sharp focus the effectiveness of other fan recruitment and engagement tools such as social media content and promotion and fantasy/gaming initiatives which are intended to appeal to and attract new fans.
Clearly though, creating an OTT product dedicated to one property and for which subscription revenue underpins the entire business model is a very, very tough gig. From a broader perspective, the winners in this space are more than likely to be those businesses for which the OTT service is but one of a number of revenue streams. Fortunately, sports properties with their potential to monetise interest across content, sponsorship, e-commerce/merchandising and ticketing are actually reasonably well placed in terms of having a diversified revenue mix (albeit one that is inextricably linked to a single primary “product” and from that perspective, not diversified at all!).
While somewhat out of the sports industry (leaving aside ESPN), this article by Matthew Ball offers fascinating analysis of why Disney’s entry into the subscription video on demand market will be a “success”, even though it will cannibalize and may never replace Disney’s content licensing business16.
Translating this to sports, one of the really interesting stories of the year was Discovery’s partnership with the PGA to develop the GolfTV service. Global partnerships between media entities and sports are nothing new (for example, DAZN Media’s long-term partnerships with WTA Tennis and FIBA), but Discovery is clearly targeting sports which have a significant base of fans who also play the sport itself. This brings into scope potentially massive retail and participation revenue opportunities which can eventually form part of a more complex and comprehensive business model.17 For this reason alone, this venture is definitely one to watch.
Other relevant considerations
There are plenty of other considerations too when it comes to taking the direct to consumer OTT route, some of which are worthy of their own article:
Developing markets - launching an OTT service in a technologically “developing” market brings its own challenges. While not in the sports world, Spotify’s efforts in Latin America provide some interesting guidance. Much of that region is “unbanked” so they have developed a multitude of different payment options. This includes cash-based solutions such as vouchers, gift cards and a pre-payment partnership with a convenience store chain.18
In addition, while not really something facilitating delivery of a fully-fledged OTT service, it was noteworthy that 2018 saw Bayern Munich took a big step towards facilitating greater growth in a number of developing markets by launching a “lite” website specifically optimised for poor internet connections.19 In a smart move, the ICC have also made available a “lite” app in time for the Cricket World Cup 2019.20
Piracy - one of the stories to dominate the headlines across the year was the seemingly ever-expanding pirate operation known as beoutQ.21 Rather than re-state the facts of what is a hugely concerning development on many fronts, there remain many questions as to what, if anything, can be done to address the impact of pirate content operations.
Clearly there are no easy answers, but it does lead to my recommended long read for this year – “Better than free”. It considers the internet as a super distribution system which is essentially a “copy machine” and posits that “When copies are super abundant, they become worthless. When copies are super abundant, stuff which can’t be copied becomes scarce and valuable. When copies are free, you need to sell things which cannot be copied.”22
There are a number of the “generatives better than free” discussed in the article which are very applicable to sports offerings, particularly digital offerings. In particular, the concepts of personalisation, immediacy, accessibility, authenticity and embodiment. The NBA app is a fantastic example of the first three – breaking down highlights by player so you can tailor your viewing experience to what you are interested in seeing, making highlights available quickly in-game and structuring the presentation of content so it is easy to find and search.
However, it is perhaps the concept of “embodiment” which has the greatest potential for developing offerings which can mitigate the impact of pirate services. Differentiating from two-dimensional and easy to replicate content streams can be achieved in a number of forms: providing a wide range of audio/commentary streams, such as the introduction of the detailed analytical “Dugout” option on Hotstar for IPL games;23 the overlaying of AI-enhanced graphics such as Clippers CourtVision launched this season;24 and the inclusion of free-to-play predictive gaming contests within live broadcasts.25
However, in terms of completely changing the nature of sports viewing, it is perhaps so-called “immersive media”, which products such as Intel’s volumetric video offer the potential for and which provision of is unlikely to be easily replicated by pirates, that may hold the greatest potential.26
Back to the theme of this article though, for any sports property that takes the leap into being a completely direct to consumer proposition, the issue of piracy becomes solely its problem. My experience of rightsholders is that they are very alive to the impacts of piracy but in the “old world”, once rights fees were paid, the economic risk for this was essentially assumed by the media entity. When cutting out this “middleman” though by going straight to consumers, the negative consequences of fans having access to pirate services has a direct impact on the viability of the sports property’s OTT venture.
If there is one takeaway from this article, it is that this is an extremely complex area. There are phenomenal opportunities, whether commercial, on-field product development or fan engagement that exist through taking direct to consumer routes. However, this involves participating in markets which are in state of flux at the moment and will likely be for the foreseeable future. Is the risk profile too great given what is at stake has traditionally been the biggest source of revenue for sports properties for many years? Or is there a greater risk in waiting too long to go all-in on a direct to consumer strategy which will have lasting ramifications in the years to come?
For the Premier League in particular, do I think we’ll see them move to an exclusively-OTT model in the UK for the next rights cycle? Probably not. Although, in the same way that the threat of an Amazon or Facebook acquiring rights was drummed up in advance of the previous tender process, the potential for the Premier League to go it alone will almost inevitably loom large over future processes. I suspect that Sky will be willing to part with enough in rights fees to continue to be the primary television home of Premier League football.
On the other hand, it wouldn’t completely surprise me to see some sort of Sky/Premier League partnership OTT venture floated as an option. While it may involve a slight revenue hit for the Premier League and will undoubtedly affect subscriptions for Sky’s burgeoning NowTV offering, it would allow the Premier League to dip their toe in the direct to consumer market while allowing Sky to protect its still lucrative and critical pay television business (if the arrangement means that pay television broadcast rights are still tendered rather than having rights solely on a Premier League OTT service). In saying that, it is doubtful that such an approach could be reconciled with the Premier League’s existing European Commission commitments with respect to audio-visual rights sales from 2006,27 albeit those commitments could scarcely have contemplated the direct to consumer opportunities which exist today thanks to the transformation of the media market.
Other than that, there does not appear to be an obvious middle ground for a Premier League OTT service. Unlike the NBA or Major League Baseball for instance, there is not a helpful “local market” television distribution structure28 which exists which would enable an “out of market” OTT product, nor is there such a significant quantity of matches played each week which might otherwise allow an offering to be created by dividing availability of matches between pay television providers and a standalone Premier League OTT service.
On a broader level, there is no one-size-fits-all advice for sports properties given the sheer range of financial and strategic considerations, nor is the approach likely to be the same in every market across the globe. One thing is for sure though - simplistic analysis is unlikely to be at the heart of good decision making on this front. To borrow an oft-repeated quote from UK politics over the last few years, this is certainly not an area in which it is advisable for senior executives to take the I’ve “had enough of experts” approach.
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- Tags: Broadcasting | Cricket | Football | Media Rights | National Basketball Association (NBA) | Premier League | Tennis | United Kingdom (UK)
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About the Author
Andrew Ryan is Head of Media Legal and Business Affairs with the International Olympic Committee's Television and Marketing Services entity. He advises on all commercial media aspects of the IOC’s operations, with a primary focus on both rightsholder broadcast partner relationships and the Olympic Channel which was launched at the conclusion of the Rio 2016 Olympics. Prior to joining the IOC, Andrew spent four years with Perform Group where he was Head of Legal (Commercial). Perform Group is a global leader in the commercialisation of multimedia sports content across internet-enabled digital platforms. During 2016, he was heavily involved in the development and launch of Perform’s OTT service “DAZN” and negotiated the ground-breaking 17 year strategic media partnership with FIBA which involved the creation of FIBA Media.