#44 Thoughts on OTT/D2C in the Sports Media Landscape — 2nd Edition
This column, a review of SportsPro's US OTT Summit 2020 in Atlanta, was first published on Unofficial Partner, the Sports Business Podcast Company that helps clients use sport to tell stories to a business audience, on March 19, 2020.
Coincidentally, I also joined them recently on their podcast to discuss everything OTT: Completely OTT with Yannick Ramcke.
There was a time not long ago when we were free to travel to the US to attend events and industry conferences ... and it's been a remarkable few weeks since the inaugural North American edition of SportsPro's OTT Summit series:
The impact of COVID-19 on sports has accelerated immensely even since I finalised my five-part series: Postponements, suspensions, and cancellations of sporting events — although differences in these terms are often rather a matter of legal lingo in light of upcoming clawbacks and insurance claims than implying real-world differences — across Western Europe and North America came across the news ticker rapidly, once the first domino fall with the NBA on Wednesday night (3/11).
Whereas there will not be any word of the "Coronavirus" in the initial five-part write-up, I wanted to add a short lead-in that addresses these current developments:In terms of OTT, I think the long-term outlook remains unchanged, but I do not think the inevitable migration of live sports programming from traditional linear pay-TV to streaming services (in terms of distribution and/or business model) will not be accelerated in the very short term. However, the erosion of that traditional pay-TV bundle, which especially in North America has still a quasi-monopoly on first-tier live sports, could have been accelerated unexpectedly.
Live sports and news is what is holding the pay-TV bundle together. Without live sports, the value of pay-TV's ballooned, high-priced, and long-term bundles will inevitably go down until sporting events resume — which can be a long time away and provide more and more customers with sufficient time to ditch their traditional pay-TV subscription. With monthly prices remaining constant, the "value for money" for customers has dropped significantly and pay-TV should erode even faster, both in absolute (= # pay-TV subscribers) and relative (= % household penetration) terms. Consequently, disposable income will be made available for re-allocation, with OTT streaming services predestined to benefit greatly. Whether pure-sports streamers can capture additional wallet share in the very short-term, though, remains more than questionable given their most-value-adding content is obviously not available neither in the very short term as they fight for the customer's limited resources. In general, I'm going to touch on many topics in this five-part column: Topics which could now be accelerated due to the "Coronavirus" but would have happened anyways, including the migration of content, and subsequently of audiences, from traditional pay-TV to streaming services. The short-term challenges for pure-sports OTTs are obvious and will only get exacerbated under the new circumstances: the lack of friction (i.e. no physical set-top-box, no years-long lock-in, cancel-button at someone's fingertips) works both ways. Increased churn in the short-term must be expected, the inherent cyclicality during the year's sporting calendar in terms of month-over-month revenues becomes even more drastic, and the economics of OTT will look even less sustainable. Pure-sports OTTs, in particular, cannot make the argument that they are offering more than live sports programming. Despite the increased investment in shoulder programming such as original on-demand content by sports streamers, that argument is much easier to be made by pay-TV operators whose subscription forces their 100+ channel bouquet on customers to get access to the few sports and news channels they actually wanted. Thus, this "black swan" - event also proves the benefit of predictable, recurring revenues in form of long-term lock-in, not only given the expected seasonality of sporting events but also unforeseen events such as COVID-19. In a nutshell, both traditional pay-TV and sports streamers will suffer significantly in the short-term as long as this pandemic prevents sporting events far into the second half of the year. With live sports content removed from the equation and the assumption that audiences follow content, the migration of audiences (including their money and time) to general entertainment streamers, which in contrast to sports streamers already host the genre's most sought-after content, should accelerate.However, when (not if) sports comes back, OTT will be better positioned than the cable/satellite distribution system to capture incremental wallet share compared to the status quo: either in form of virtual MVPDs (if sports is still dominated by legacy channels) or pure-sports streamers who already have accumulated a significant amount of exclusive live sports programming.
Finally, since it fits nicely into the first piece on SportsPro's OTT US Summit ("Rights Owners vs. Rights Holders"), let me share my view on the aforementioned potential for financial clawbacks from rights-holding broadcasting partners against rights-owning league and event operators: As the often-cited catch-all clause called "Force Majeure" is rarely specific enough to address circumstances like COVID-19 without room for interpretation, it is in the interest of all parties to make decisions that sustain the mutually-beneficial sports-media-complex in the long-run. The most sustainable approach for rights owners would probably be making good towards their broadcasting partners at a later point in the form of additional inventory, advertising space, or digital rights. Fact is that a rights owner's cost side (i.e. player salaries) is largely fixed in the short term. If the revenue side, however, adjusted materially to the new circumstance from one day to the next, which has inarguably already happened by missing out on gate receipts, the entire sports ecosystem is put at significant risk. With COVID-19 having put global sports on its head, its dependence on TV and sponsorship money is maybe higher than ever before.
Coming back to the actual topic of this column though: Earlier this year, I attended the SportsPro US OTT Summit 2020 in Atlanta and just like with their OTT Summit in Madrid (Blog #41 Thoughts on OTT/D2C in the Sports Media Landscape) last year in Madrid, a few sessions stood out to me yet again.
"Rights Owners vs. Rights Holders and the Challenges of Monetizing OTT"
📆 Session: Monetizing OTT
👤 Thought-provoking Panelist: Jeff Volk (Head of Business & Revenue @ Deltatre)
Starting with one of my pet peeves: The interchangeable usage of the terms describing two fundamentally different players in the sports broadcasting value chain: "Rights Owners" and "Rights Holders."To clarify, "rights owners" (= IP owners) are league or competition operators who sell to third-party buyers the right to broadcast their operated events—and in selected cases even provides production services for the event to its broadcasters, which presents a forward-integration along the value chain by rights owners. On the other hand, "rights holders" (= content creators) are broadcasters which produce, distribute, and ultimately monetize the sporting events directly towards the end consumer and advertising industry as well as increasingly through other revenue streams (e.g. betting integrations). To evidence, the coalition of rights owners calls itself Sports Rights Owners Coalition and considers itself as "a forum of over 50 international and national sports bodies and competition organisers, with a particular focus on rights issues." It includes parties such as the Big-5 European football leagues, Formula 1, and the PGA Tour.Currently, rights fees, the monetary compensation paid by (temporary) rights holders to (permanent) rights owners, are mostly paid in form of minimum guarantees regardless of the actual level of monetization towards the aforementioned parties. Thus, rights holders do not only assume most of the financial risk but have the "privilege" to bid again to retain that IP every few years — with two common outcomes over last few years being either (1) losing the property, in which was heavily invested, from one day to the next or (2) retaining a property by paying up significantly compared to the previous cycle. (🔗Twitterpost: Rights Owners vs. Rights Holders — an important distinction, now and in the future)
After all, why bother about the differentiation as right owners have repeatedly voiced their ambitions to go "direct-to-consumer" anyways, implying no need for their traditional media partners anymore?
Because third-party broadcasters will continue to play an essential role in the sports broadcasting value chain. As I said, "over-the-top" is often not only associated with "direct-to-consumer" but rights owners' ambitions to disintermediate rights holders and directly serving its own fans — which is not going to happen anytime soon but a nice segue into the first omnipresent topic during the two-day SportsPro's OTT US Summit 2020: monetizing OTT.Fundamentally, "OTT" can describe both a distribution technology as well as a business model: Whereas IP-based (live) distribution will get increasingly reliable and cost-efficient and the commoditization of streaming technology sets in, the business model behind stand-alone streaming services will be the real challenge and a blue-print for sustainable operations for pure-streamers from a financial point of view still needs to emerge. Despite the occasional high-profile issues — especially around the launch of streaming services or single high-traffic sporting events, for which there are simply no real test scenarios in advance and explains the one-off nature of such incidents — the fundamental performance of live streams in terms of reliability, quality, and latency has been improving quickly. As a result, the performance of different streamers' technology stacks will converge over the next couple of years. The true complexity and differentiation happens before (e.g. rights acquisition, promotion, on-/off-platform discovery, marketing, customer monetization, recommendation engines) and after (e.g. subscription management, customer retention) the actual live event. Unfortunately, the OTT equation of "Customer Acquisition Cost" (CAC) and "Customer Lifetime Value" (CLV) is much more challenging compared to the traditional pay-TV model: hyper-aggressive pricing, cancel-button at someone's fingertip, fierce competition for consumer's mind- and wallet share — instead of two-year-long commitments, triple-digit monthly bills, set-top boxes in the living room, or unresponsive service hotlines. Could the inferior monetization in the new media landscape in which live sports programming migrates to OTT streaming services while rights fees only have been driving upwards finally lead in the bursting of the so-called "sports media rights bubble"? The pure arbitrage business of simply acquiring (media rights) and reselling (live sports programming) has become a much lower-margin business in the highly-competitive new media landscape.
Given this unsustainable nature of pure-content streamers, rights holders can only continue to pay current prices that are simply not recoupable from the end consumer for so long. Alternatively, rights holders must establish a more diversified revenue model that comes close the level of monetization of the traditional pay-TV operators by untapping new revenue streams: an ecosystem of revenue streams built around premium live sports programming. Sports-adjacent integrations such as betting, merchandising, or ticketing (and ideally gamification of such), as well as unrelated products such as hardware (e.g. Apple) or e-commerce (e.g. Amazon), will be intertwined with live sports content and create the bundles of the future. By implication, even VC-funded pure-content streamers such as DAZN will be challenged as new integrated monetization models emerge — even if that simply means the cross-subsidization through other business units, the "featurization of live sports programming."
Main reasons for pure-content direct-to-consumer plays fighting an uphill battle in the "streaming wars" include that (1) content is increasingly valued on a stand-alone basis ("unbundling the bundle") and (2) owning demand is more valuable than supply, even if we are talking about the exclusive supply of first-tier live sports content. As a result, the overall value creation is lower (1) and value capture mostly happens in distribution and marketing (2) as evidenced by skyrocketing costs of app installs. The latter makes OTT streamers partnering with companies that provide such distribution and marketing (i.e. reintroduction of new middle-men/aggregators) costly (i.e. lower margins) and inevitable (i.e. lack of app installs/free trials/subscribers as an alternative). Even worse, it is no "direct-to-consumer" business in its original sense anymore as rights-holding OTT sports streamers often lose control over the customer relationship, user experience, and credit card data. In a nutshell: In OTT, where people only pay for what they really want, nobody will make a profit in the short-term. It has to be considered as an investment with the long-game in mind, currently focusing on learning.
The challenging economics of OTT streaming, however, is a general observation for direct-to-consumer businesses across many industries: The reality is that many direct-to-consumer businesses, whether subscription-driven OTT streaming for sport and scripted content or any other industry (e.g. Warby Parker / Eyewear, Dollar Shave Club / Shaving, MeUndies / Apparel, or Casper / Bedding), are essentially buying revenue and subscription growth by losing money on every dollar/euro in revenue generated — the complete opposite of the minimum guarantees to which the world's biggest sport rights owners have both accustomed to and depended on given their ginormous block of fixed costs (e.g. players salaries).Therefore, despite any ambitions from rights owners to disintermediate their rights holders ("cut out the middlemen") from the sports broadcasting market, the current wholesale model will continue to be the primary model to monetize sports media rights for the foreseeable future. Since both parties well remain relevant players in the sports broadcasting landscape for a long time, the terminological differentiation between "rights owners" (= IP providers) and "rights holders" (= content creators) should be emphasized, too.Instead, the primary use case for rights owners going DTC will be using OTT as a springboard to the bigger wholesale media rights deal with a third-party rights holder in the future — a role which, for example, Austin-based FloSports tries to serve for under-covered rights owners as the vertically-organized streaming service (e.g. FloSports FC, FloSports Football, FloSports Gymnastics) considers their job to grow the value of any property when the rights go back to the market again. There is no current use case for first-tier rights owners to go DTC (assuming no dark markets without any media coverage), however, as even small international markets provide rights fees in form of minimum guarantees, which are simply hard to forego given the priority of short-term revenue maximization and risk minimization.Whether rights fees will continue to be paid in fully guaranteed revenues going forward, though, is another question, as the current market landscape, after two decades of unprecedented growth in media rights revenues by rights owners, could demand more collaborative commercial models between both parties.
"Primary and Secondary Paywalls for OTT Streaming Services"
📆 Session: ESPN+
👤 Thought-provoking Panelist: Russel Wolff (EVP International @ ESPN)
One big topic during the session was the clear outperformance of any analyst expectations by ESPN+ when it comes to the initial subscriber growth after the launch of ESPN+ in April 2018. Granted, the sports streamer's subscriber count has been artificially boosted by the introduction of the so-called "Disney-Bundle" consisting of Disney+, Hulu, and ESPN+ for $12,99 per month in November 2019 — evidenced by the drop in the service's ARPU from $4.67 to $4.44 from December 2018 to December 2019, while the number of subscribers ratcheted from 1.4M to 6.6M during the same period and, ultimately, 7.6M subscribers in February 2020 and within just a little bit more than one year.Since the outperformance of analyst forecasts was at least partially driven by the bundle, one big question is: What is the quality of the added subscribers, besides lower ARPU? For example, has there actually been a proportional uplift in consumption to the increase in subscribers? Granted, that would be rather astonishing but the critical mission for Disney will still be to engage bundle-subscribers across all three platforms in order to drive retention and, thus, customer lifetime value. In fact, engaging bundle-subscribers ($12,99) across two services among Disney+ ($6.99), Hulu ($5,99), and ESPN+ ($4,99) should already do the trick since the third (least-used) service can then effectively be considered as a free add-on. (🔗Twitterpost: The Disney - Streaming Bundle — an unsustainable (?) subscription driver for ESPN+)
Establishing its OTT streaming services is probably The Walt Disney Company's most important and strategic initiative. While the start has been promising and the cross-bundling or -promotion with the company's other assets provides strategic advantages, ESPN+ is facing to a large extent the same tough economics of stand-alone OTT sports streaming businesses as outlined above.
Thereby, ESPN, the self-proclaimed "Worldwide Leaders in Sports" and objectively the biggest sports rights holder in the world, experiences both the inherent competitive advantages and challenges of being an established legacy player in sports media: On the positive side, leveraging the broader business in form of the bundling of several streaming services (in the short term) or a membership-model for all of the company's offerings including parks and merchandise (in the long term), financial funding that, despite the erosion of parts of the existing legacy business (e.g. traditional pay-TV), is arguably even more resourceful than that of VC-funded new market entrants (e.g. DAZN), and recognizable consumer brand, as well as sports production expertise, are notable examples. On the negative side, the company's legacy can also be a drag for the competitiveness of ESPN+ in the digital marketplace. Besides less-obvious things such as legacy-sized infrastructure and ginormous overhead costs, I particularly consider striking the balance between existing but unsustainable revenue streams (i.e. ESPN's linear networks) and setting up the company for a successful future outside of the traditional pay-TV business (i.e. ESPN+) as one of the biggest challenges. Thereby, the former is eroding but essentially subsidizing the latter. Taking rights or content acquisition as an example, pure streamers such as DAZN and Prime Video can go all-in with their streaming services from a content-allocation perspective.
Legacy media companies, instead, always have to make the decision whether to distribute acquired assets exclusively or at least first on linear free-to-air or pay-TV in order to protect existing revenues or providing differentiation for its new OTTs in a competitive streaming space.
Companies that are facing exactly this particular trade-off when acquiring sports rights besides ESPN <> ESPN+ (USA) include CBS <> CBS All Access (USA), TNT <> B/R Live (USA), Eurosport <> Eurosport Player (Pan-Europe) or RTL <> TV Now (Germany) amongst others.
The early success of ESPN+, however, is not only a result of the company's privileged position when it comes to financial resources, an ecosystem of different business segments, and existing relationships with sports rights owners, but also the company's their willingness to prioritize ESPN+ when it comes to said trade-off and cannibalize short-term revenues: Spending reportedly $30M per season on the German Bundesliga and putting it (almost) exclusively on the streaming service is the latest evidence of ESPN's willingness to take short-term losses — immediately recouping that investment over the deal's term will be more than difficult. On the revenue side, industry observers wondered about the hyper-aggressive monthly price points of both ESPN+ in particular and the other Disney-owned streaming service in general. Besides the fact that all streaming services remain in full customer acquisition (instead of monetization) mode for the time being, an argument can be made that these low price points actually protect the company's legacy business or at least does not contribute to its accelerated erosion as a re-allocation of wallet share might not be required just yet in order to add these low-cost OTT services.
However, there was another big driver for reaching more than 7M subscribers in that short order: Leveraging ESPN+ as the exclusive distribution platform for pay-per-view events of the UFC. The two main benefits are obvious: (1) higher revenues compared to offering such marquee events as part of a flat-fee subscription service like DAZN and (2) leveraging the appeal of fights such as Fury vs. Wilder II, generating combined 800-850K PPV sales across ESPN+ (digital) and FOX (cable/satellite), to drive sign-ups to the sports streamer by making the latter (primary paywall) a condition for accessing the latter (secondary paywall). In fact, I could see other streamers, including DAZN (even for existing sports properties) or soon-to-launched Peacock (hypothetically when getting further into business with WWE and their PPV events), adopt that "Exclusive PPV Model": creating an advertising-subscription-transaction mixed revenue model. With NFL Sunday Ticket, one of the few prime properties that warrant such model is coming to market soon — as it has to be pointed out that properties need a certain incremental pay-value in order to separate them from the content available through the flat-fee subscription. In many cases, it actually makes more economic sense (e.g. limited pay-value, cross-fertilization of new audiences) to simply roll-up stand-alone streaming services into multi-sports OTTs instead of demanding add-on prices, just like ESPN+ did with MLS LIVE (= out-of-market, non-national MLS games) and will do soon with PGA TOUR LIVE.
What makes the “Exclusive PPV Model” even more appealing to streamers such ESPN+? They seem to be purely valued based on subscriber growth, with total disregard by investors for fundamentals such as profitability or cash flow in the near term — at least as long as subscriber growth can be sustained.
The drawback for ESPN? It might erode the traditional cable/satellite bundle even faster because it will make (the sign-up to) ESPN+ simply more attractive. Once sports streamers add properties with mainstream drawing power and the inevitable price hikes are implemented, the re-allocation of wallet share from the satellite/cable ecosystem to streaming services (i.e. cord-cutting/shaving) will accelerate.
"More of the Same for DAZN in the United States in 2020"
📆 Session: The Re-Match
👤 Thought-provoking Panelist: Joe Markowski (EVP @ DAZN North America)
The United States houses the biggest sports broadcasting market in the world, with an annual market volume of $22.5BN on the cost-side (i.e. sports rights market) alone. However, there is probably a reason why we have seen only a limited number of new market entrants compared to other markets around the world as the digitization and OTT distribution has greatly reduced entry barriers: the unavailability of media rights due to comparatively long lock-ups (usually longer than five years), an immensely high or even inflated price level once such sought-after IP gets finally back on the sports rights market, and fierce competition for the consumer’s limited resources in terms of time and money in the sports programming and wider entertainment market have made the United States a difficult battleground for new market entrants. As a result, the digital streaming landscape is most likely going to be dominated by established market incumbents, who are trying adapt to new a landscape while maintaining the still-significant revenues of their legacy cable/satellite businesses: ESPN (ESPN+), CBS (CBS All Access), and NBC (Peacock) being the obvious examples, while FOX seems to be the big hold-out when it comes to pursuing such a dual-strategy. However, the downsized Murdoch-imperium is currently in the process of acquiring free, ad-supported streaming TV service Tubi. One exception when it comes to new competitors: DAZN, which was simply not willing to completely punt on the potential upside of the biggest sports media market given the global ambitions of the Blavatnik-led company.
The current lock-up of literally all tier-one sports rights in the United States, however, has resulted in an event-based portfolio, mainly focusing on combat sports and highly susceptible to churn of costly-acquired customers — as the streaming service unsurprisingly struggles to engage its subscribers continuously in-between the few marquee events. At a price level of $19.99 per month, I would consider watching five events per month as the minimum in order to ensure that a subscriber will stick around in the long-run. It is hard to imagine, though, that DAZN's current U.S. portfolio can drive that level of engagement in any sustainable way and month-over-month.
To this end, overcoming the long-term lock-up of the most-marquee sports properties (e.g. Big-4 U.S. sports leagues) with additional media carve-outs such as the seven-day-a-week MLB highlight show "ChangeUp," a questionable endeavor anyways considering its high price point ($100M per season) and reportedly very lackluster performance, will remain the exception and unproven: existing rights holders will only tolerate any dilution of their initial value proposition to a very limited degree and the potential of these incremental formats for taking relevant mind and wallet share from existing products seems insignificant. Although, focusing on carve-outs for near-live highlights and exclusive off-field content seems without any alternative as carving out any significant live broadcasting rights during rights cycles remains highly unlikely.
As a result, DAZN's operations feel somewhat "stuck in the middle" in the United States: offering PPV-level events to subscription-level prices without the ability to retain customers. The average subscriber is essentially the previous pay-per-view buyer — just at much lower ARPUs and (probably) CLV. An extremely homogenous subscriber base is the inevitable consequence: On the positive side, homogenous interest among its customers leads to the fact that half of all U.S. subscribers watched the "KSI vs. Logan Paul II," according to Markowski. On the negative side, such little diversification has most likely led to highly cyclical, unpredictable revenues on a month-over-month basis as the event-based, infrequent schedule is predestined to suffer from subscribers dipping in and out on a monthly basis. Further, at $19.99 per month, consumers are much more likely to actively manage their subscription than at lower price points such as $4.99 (ESPN+). As new OTT streaming services launch and the inevitable, industry-wide price hikes follow, increasing wallet share tensions in the future will only make consumers managing their monthly subscriptions even more actively going forward. (🔗Twitterpost: OTT Adoption vs. OTT Stacking -- wallet share tensions resulting in active management of (higher-priced) subscriptions)
Premier boxing events can serve as the top-of-the-pyramid rights that are essential to enter new markets in order to generate initial up-take of a new sports streaming service. However, it is called a "portfolio of rights," rather than "collection of rights," for a reason: On aggregate, the available live and on-demand programming must ensure a stable subscriber base over time. That requires a diversified subscriber base and, thus, portfolio of rights, across both the year's sporting calendar as well as different sports — the opposite of what DAZN has currently at its disposal in the United States.
The single-sports nature of DAZN's offering in the United States prevents any potential for cross-fertilization from other sports on the platform in order to facilitate subscriber retention: marquee combat events as subscription driver, meaningful weekly sports programming as subscription retainer.
Currently available content such as niche sports rights, especially if they relate to local or domestic competitions, or original on-demand content can still be valuable, but are only one puzzle piece when compiling a content strategy and are not able to compensate for regular live programming of sports and competitions that have cross-over potential.
The economics of OTT in terms of CAC (i.e. fierce competition for consumer's mind and wallet share in the digital space) and CLV (i.e. super-deflated ARPUs and sky-high churn with cancel-buttons at someone's fingertips) are already challenging and far inferior to the traditional pay-TV bundle. DAZN's attempt to disrupt the traditional PPV business is honorable, a flat-fee subscription model with event-based programming only, however, seems to be major misfit from a business perspective. In the short-term, significant price hikes would probably make the P&L of DAZN look much healthier as I would expect the market penetration (i.e. conversion of previous PPV buyers) to remain relatively stable even at $30-$40 per month — since it is still a great deal compared to historical PPV prices.Having the mid- to long-term picture in mind (i.e. being a viable bidder once the U.S. major sports leagues come back on the market after 2020), flip-flopping the monetization strategy for short-term financial gains does not seem to be worth it though. That also means that we will see more of the same in 2020 from DAZN as in 2019. Once the intended evolution into a multi-sports streaming service has been completed, implementing a subscription as primary paywall and a secondary paywall for pay-per-events a la UFC/ESPN+ could be in the cards.Given the lack of obvious catalysts in the world's largest sports media market in the immediate future, short-term group-wide subscriber growth for DAZN needs to originate somewhere else than the United States, as the UK-based private company tries to reach a subscriber count (> 10M) that might become of interest for potential private and, ultimately, public investors. To this end, in a relatively surprising move and instead of continuing its focused market-by-market strategy when it comes to expansion, DAZN announced the global roll-out of its streaming service across more than 200 territories at the beginning of March. Facilitated by a few global or at least international (i.e. excluding domestic market) rights agreements, DAZN suddenly seeks global scale — despite running the risk of being stereotyped as a boxing streaming app, as combat sports make up the vast majority of the available content in many countries for now. As explained above, focusing on the United States has limited short-term upside; operations in Italy, Germany, Canada, and Japan have been established and need hopefully simply some time to evolve into profitable businesses; Brazil had a rocky start but adjusting quickly based on initial learnings (e.g. adjusting price downwards, expanding billing options, free-to-air partnerships, joint rights acquisitions with local players) resulted in first positive signs.
At the same time, DAZN needed to continue to tell a story to current or future investors and, at first glance, "global roll-out" sounds appealing, especially in an industry that has traditionally been segmented based on a market-by-market logic and dominated by national players.
The opportunity costs of that specific move: losing out of local sublicense deals in markets in which DAZN had rights as part multi-national deals but has not been active until now — which probably would have been the financially more lucrative option in the short term. In general, the globalization of a geographically-splintered broadcasting market will probably "Big Tech's" biggest impact on the sports media industry — instead of the financial boon in form of skyrocketing fees for rights owners as many expected. Among the pure-sports streamers, DAZN can certainly develop some level of first-mover advantage and immediately compete for global rights, which up to this point have only been of interest for rights-trading intermediaries such as agencies like Infront Sports & Media, Lagardère Sports, MediaPro, and IMG who buy out rights for guaranteed minimums in order sell them at a profit.
The obvious challenge: Demand for live sports programming is market-specific and tribal — certainly limiting the upside of buying rights globally from a commercial point of view.
"Betting (Streaming) Rights as an under-the-radar Topic in the United States."
📆 Session: Will Gambling Change How We Watch Sports?
👤 Thought-provoking Panelist: Seth Young (Chief Innovation Officer @ PointsBet)
The tough economics of towards-a-la-carte-trending OTT streaming will inevitably require a more diversified monetization model, tapping into additional revenue streams: both the on the level of rights holders (as discussed above) and on the level of rights owners.In the long run, the highest-potential sports-adjacent catalyst to not even sustain but further grow media rights value is probably betting and any integration of it into the live streaming experience: developing a triple-revenue-model from the rights holder's point of view of revenues from subscriptions, advertising, and further add-on integrations such as betting. Nonetheless, the heterogeneous legal frameworks across the marketplace, both on a state- as well as national-level, complicates matters further and limit scale for rights holders and sportsbooks greatly.
However, with the ongoing liberalization of sports betting markets in some of the world's leading economies, betting-adjacent revenue streams are already earmarked by rights owners as well in order to compensate for any potential media-related revenue declines in the meantime.
Thus, rights owners actually seem to be better positioned to benefit from the liberalization of sports betting markets around the world in the short term. (🔗Twitterpost: Integrity Fee vs. Royalties vs. Data Mandates — the evolution of rights owners benefitting from legalization of sports betting)
For several months now, rights owners such as the NFL, NBA, or English Premier League figured how to best participate in the expected growth in a regulated betting market — with the United States at the forefront of any discussion: from demanding a haircut on the total amount of money wagered ("handle," which would destroy the already low-margin business of betting operators), shifting to proposing an integrity fee in order to ensure the legitimacy of their sports' outcome (which should always have been the mandate of competition operators), to ultimately selling official data of their competitions. The latest model now seems to be considered as justified by betting companies, although such data feeds still need to prove to be able to serve as a true differentiator in the eye of the consumer: Do consumers rather value increased credibility and accuracy or do they prefer shopping for the best odds as the costs for the league-approved real-time data need to be recouped somewhere — for example in demanding a premium from consumers in form of slightly less favorable betting lines? Data suppliers such as Sportradar, Genius Sports, and recently-merged STATS Perform are certainly "betting" on the value of official data in the marketplace and fiercely compete for mandates from competition operators to collect and subsequently sell the official data to betting companies.
Given the thirst for commercialization though, as evidenced by mandating multiple official data suppliers at the same time or carving-out highly-specific partner categories such as "Official Sportsbook," "Official Betting Partner," "Official Daily Fantasy Partner," "Official Season-long Fantasy Partner," it has been surprising that betting (streaming) rights, widely established among European-based rights owners, has remained somewhat under-the-radar in the United States. Given the thirst for commercialization though, as evidenced by mandating multiple official data suppliers at the same time or carving-out highly-specific partner categories such as "Official Sportsbook," "Official Betting Partner," "Official Daily Fantasy Partner," "Official Season-long Fantasy Partner," it has been surprising that betting (streaming) rights, widely established among European-based rights owners, has remained somewhat under-the-radar in the United States.
In general, the risk of over-commercialization is also a strong argument for why the emerging but immature industry should not principally fight any gambling-related regulation as it also could be healthy for the long-term market development — but such a media carve-out for the betting operators seems to be a quick win for rights owners:It would not only result in additional monetization by simply selling that new media rights package, but should further boost the value of licenses for official league data, which (instead of any integrity fee or revenue share) seems to have become the current go-to strategy of rights owners to participate in the booming sports betting market. (🔗Twitterpost: Media Rights vs. Betting (Streaming) Rights — complementary products in the European sports media landscape)
Just since the conference concluded, though, US-based rights owners not only started to tip their toes into granting streaming rights to betting operators but went all-in: At the beginning of March, live NHL games, provided by IMG Arena, have started to be available for streaming on the FanDuel app in some states, where sports gambling has already been legalized (e.g. NJ, PA, WV, IN). Although such carve-outs for betting operators were only a matter of time, the real surprise is that the NHL makes those streams available domestically. The standard industry practice in Europe is that domestic markets are excluded due to the potential cannibalization of traditional media rights holders' value proposition in the market in which most value creation in form of rights fees paid to rights owners takes place. Despite the usual limitations of betting (streaming) rights that downgrade them to an inferior watch experience such as lower resolution (which in turn helps with latency), no full-screen capability, accessible for active bettors only, and the fact that the rights-holding entity needs a betting license, rights owners usually do not want to take the risk to irritate their existing broadcasting partners.
In any event, expect other U.S. leagues to follow soon, although I would expect some backlash from NBC/CBS/FOX/ESPN and Turner/ESPN if the NFL or NBA, respectively, awarded betting streaming rights to their games in the domestic market any time soon.
"OTT and the Rise of Piracy in the Digital Age"
📆 Session: Why You Need To Be Prioritizing Privacy
👤 Thought-provoking Panelist: Antonio Briceño (Deputy Managing Director @ beIN Media Group)
Besides the challenge of monetization in an OTT-dominated sports media landscape, another fundamental risk to the rise of OTT that was discussed often and repeatedly during the two-day conference has been privacy — so far as many rights holders, in particular, consider the illegal access to live sports programming as the single biggest threat to the sports broadcasting market, i.e. sport's biggest source of revenues. Theoretically, in an environment with widespread piracy, all media rights could simply be considered to be of non-exclusive nature by rights holders, which would inevitably be reflected in their commercial offers going forward: exclusivity is one of the biggest value drivers for any broadcasting rights.
With the increasing availability of and ease of access to illegal streams, the business dynamics of pay-per-view television, in particular, have changed: In the era cable/satellite television, the transaction-based revenue model benefitted from a closed distribution system and a very limited leakage. However, the rise of OTT, whether due to traditional rights holders trying to reach their customers at their preferred consumption medium (i.e. "TV Everywhere" which still requires a subscription to a cable or satellite TV provider) or new market entrants pulling more and more live sports programming exclusively on digital-only distribution (e.g. DAZN, ESPN+), has also led to a proliferation of illegal streams. Technological progress made it super-easy to provide, access, and share such content: "Illegal TV broadcasts" has not been a common term. "Illegal streams" has been added to the sports media discussion quickly. Granted, exceptions prove the rule and the saga around beoutQ is evidence that widespread piracy operations can also be set up in the cable/satellite ecosystem. A big difference, though, is that it needs a lot more manpower to get the broadcast signal available and set-top-boxes into the living rooms of consumers. That compares to one-man armies that can operate entire piracy businesses in the digital space. For costly PPV events especially, those free options are an increasingly viable alternative for tech-savvy, digital-native consumers, who already face severe wallet share tension with so many digital services available competing for the same consumers and the same limited resources.
As an example, "Wilder vs. Fury II" has reportedly generated 800K - 850K PPV sales across ESPN+ (digital) and FOX (satellite/cable) in North America alone. That would still be the best heavyweight title viewing since "Tyson vs. Lewis" (1.97M PPV sales) in 2002, but have fallen significantly short of expectations: Top Rank's Bob Arum forecasted around 2.0M PPV sales as recent as two days before the event. The claimed main culprit: lost sales to piracy.
When it comes to combating piracy, the current discussion and action plans seem to center around limiting the availability of illegal streams. Despite a potentially improved legal framework and the enforcement of such as well as a tighter technological security stack (e.g. DRM, VPN, Watermarking), it will probably be a hopeless battle though:First, as long as rights owners continue to sell to broadcasters with non-state-of-art security measures in minor markets that lack legal frameworks and/or enforcements in order to generate the incremental sale in media revenues, the availability of illegal streams will continue. To put it differently, there is a reason why the commentary of most of the illegal streams is in a language that viewers from North America or Western Europe cannot even identify.
Second, even in the world's biggest media markets, another illegal stream seems to pop up as soon as another one was successfully taken down.
Instead, I do think the discussion should rather focus on consumer education, as the majority of consumers does not consider piracy as something illegitimate, and the product itself, in order to reduce the need for consumers to actually have to find an alternative to consume live sports programming. The problem: the former takes off the attention and resources from the latter.
Although the lack of consumer education is applicable universally across different genres, Spotify has been the poster-child for how to effectively fight piracy with a superior product experience and value proposition for which consumers are happily willing to commit a share of their disposable income.
That does not mean that the music industry in general, or Spotify specifically, are without challenges: The challenging economics of subscription-based music streaming services (i.e. problem of marginal costs and lack of economies of scale) are a fact and increases the need for original, non-licensed content as evidenced by the company's recent acquisition, including sports-oriented multimedia company The Ringer for up to $200M contingent on certain performance milestones and talent retention. But it is also a fact that streaming effectively resurrected the entire music industry, after more than a decade-long decline in industry-wide revenues.
On a side note, speaking of Spotify and its recent push into sports, has anybody thought about the Swedish company getting into audio commentary rights to sports events for further differentiation? In the United States and the United Kingdom, traditional radio stations such as Westwood One, Sirius XM, ESPN Radio, or talkSPORT continue to have a firm grasp on such rights. A big difference to audiovisual rights though: the explosion in rights fees paid has not happened yet. At the same time, we start to talk about the "share of ear" amidst the rise of podcasting. Even the big technology companies have occasionally already ventured into the space of sports audio rights: In 2017, Amazon acquired the audio rights to the German Bundesliga and DFB Pokal through the 2020/21 season for its Amazon Music service. The obvious misfit between Spotify, or any other digital-first company for this matter, and audio sports rights though: marrying a new distribution technology (i.e. streaming) with a broadcast format that is most-used among older fans who continue to live in the analogue distribution system (i.e. FM/AM radio).
Getting back to the fight against piracy of live sports programming though: DAZN's attempt to disrupt the U.S. pay-per-view business by making high-profile boxing and MMA events part of their flat-fee monthly subscription service ($19.99) as supposed to ESPN's secondary paywall should theoretically have a positive impact on revenues lost due to piracy. Although the subscription-economy should help to reduce piracy as ease of legitimate access increases, at current subscription prices it probably also results in a far inferior monetization of these marquee events compared to the traditional pay-per-view: the inherent trade-off of viewership at scale and monetization.
Up to this point, even DAZN struggles significantly with piracy, according to Joe Markowski. The DAZN-specific challenge of an event-driven portfolio and very limited shoulder programming in-between the few marquee events offers limited incentives for consumers to subscribe continuously month-over-month. As a result, potential customers face the simple decision whether to shell out $20 for a one-off event or opt for illegal alternatives. The high level of piracy for DAZN events provides further evidence for how easy the access to illegal streams must be given the attractive price point ($19.99) compared the PPV prices of the past (>$50).
What are the alternatives to DAZN's unsustainable approach, offering over-priced live sports programming at flexible and affordable terms, to fight piracy though? Even worse, at current content acquisition costs, it will be difficult to offer any premier live sports programming at those flexible and affordable terms when making profits is required. Interestingly, the music industry first needed a decline in industry-wide revenues before low-priced subscription services such as Spotify, which were major disruptive forces in the short-term, were embraced (and enabled) by the music labels, the rights holders of the music industry. The sports rights market has not reached that tipping point of declining revenues yet: The insurmountable challenge which rights holders will face with further skyrocketing rights fees? Offering sought-after live sports programming at attractive price points which would pull consumers out of the grey market of piracy while operating a sustainable business seems to be a pipe-dream. In fact, an argument can be made that piracy actually drives prices for sports pay-per-view events and subscription services upwards once sports streamers enter the customer monetization mode: On the one end, the drop in prices needed in order to capture the low-end market (i.e. today's illegal streamers) is unrealistically high. On the other end, the price sensitivity of today's PPV customers is astonishingly low. Thus, does it really make a difference for people who have bought "Fury vs. Wilder II" at $79.99 if the price would have been set slightly lower ($60) or even higher ($90)? Probably not. (🔗Twitterpost: Effectively Combating Piracy — improving security stack and/or focusing on product innovation)
In other words, is a resetting market correction for sports rights fees needed for a healthier ecosystem that facilitates rights holders to offer high-profile content at affordable rates and, thus, creating a win-win-win situation between rights owners, rights holders, and consumers in the long-run? In general, I can see a lot of innovation when it comes to commercial models (e.g. revenue sharing, packaging, joint ventures, bundling of services) between rights owners and holders in order to both sustain the formidable growth of media rights, allow rights holders a sustainable business, and make live sports programming more accessible to consumers.
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