Sports Teams/Leagues Need Digital Re-Bundling To Occur if Media Rights Are To Keep Climbing
Pro sports teams (and leagues) have begun to leverage OTT technology to launch for-profit media divisions. Back in May 2019, Juventus F.C. rolled-out Juventus T.V. and just last week F.C. Barcelona introduced a comparable digital subscription service (Barça TV+) to satiate the super fans’ appetite for content surrounding the team. While streaming services undoubtedly have the potential to provide an incremental boost in club revenues and can help organizations gather valuable fan insights, there’s absolutely no reason to believe they’re going to replace existing channel partners as the home for live game broadcasts anytime soon; certainly not if pro sports teams and the big four leagues remain focused on growing their media rights revenues.
Our Take: The NFL, NBA, NHL and MLB (and their respective teams) are not going to pull live rights from their existing broadcast partners to prop up a new team-specific digital streaming service (as opposed to companies like DAZN & ESPN+) because there’s simply no way they can offset the lost revenues. To make the economics work the team or league would need to sell subs en masse at the content’s “true value” and there's simply no way they would be able to achieve the necessary scale at that price point. Sports media rights consultant Patrick Crakes said that even the mighty NFL would “find it impossible” to generate revenues comparable to what they’re bringing in now from a D2C service.
If D2C is not a viable channel for sports teams or leagues to distribute game broadcasts on and we know there’s a secular decline ongoing with the “established bundle”, it reasons to believe both rights owners and holders are aware there's a need to grow digital subs if rights fees are to keep climbing. Crakes believes that the scale needed to fund massive broadcast rights agreements can only be achieved with a digital re-bundling that would enable the league's existing network partners to reach - and monetize - the general market (those who will watch on occasion, but are unlikely to buy the channel on an ala carte basis). “The super fan will always see the value [and pay for the service needed to watch his/her favorite team's games], but the moderate fan needs more value than any one network can offer and the moderate fan is where the scale is at.”
A prominent C-level executive at one sports-centric streaming service said he/she would be willing to bet just about anything that a re-bundling is coming on the digital side. "The arc of history bends in favor of what is best for the consumer and with a growing frustration that people are paying more for less [than they were with the traditional cable bundle], you’ll begin to see companies bundling up [sooner than later].”
Sports broadcast rights need to be included within a bundle - whether it's a traditional cable bundle or a new digital offering - because the rights holder needs to be able to leverage both pricing and scale. Crakes explained that "the true value of ESPN isn’t $9/mo. For a certain strategic portion of [linear] subscribers, the bundle is nearly worthless without [ESPN's sports rights portfolio]. ESPN would have to charge nearly the amount of the full bundle (think: $50) on an un-bundled basis, to avoid decimating the bundle's value and there are very few customers (on a relative basis) that would be willing to pay that that price.”
It would be disingenuous to imply digital bundles do not already exist, but the most prominent ones (think: Hulu and YouTube) are really carbon copies of the old linear bundle (only without the natural monopolies that all but eliminated competition for cable providers). With similar content offerings and nothing to keep subscribers tethered to the service (i.e. service contracts), digital distributors are forced to compete solely on price. Naturally, they're cannibalizing each other and all “losing a ton of money.”
Crakes said the way to keep digital subs climbing is for distributors, content owners, pro sports leagues and content creators to come together and offer the consumer a bundle of bundles (think: 2 super premium SVODs, Disney+, Netflix and their choice 15 cable channels). Putting together a strong bundled offering (think: broadband, telephony, digital assistant services) would help digital distributors stabilize churn and help them to both "maintain control over pricing and achieve the scale necessary to fund the creation of all this content" (i.e. rising sports rights). The former Fox executive insists “the way that Netflix gets to 90 million domestic subs (currently at 60 million) isn’t by spending $3 billion/year on content, but by drafting together with other super premium SVODs and a group of the best channels" (for the record, Crakes is not suggesting Netflix abandon its investments in content). The idea is to give the consumer more control/customization over content (but not total authority, which allows the distributor to maintain pricing power) and a better product (think: interface, content discovery) than they can get on the linear side.
The digital exec we spoke to was in agreement. He/she said that much like Disney aligning with ESPN+ and Hulu, Netflix and Apple would eventually look to add sports and children’s programming so that they could appeal to a wider demographic and keep their subscriber numbers growing.
The paradox is that offering channels on a direct to consumer basis does make sense. As Crakes noted “there would likely be a handful of people out there who only want ESPN (i.e. no other channels) and would be willing to pay $40/mo. for it; and as a network you want to be able to offer that option.” In theory, a D2C offering could exist alongside the re-bundling process because with the cost of the ala carte subscription so high, it wouldn't impede the scaling of the new digital bundle (i.e. most would still choose to take the added value for minimal extra cost).
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