Welcome to the eleventh article in our Sports Economy series, where we take the second of a two-part look at the world of streaming services and their impact on sport.
Over the past twelve months, the world has changed significantly. Our lives have been transformed by Covid as have our economies and businesses.
Whereas some business activities have suffered greatly others have advanced at record speeds. Some surging products such as medical masks or covid test kits will see their elevated levels of demand fall away just as quickly.
On the other hand, capital markets, which are strong indicators of what will lie ahead, view direct to customer video streaming as a fixture of not just life in lockdown but also the new normal that will come next.
This article examines internet video streaming and the questions it poses to sport.
Fluid fans and ageing fans
Sports leagues and federations have historically had to balance maximising television revenue from pay-tv channels like Sky and BT with making their game available to as many people as possible via terrestrial coverage, which is less financially lucrative.
While they have been searching for this balance, the average age of sports fans who regularly watch live sport has been rising.
According to Statista, as of August 2019, 66 per cent of sports viewers worldwide were 35 and older, suggesting that younger generations have not had the same level of exposure to viewing sport compared to previous generations.
There are two other factors behind the trend. Firstly, we are all on average getting older, not just live sports fans. According to the United Nations increased life expectancy combined with a falling birth rate has made the overall median age of those in the developed world rise from 28 in 1950 to 40 in 2010 and this is forecast to rise to 44 by 2050.
Secondly, behaviours evolve from generation to generation. Younger audiences have different viewing habits and consume content in different ways.
Sports Innovation Lab references the new generation of sports fans as ‘fluid fans’ who are more willing to change their minds and have more choice than ever before. They are less likely to watch full games but do engage significantly outside of viewing live-action via highlights, stories about their favourite sports stars, fantasy sports and social media.
This evolution presents both risks and opportunities.
The risk, unless they feel engaged, is that they will spend their time elsewhere.
The opportunity lies in potential revenue generation from areas that are tied to engagement, rather than audience.
Direct-to-customer video platforms have significant experience in generating engagement related revenue from wide on-demand libraries, localised content, customization and personalisation.
To attract the fans of tomorrow, will sport change its distribution model from primarily pay tv to direct to customer video? If so, will sports organisations create their own streaming platforms or sell exclusive streaming rights to third parties like Amazon or DAZN? The answer differs from sport to sport, and region to region.
Low-frills streaming can be used for the development of sports with smaller audiences
Sports with small niche followings are ideal partners for streaming services because the technological demands are lower and tv broadcast deals may not be in place. Even prior to covid both Irish Hockey and Cricket experimented with streaming simple no-frills, one camera live action via their YouTube channels.
Such transmissions can be viewed by fans for free or for a fee (either per view or subscription) and the revenue is shared between channel owner and streaming service.
Twitch, an Amazon owned streaming platform mostly used for e-sports, is similar to YouTube and between the two there are approximately 35 million channels demonstrating the ease at which they can be created and operated.
GAA GO, a subscription-based sports internet channel, was created with the international market and Irish diaspora in mind. GAA GO transmits via Internet Protocol Television (IPTV), a close cousin of streaming. A similar service for the FAI’s League of Ireland was launched in 2020 called Watch LOI but now is accompanied by a new low-frills offering LOITV, an alternative should the costs of full production service prove too much.
In the U.S. Peacock, NBC Universal’s direct-to-consumer streaming platform, recently acquired exclusive rights to Lacrosse, Figure Skating, Skiing, and Snowboarding.
To develop the game outside of the traditional ‘big-9’ countries the International Cricket Council has announced a streaming agreement in partnership with IMG for the qualifying phase of the Men’s and Women’s Cricket World Cups which will feature ‘associate’ nations.
A “Premflix”?
At the other end of the spectrum, the English Premier League has lucrative deals in place to sells media rights to traditional pay-tv companies and a very small amount to third-party streaming services.
In return, they receive up-front payments but with the value of the domestic portion of rights falling for the 2019-22 cycle and the rapid growth in video-on-demand streaming, the Premier League has publicly pondered (even before the pandemic) the possibility of creating its own direct to consumer streaming service.
The appeal is obvious, a greater share of the revenue, but there are costs too and less certainty, and certainty in broadcast contracts is even more important now on the back of the financial restrictions imposed by covid and its related measures.
There were also mitigating factors in the fall of the most recent domestic rights packages. The 2013-16 and 2016-19 cycles involved BT and Sky going head-to-head in bidding wars but thereafter made peace, agreeing to offer each other’s channels on their systems.
Furthermore, the domestic rights fall from £1.7B to £1.5B annually was also more than offset by the increase in the value of overseas rights.
Although the Premiership may increase the portion of rights sold to streaming entities in its next cycle it is unlikely to introduce its own streaming platform for anything more than one trial market.
Several other top tier sports are also exploring creating their own streaming platform. The NFL has a direct-to-consumer streaming service, as does the NBA, Major League Baseball, Formula One and UEFA.
NFL Hybrid
The NFL, due to the sheer size of its fan base can do a bit of everything. For domestic rights they have huge contracts with terrestrial television networks CBS, NBC and Fox and pay-tv network ESPN with non-exclusive streaming rights to a small number of the same games sold to other parties. A select number of games are exclusive to their own pay-tv channel the NFL Network, while fans can also watch their local teams for free using an antenna.
For the international market, the NFL again uses a combination of terrestrial broadcasting, pay-tv and non-exclusive streaming rights but the streaming is via their own product, NFL Game Pass, which shows 200 live games a season in addition to a library of NFL films and old games. NFL partner with OverTier who provide the streaming infrastructure.
The NFL’s hybrid model allows certain income from traditional broadcasters, games to be sold to streaming platforms and exposure at local level with free coverage of local teams. Abroad, where the sport is still niche, is an ideal practice ground for a proprietary streaming service.
The NFL’s domestic TV rights are currently being renegotiated and are expected to increase from approximately $7.5 billion to $13 billion in annual value. A Wall Street Journal report claimed that Amazon are not only going to renew its existing small package of non-exclusive streaming rights but also gain exclusivity for a larger portion of games, outbidding Fox for ‘Thursday Night Football’.
Just to give some context to Amazon’s bidding power, their market value is $1.5 trillion, growing by $550 billion since the beginning of the pandemic.
The disastrous recent example of French Football TV rights is a warning of selling rights to unproven partners. Its TV deal with Spanish broadcaster Mediapro, who had planned to offer games via both pay-tv and streaming, fell apart. Following the collapse, the French Football federation considered bids from streaming platforms DAZN, Amazon Prime Video and Discovery+ but it was traditional broadcaster Canal Plus, who originally held the rights prior to Mediapro, that stepped in with the highest rescue offer.
Long Term View
In summary, when the Walt Disney Company decided to stop selling the streaming rights to its own catalogue of content and instead create its own platform Disney+, it accepted it would lose millions in the short-term but Disney is a $300 billion company and can afford to take a long-term view.
In contrast, we are unlikely to see leading sports abandon lucrative media rights contracts and jump too quickly into setting up their own direct to customer platforms due to the economic uncertainty caused by Covid. It would after all, involve setting up a whole new business, one that many sports have little or no experience in.
For now, it is likely that proprietary streaming platforms in sport will most likely remain a way of developing sports in areas where the audiences are niche, and of course, a means to show games during covid that are not being broadcast elsewhere.
But more widespread adoption is likely to happen at some point in the future. The “when” will most likely be determined by the extended rollout of 5G and its astonishing level of connectivity and may involve multiple leagues and tournaments forming partnerships and bundles of content to minimise risk.
In the interim we are likely to see a greater share of third-party streaming services, such as Amazon Prime Video, in the mix as combining a global video streaming subscription service with traditional pay-tv and terrestrial broadcasting could form part of the route for live sport to evolve from television programming to a deeper experience that might capture younger audiences.
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Conor Foley has a business degree from Trinity College Dublin, an MSc in finance from DCU and is a Chartered Financial Analyst. Over a 12-year professional career, Conor has experience of advising clients such as institutions, charities and bodies in the areas of global strategy, project management, asset allocation and financial structure. Conor will be working with Sport For Business to produce The Sport Economy, a regular piece, offering insights from the domestic and international sporting worlds of finance, economics and business, aims to bring Sport For Business members lessons and information from around the world to aid you in your strategy, financial affairs and business decisions. Conor has worked in leading financial institutions both at home and abroad and is committed to the growth and development of professional and amateur sport in Ireland.
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