The Delta Perspective
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Sports rights: Not yet the ‘slam dunk’ for OTTs Sam Evans - Partner José del Valle-Iturriaga - Partner and Head of the Media, Sports & Entertainment practice Batuhan Er - Senior Consultant Raghul Suthagar - Consultant February 2019 THE DELTA PERSPECTIVE THE DELTA THETHE DELTADELTA PERSPECTIVEPERSPECTIVE THE DELTA PERSPECTIVE Sports rights: Not yet the ‘slam dunk’ for OTTs Authors: Sam Evans - Partner José del Valle-Iturriaga - Partner and Head of the Media, Sports & Entertainment practice Batuhan Er - Senior Consultant Raghul Suthagar - Consultant A shifting sports rights correction or a point of reflection as landscape leading internet platforms consider their premium content strategies. The value of sports rights has Overall, the global sports rights steadily increased across markets market is expected to continue with leagues such as NFL, La Liga growing annually at more than 4% and NBA growing 41%, 87% and for the coming years. 111% respectively between 2013 and 2018. For some properties, A significant driver of growth where there has historically been is expected to be the deeper consistent and rapid growth, penetration of new ‘non- like the English Premier League traditional’, i.e. non-pay TV players (EPL), most recent auctions have such as technology platforms and plateaued in rights value, which social media companies. These signifies a potential market players not only increase the 3 THE DELTA PERSPECTIVE Exhibit 1: Sports rights inflation and media rights market outlook Sport rights inflation 2018 Media Rights Market Outlook ($ billion, % change) (Revenue forecast, $ billion) CAGR 2013 2018 4.3% 23 22 41% 21 20 CAGR 19 6.5 12.3% 18 16 15 4.6 12 12 111% 2.3 87% 108% 1.9 1.6 94% 20% 265% 1.1 1.0 0.9 0.9 0.8 0.6 0.8 0.5 0.2 NFL NBA La Liga MLB USOpen NASCAR MLS 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (Golf) Source: SportsCal, press clippings, Delta Partners analysis number of bidders, but they are also well positioned to linear TV drives advertising premiums during sports extract greater value from the content they purchase events, which in turn contributes to the growth of through their ability to utilize asymmetric business sports rights market. models where the content is used as a mechanism As rights values continue to increase, consumers to support sales of additional higher value services. are simultaneously evolving the ways in which they Furthermore, as TV viewership continues to shift from engage with content. For example, millennials linear to catch-up/non-linear and faces competition spend over five hours on mobile devices daily, from OTT players, live content remains as the key including significant social media usage and own attraction that generates a mass audience for linear on average eight connected devices. This segment TV. The increasing scarcity of mass viewership on Exhibit 2: Football viewership during 2016-2017 season for top five leagues in Europe Football viewership by age and medium during TV 12 2016-2017 season for top five leagues in Europe Online (%) screens2 61% 38% 28% 22% 27% 14% 3% 7% 6 19 20 34 35 49 50+ Notes: 1 Top divisions in England, France, Germany, Italy and Spain, 2 Online screens are defined as mobile, laptop, desktop and tablet Source: IRIS Intelligence ratings analysis 4 THE DELTA PERSPECTIVE also has a greater appetite for content than previous OTT players, leveraging IP and mobile distribution, generations, although fragmented across platforms are well suited to serve these segments and are and devices. The impact for sports is an increasing starting to explore the sports rights opportunity as use of online and mobile screens as well as growing demonstrated through Amazon’s acquisition of NFL interest in on-demand and non-live content. During and EPL rights, the US and Italian expansion of DAZN the 2016-17 European football season fewer than and Facebook’s acquisition of baseball and football 17% of TV viewers for the top five leagues were rights for certain Southeast Asian markets. OTT under the age of 35, for online this figure was 45%. players’ sports content strategies are still nascent As such, it is critical that sports can follow their with their share of rights value lower than 10% in audiences. In doing so, not only could they sustain the majority of markets. Close attention will be paid engagement of the existing fan base, but they can to their next moves, especially as premium live rights also reach new fans. reach their next auction cycles. Exhibit 3: New buyer share evolution for selected sports leagues New Buyer Revenue Share Evolution1 (%) 2013 2018 2013 2018 0% 3% 0% 1% 5% 6% 0% 12% 1% 17% 5% 7% 1 New buyers including OTT videos, Telcos without PayTV stream, ecosystem/ecommerce, hardware and social media players; New buyer share = recorded revenue of deals with new buyers / total recorded revenue in SportsCal; Source: PWC report, SportsCal, Delta Partners analysis Segmenting the OTT sports rights avoid the unbundling of premium content from their approach core base. While OTT players acquiring sports rights share similar Conversely, technology platforms such as YouTube over-arching characteristics, such as ability to stream may not have the pay-TV economics or existing live and on-demand across device types, the universe content rights, but they are able to take a digital- of players is highly segmented with different business first approach to sports content without the risk of model approaches. OTT approaches to sports content cannibalizing existing revenue streams. In addition, the can be split into five primary groups, each having sheer volume of personal data that can be gathered their own opportunities and challenges. by online and social platforms creates a compelling proposition for advertisers versus traditional Aware of the evolving consumer content consumption television. The availability of viewers’ personal data behaviour, traditional sports rights buyers (e.g pay- enables highly targeted advertisements, with pre- TV channels and platforms) are launching OTT ‘any- rolls and mid-rolls tailored for each viewer and new screen’ propositions both as a mechanism to extend formats such as dynamic product placement, whose their subscription value beyond the primary TV screen impact and reach can be measured accurately. These and as a way to enable segmentation through an game changing capabilities are crucial for platforms OTT-only offering. These players, such as BeIN and aiming to benefit by using the premium content to Sky Sports, benefit from existing content ownership drive engagement and monetise through alternative and economics from the traditional pay-TV base but forms, which, in the case of Facebook, is advertising. they must effectively develop a pricing approach to 5 THE DELTA PERSPECTIVE Exhibit 4: Five segments of OTT sports content plays B2B2C B2C Traditional sports OTT content players OTTs with other core Direct to Fan (D2F) rights buyers All content OTT Pure sports play OTT business Examples Reason for • Complement existing • Additional content type • Unique live sports- • Complement existing • New revenue stream PayTV offering to existing library focused content core business • Better monetization of OTT play • New revenue stream • New revenue stream fan data • Complement core • Subscription (PayTV Business • Subscription, Pay-per- • Subscription, Pay-per- revenue stream (e- • Subscription, Ad-funded, and/or OTT), view, Advertisement view, Advertisement commerce, hardware Monetization of fan data model Advertisement etc.), advertisement • Existing partners with • Experience in OTT space • Dedicated to only sports • Incentives for users to join • Opportunity to avoid content owners and advanced digital streaming & stay in the ecosystem margins to rights buyers Strengths / • Experience in content capabilities • International scalability • More access to customer and content distributors Advanced analytics to opportunities broadcasting • • Quick access to Sport data; improved customer • Better access to fan data • Imbedded in pay TV target customers rights bids targeting & monetization • Direct Ad-sales offer • International scalability • Leading digital capabilities • Cannibalization of • Additional sports rights • Rack-up potentially heavy • Additional costs to non- • Lack of marketing and existing PayTV revenues costs along with other losses until customer base core business distribution muscle of • Limited internal content production and/ is sustainable • Additional sports rights the traditional sports Challenges technical capabilities or acquisition costs • Skepticism from content costs along with other rights and OTT players • Lack of brand association owners on viability content production/ • Non proven track record with sports or live events • Brand awareness acquisition costs In the case of Amazon, the ultimate benefit comes In the past three years there has also been the from conversion to Amazon Prime and subsequent emergence of the pure-play sports OTT, like DAZN boost in e-commerce revenues which are seeking to replicate the Netflix-approach but focused on the sports vertical. Reports earlier Exhibit 5: Timeline of Amazon, Facebook, DAZN sports content strategies Key sports rights acquisitions of DAZN, Facebook and Amazon NOT EXHAUSTIVE Won rights to For Champions League Exclusive Exclusive Exclusive rights for all La Won rights broadcast all Meiji Won rights to and Europa League, broadcast rights to Liga games, from 2019 broadcast 20 Yasuda Seimei J1, J2 simulcast 20 three year deals in rights of stream US