Thursday, 10 October 2019

Piracy reduces the value of distribution - content and customer are king.

Widespread reports that the CEO of BeIN sports, Yousef Al-Obaidly, predicts that the sports rights bubble is about to burst directly as a result of piracy are significant. He is reported as saying that all sports rights are effectively wholly non-exclusive. Perhaps, but Mayweather v McGregor still generated massive PPV revenues.

But he has a point and this market shift probably occurred in about 2015 and possibly partly explains why the ever shrewd Rupert Murdoch sold Sky and why the recent float of the sports and media giant Endeavour was pulled at the last minute.

That said, from what we see, the audience for live sports is alive and kicking, it has just moved outside of the exclusive control of the traditional broadcasters. This is particularly the case when events are behind highly-priced subscription or PPV walls. The Mayweather v McGregor fight would have done even bigger numbers if piracy was not a factor. Once high-speed internet /mobile emerged this loss of control was inevitable.

The new reality is that piracy can be managed effectively - not eliminated - and that new distribution models with a global focus will emerge. The best guess is that sports rights will become less valuable to traditional broadcasters but as regulations such as Article 13 start to bite the new online platforms will step up and bid to keep their audiences engaged. Whether the revenues can match up remains to be seen as the exclusive satellite/cable distribution model was a great mechanism for extracting the maximum cash from consumers. A counter-argument would be that as traditional broadcasters fight for survival they will pay whatever it takes to keep premium rights. Imagine Sky without sport?

This all points in the medium term towards a free to air, sponsorship and ad-supported model as well as low-cost subscription models. Netflix is walking this path in the movie space as are DAZN in sport. In this quite dramatic shift, there are bound to be winners and losers with content and the customer as king.

Friday, 18 January 2019

Netflix burns $3 billion of cash in 2018

The Netflix story itself should be made into a movie and released on......Netflix. The evolution from physical video distributor to video streamer (blockbuster in the home - remember them ?) and now content creator is amazing and the Netflix team have achieved what many thought was impossible.

It was always likely to be the case that vertical integration was unavoidable as online distribution of itself becomes of marginal value. Amazon, Disney etc have the capability to stream worldwide and in the case of Amazon a very powerful online marketing and monetisation platform.

Netflix however have decided to go for it big time and are gambling that as their competitors withdraw content from the Netflix platform they can compete and win with alternative original content such as BirdBox.

This represents quite a profound change to the Netflix consumer model which offered a very broad range of strong content at a super competitive price. They did not go for the Blockbusters - quite wisely in my view - as piracy has dented the ability of the blockbusters to drive online value.

This set of links on Reddit makes the point 

Now - with original production of their own - Netflix will need to protect their exclusivity to achieve a return on investment from original production - or the cash burn may prove impossible to put out.

On the other hand if they can crack the production and worldwide distribution of streamed video content at an attractive and viable price point the hall of fame awaits.

Tuesday, 15 January 2019

Sports rights owners spoilt for choice as streaming platforms multiply

Rights owners can choose multiple routes to market for live content but the old geographically based distinctions are an illusion in the streaming space. VPN's and pirate activity make distribution global in reality whatever the rights contracts might say. For most sports once the 4 or 5 core markets are covered ROW is just bunce.

Opening up a new market from a technical perspective for a streaming provider is just a matter of adjusting the IP address range in the data base and ensuring that the CDN provider has a point of presence in country. The marketing is a different matter but Google and Facebook have the global footprint. 

Distribution options for live video include YouTube, FaceBook, HotStar, DAZN, 11 Sports, ESPN Plus, B/R Live, ROKU, Hulu and many others.

The impact of this on the economic models is yet to be fully understood. YouTube will be tough to beat in my view but at this point before the online subscription model for live sport is proven, it is anybody's guess. 

Tuesday, 6 November 2018

Sports rights valuations on OTT video platforms. The internet may be a much less profitable platform than TV for sports rights owners and holders.

An established and well supported article of faith in the sports tv industry is the ability of exclusive live rights to major sports events to drive paying subscribers to major distribution platforms. Conditional access systems in general did a solid job of protecting live rights from major leakage on satellite and cable platforms. Various models existed to create initial rights valuation ranging from detailed discounted cash flow analysis to the less structured pay more than the other guy and sort it out later approach.  Companies like BskyB have been very successful driving value from sports rights on TV.

As a working assumption it has been accepted that exclusive live content that drives subscription and PPV on satellite and cable will work equally well on internet delivered platforms and common sense would seems to support that view - why should a consumer care about the technology of delivery ? Therefore the types of sports rights valuation applicable in the "TV" industry apply equally well online.

New data collected by Klipcorp suggests that this assumption may be wrong and if so this has some potential implications which are worth looking at. A hint of this was also provided in the last FA Premier League rights auction where the social media companies did not really "step up".

1. Our stand out piece of data from a 3 year rolling project suggests that the purchase decisions for consumers buying sports content online are very different in the online to the TV environment and very influenced by the perception that the material is available online free in good quality via unlicensed sites. This mainly applies to OTT services delivered to PC's, Tablets, Phones but not to OTT walled garden services where discovery of unlicensed content is harder. In the case of highlights the consistent availability of good quality delayed highlights on YouTube (see below) and elsewhere re-inforces this perception further. "Claiming" the content published on YouTube without license generates some income but erodes the perception of exclusivity.

2. It also seems to be the case that price points online for sports are lower by significant orders of magnitude than TV. Customers are also not automatically taking up "free trials" - when they realise a payment method also needs to be provided. A free pirate feed trumps a free trial on a legitimate site for a significant number of consumers.

3. Overall levels of interest and engagement remain very solid and in parts of the developing world interaction levels for video delivered via mobile devices are "off the charts". Monetisation of that interest is a challenge.

The music business, as it frequently does, offers a pretty good potential analogy. Vinyl records were a better tool for making money from the consumer that digital downloads - at least so far. But the music industry has adapted and new types of winners and losers have emerged.

Tentative conclusions are that sports rights drive a fraction of the value from consumers online than they drive on TV platforms - but the consumers are heading online fast in the search for value.

Netflix market penetration was initially built on range of choice, convenience and price rather than exclusivity, which was patently not in place, and works well for movies and drama - who could not watch Under Seige for the fifth time ? Whether the Netflix model works well in sport is yet to be seen and NetFlix has mainly created value through its share price gains as opposed to bottom line profits.

YouTube is the sleeping giant in this area and has the ability to create successful Sports pay-per-view events online from a couple of Vloggers and out audience "major" sports rights - see CSI v Logan Paul. Yet despite seeing all the data YouTube do not seem to want to aggressively acquire rights.

Predictions regarding the fall in the value of sports rights have almost always been wrong in the past. As more and more OTT platforms emerge the "pay more than the other guy" approach may well continue to keep values up.

As a helicopter view of the issue when exclusive sports rights were bought pre 2008 they were exclusive in reality. Now rights are exclusively licensed but are in fact non exclusive which has inevitable consequences.

Some conclusions;

1. YouTube has the ability to dominate the market either through content creation, unlicensed material or rights licensing if it decides to. It is already multiplatform, multi device worldwide and the worlds second biggest search engine.

2. Only very well funded OTT sports operators will survive what looks to be a very long battle to secure paying subscribers online.

3. Advertising and Sponsorship driven models which fully engage with all social media platforms are likely to be the online success stories and quite possibly non "official" events.

4. Rights holders will need to balance short term cash from ageing TV platforms against ensuring long term viability with the younger demographic.

Monday, 8 October 2018

Regional piracy data for UFC 229 - US with 45% of pirate viewing.

With PPV buys expected to hit over 3 million UFC 229 was bound to attract high levels of unauthorised streaming and viewing hand in hand with high levels of legitimate viewing.

Klipcorp systems analysed the regionality of the pirate viewing and we thought it would be useful to share the results.

Our systems saw pirate viewing in 65 countries worldwide but with 4 markets accounting for 67% of the activity.

The US market was by far the largest with 45% of the pirate viewing, followed by the UK with 9%, Canada with 7% and Australia with 6% of the pirate viewing.

A couple of examples of pirate activity are below.

The high concentration of pirate viewing in the US market for UFC 229 (as other content will deliver different results) is probably due to a combination of high levels of US promotion and the price point. 

Sunday, 26 August 2018

KSI v Logan Paul marks fundamental shift

Last nights wildly popular amateur boxing event live on YouTube PPV proves a number of things;

1. The immense power of video enabled social media platforms. With respect to the competitors they are not at the pinnacle boxing - and yet the audience size dwarfed many (if not all ) genuine title fights online. The platform outscores the content - and the power of satellite and cable is now dwindling with the younger demographic. It has been on the cards for a while but now proven.

2. Live PPV can work on the internet at scale. The streams on my TV via the Amazon Fire TV stick were solid and while the production was a little kooky it maybe added to the charm - the presenters and commentary team were perfect IMO.

3. To those of us elbow deep in the digital space the graphic below showing YouTube being ripped off by the pirates on the Twitch platform (our monitoring showed it was everywhere else too) may bring a wry smile. Content protection and discovery is a big challenge. Individual streams at 400k and above.