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.