- CSM wants to renegotiate 8 billion yuan deal for Chinese Super League rights
- Restrictions on star signings have damaged value of product
- Company needs pay-TV market to grow to make the rights more profitable
There were plenty of clues about the cooling of the Chinese sports media market at this year’s Sportel conference in Monaco.
For a start, there was no exhibitor stand this time around for LeSports – perhaps the most obvious casualty of the once burgeoning sector’s overreaching of itself. Beyond that, only one company from the country, China Sports Media (CSM), decided to take out space at the show.
The overriding sense was of a market recalibrating itself after the excesses of the last two years, and Zhao Jun, chief executive of CSM, is in no mood to talk it back up in an interview that takes place at the company’s solitary stall.
Zhao knows all about inflation and hype having once been dubbed China’s ‘8-billion-dollar sister’. The soubriquet was a consequence of the 8 billion yuan (€950m/$1.18bn) her agency paid for the worldwide rights to the Chinese Super League (CSL) from 2016 to 2020 at perhaps the peak of the Chinese sports media market in 2015. But she says she is uncomfortable with the nickname these days.
The sense of modesty is consistent with an acknowledgement that the company overpaid the Chinese Football Association (CFA) for the rights to the competition, although she argues that the fault lies with the rights holder for having changed the value proposition since the deal was signed.
She thinks new directives limiting the number of foreign players and marquee signings in the CSL has damaged CSM’s ability to make a return on its investment and confirms that the company has withheld a 600 million-yuan payment to the league while it tries to renegotiate the deal.
“It’s a really tough negotiation with the federation,” says Zhao. “Some of the new policy from the federation related to the CSL, about the young players, about foreign players, we do think it will limit the CSL development.
“In the short term it could impact the value: make the audiences and fans think that CSL maybe is not so popular and attractive as before.”
CSM’s acquisition of the CSL rights came at a time when the Chinese government was trying to kick-start sport in the country, and to raise the standard of the national football team and leagues.
Although the overt top-level support has made way for more prohibitive restrictions these days, Zhao is careful to couch her criticisms in constructive terms. She says CSM does not want to take money back from the CFA, but rather lengthen the term of the deal.
“The value we thought we could achieve in three or five years, we have to achieve it in a longer [timeframe] – maybe eight years or 10 years,” she says.
“The [transfer] policy can help football in China to improve young players, give chances to more young players, so we agreed to that. The problem is that from the market value we ask for more space and we ask for a longer term.”
The player restrictions are not the only matter to have damaged CSM’s ability to make a margin on its investment.
The problems faced by digital sports channel LeSports have contributed, amongst other things, to a much less competitive sports rights market in China.
“I remember last year – really time goes very quickly,” she says. “Last year we had a very exciting deal with LeTV for two years – 2.7 billion [yuan] for two seasons – but after one season the financial problems occurred.”
Zhao is reluctant to criticise LeSports and blames cash flow problems at parent company LeEco for having a disproportionately large impact on its sports division. She holds out the hope that a restructuring of the firm and a recent cash injection will help it to continue as a going concern because CSM needs a healthy digital and pay-TV market to make its CSL rights profitable.
After the firm encountered problems, the agency looks increasingly dependent on digital streaming service PPTV which owns the lion’s share of digital football rights in the country.
“What I want is for PPTV to be successful in the pay-per-view [market] because PPTV has already collected almost all the key sports content: all of the Chinese football, all the major European football,” she says.
“Now what we have to do is to help PPTV to be successful because even if we are a different company, if they can’t be successful, our company cannot be successful either.”
The synergies between PPTV and CSM were brought into even clearer focus earlier this year when CSM’s chairman Li Yidong suggested that PPTV’s parent company, the retail giant Suning Holdings, was interested in acquiring up to a 56% stake in the firm.
Zhao admits that talks took place between the two companies but that nothing came of the deal.
She says: “All of our team effectively work for PPTV, work for Suning, for the reasons that I mentioned: if PPTV is successful, our business will be successful. They don’t need to pay them a salary, so why [should] they own us?”
She says that making the pay-TV model work for companies like PPTV in China will be difficult given the number of games CSM is committed to make available across free-to-air national TV channel CCTV and 10 regional TV stations.
One of the elements of attempts to renegotiate the deal with the CFA will be to try to persuade the league to carve out some exclusivity for digital and pay-TV platforms to keep rights fees high.
“The value that comes back from free TV you can almost ignore,” says Zhao. “The most media rights value comes from the internet platforms, so now what we have to do is to have the internet platforms create a new business model, to limit free TV, to have a balance.”
The greatest obstacle to this is the CFA’s desire to generate as much exposure as possible for the CSL and the game of football in China – not to mention audiences that are accustomed to watching domestic football for free.
“The problem for the CSL is that it is domestic – a domestic event – but for the local fans it’s a little bit difficult for them to accept that they have to pay to watch their local team,” she says. “[They] have already watched them for free for more than 20 years, 30 years, so that will also need time.”
Another obstacle is the rampant piracy in the country, although Zhao suggests that some progress is being made.
“It’s really a major headache,” she says. “We have already put five companies in court this season and maybe next month we will put another five companies in court. To be frank, it’s difficult.”
The NBA’s partnership with digital broadcaster Tencent was said to herald a new confidence in the ability of the market to resist illegal streaming, and to be indicative of a new mindset at central government level to protect intellectual property rights.
Zhao agrees with the sentiment and thinks Tencent has carved out a sufficient degree of exclusivity from free-to-air broadcasters in the deal to begin to make the pay-TV proposition work.
In those cases where there is less exclusivity, she proposes differentiating digital content to improve the value for subscribers to digital channels like PPTV.
She says CSM is in a strong position to do this given the investment it has made in on-site production capabilities and a 1,000 square-metre production base from which it puts out the world feed for the CSL.
“We have to produce all of the league matches on site and deliver them to the platforms,” she says. “We need to give new, different content to the internet platforms with data, VR maybe and things like star-cam [player-cam] content.”
The production centre delivers content to 96 overseas platforms including Sky Sports and Fox Sports, in addition to pushing short-form clips to different social media channels. It also services an in-house app called Kball which provides match clips and data analysis.
Zhao explains that CSM is the official data partner to the CSL and the Kball product would really come into its own if the Chinese government decided to loosen restrictions around betting on the CSL.
“CSL matches are not in the national lottery system. If this was open to the CSL, the fans could play money on the CSL, and they [would] have to use our data analysis,” she says.
When she explains that the agency also provides marketing services to pair sponsors with the league, teams and the various platforms it works with, it adds to the impression that CSM is striving to deliver an integrated end-to-end service.
She holds out the hope that sponsorship revenue can help to compensate if there is a shortfall in pay-per-view revenues.
For the time being, it appears the focus at CSM is to reverse engineer the CSL deal to make it more profitable and to improve the quality of the television product rather than to acquire more rights.
“The most important thing for us is to make the CSL as perfect as possible,” she says.
“Now we only supply 214 matches and some clips – to be frank, we’re not satisfied [with] the result now, we still have some space to make some more programmes and some self-made content.
“Secondly, we have to help PPTV to find the new business model and help them earn money and help our business [to] continue. Considering these two points I don’t think buying some new property is important.”
Zhao points to the disappointing results of the recent auction for Serie A rights in China as another example of the cooling of the market in the country and stresses that overseas rights holders will have to adjust their expectations accordingly.
“If they want to continue to earn money from the China market, I hope they can give more patience, more sincerity to the Chinese market,” she says.
“Don’t think the Chinese are stupid but with a lot of money. I think this period has already passed.
“As an agency – as a 15-year-old agency – I really experienced the beginning of the China market and the summit of [it] and the bubble going down. But what I can say is: now is the beginning of a healthy, stable and good development and long-term development.”