4: Faster, Higher, Stronger: The Future of OTT
The future of OTT sport is clearly not without its challenges, but digital delivery will continue to move inevitably towards the centre of the media landscape as consumers switch ever more seamlessly between devices, rights-holders seek the control and data the DTC distribution model can offer, and legacy broadcasters seek to escape the fixed costs of their cable and satellite infrastructure.
The big question facing the industry is therefore not whether OTT will continue to grow, but how it will do so – and what impact that growth will have on consumer behaviour, rights-holders’ content strategies and the interest of the global giants of the digital economy. Says Craig Niven, Lead Consultant at Two Circles: “I almost feel the question is not: what is the future of OTT? It should be: what is the future of sports content now that OTT is here?”
4.1: New chapters in content strategy
The continuing expansion and uptake of OTT services is likely to create new opportunities for rights-holders and their media partners to evolve their content strategies in both live event coverage and in the non-live output they make available either on demand or in a linear channel format.
Consumers are interested in a wide range of in-game enhancements enabled by the flexibility of digital platforms: a 2017 study by IP video solutions provider Phenix based on YouGov research found significant levels of sports viewer interest in access to player statistics and information (36 per cent), streaming multiple games simultaneously on different devices (36 per cent), watching in virtual reality (30 per cent) and getting updates from the sidelines/locker room (22 per cent).
These choices all highlight a desire for insight – to access new, additional information or obtain an alternative perspective – but they also all have an inbuilt capacity for the personalisation that most observers expect to be the default mode of OTT sports services of the future, not just in response to customer expectation but also as a means of differentiating themselves from more rigid linear platforms. As Chris Wagner, executive vice-president and co-founder of NeuLion explains: “Most OTT services are subscription-based, not like networks, so you have to not only find viewers but get them to pay and return.”
Personalisation, he adds, is key to building the ongoing relationship required here, and can be seen as a three-phase process from a technology perspective: “Step one is to create high-quality video delivered direct to consumer in HD and 4K. Step two is to leverage watch data out of the delivery of that video so you can identify what fans like to watch, what devices they prefer, how long they are engaged for online. Step three is then to use that data to personalise the service to be more effective in programming and more effective in offers.
“The NBA, for example, does all three steps already so they now have a fantastic video experience on any device. For smartphones, for example, they have a camera that sits courtside and produces very tight shots, straight onto the court, for a feed built specifically for a mobile audience. Then they have graphic overlays for stats which you can swipe in and out in real time, and when the ball changes possession you see changing stats for the other team”.
However, once the final whistle has blown, every pivotal play been analysed and all key participants interrogated, the new platforms need more content to provide the glue of retention. Matt McKiernan, director of online video platform provider StreamAMG, says of that requirement: “If you have first-team live rights, media and press conference that is the big driver, but it fills only a small part of the week, so there is a huge amount of video-on-demand product needed to get the views up.”
Archive footage and highlights are expected to remain the go-to options here, with audience data underlining the enduring popularity of this type of content. In 2017, some 70 of the 100 most-watched sports videos on YouTube had ‘great’, ‘greatest’ or ‘best’ in the title, while watchtime of highlights videos on the platform grew 80 per cent year on year. That latter story is reflected also in the incredible rise of the Instagram account, House of Highlights, started by Omar Raja in 2014 and which he has run as an employee of the Bleacher Report since 2016, by which time he had attracted approaching a million followers to his mix of contemporary, archive, off-beat and distinctively-captioned clips from all levels of professional and amateur sports. Today, the account has 8.4 million followers and, according to data from CrowdTangle, averaged more than three quarters of a billion video views a month in the final quarter of 2017.
Other approaches are available though. The forthcoming OTT sports offering from broadcaster CBS is expected to take a more conventional slant based on “24/7 news, highlights and analysis”, while others are using the available space of on-demand libraries as a home for more long-form story-telling or behind-the-scenes content. Netflix and Amazon Prime have partnered with Juventus and Manchester City respectively on documentary series, while the IOC’s Olympic Channel is investing in feature-length output under the Five Rings Films banner, beginning with The Nagano Tapes, which narrates the underdog story of the gold medal-winning Czech Republic’s men’s ice hockey team of 1998.
4.2: Changing fan behaviours
Fan behaviours and preferences have been an important influence on the development of OTT services to date, while the development of OTT services has simultaneously been an important influence on the evolution of fan behaviours and preferences too. These two factors will continue to drive the pace and direction of the market as new platforms and technologies create opportunities for new modes of viewing and consumer responses to these determine the ones that gain the traction required to attract further investment.
In the immediate term at least, multi-tasking – in terms of both activity and device usage – looks to be among the most significant of these, with research suggesting that all broadcast platforms need to be supporting viewers’ ability to do more than just follow the action on the screen in front of them. The 2017 edition of Deloitte’s Digital Democracy Survey, for example, found that 99 per cent of Millennials and members of Generation X in the US multi-task while watching TV, carrying out four additional activities simultaneously on average. Consumer research also conducted in the US by the Interactive Advertising Bureau pegs multi-tasking on a second device at a slightly lower level – 81 per cent among linear TV viewers and 72 per cent for those watching digital video – but still supports the conclusion that some periods of game-time are less compelling than others.
This pattern tallies with the views of Dan Singer, a partner at McKinsey and leader of the company’s Global Sports and Gaming Practice, whose study of sports television viewing habits has led him to conclude that the increasing amount of content available to fans across multiple screens means fans are not watching less sport overall, but “are watching fewer games and quitting them faster”, with match-ups that have little riding on them or in which the score has become lop-sided most vulnerable to churn.
The suggestion, therefore, is that sports fans are becoming more discerning, picking and choosing not just the games they watch but even the passages of play to which they give their full attention.
On a macro level, says Lagardère’s David White, that has implications for the way OTT services price their product. “I think we will see some rights-holders offering different pieces of content at different price points to different customers,” he predicts. “For instance, Chelsea might command a higher fee per match than Southampton and it may be that if I want to watch all the Chelsea matches, not just Chelsea versus Manchester United, then I will get a discount along the way. Varying price points and adapting pricing strategies around the different elements of the menu will be the interesting outcome of an à la carte approach.”
But within the live product itself, the restlessness of viewers with other digital places to be challenges rights-holders and broadcasters to accommodate their multi-tasking requirements while incentivising them to keep at least one eye on the ball. For linear TV, that focus is likely to remain on developing the capabilities of second screens as companion devices that can add context and additional value to the bigger television picture. For OTT services, there is greater potential to embed additional functionality within the live content itself.
The NFL has specifically targeted this type of approach in its willingness to sell live rights to its Thursday night games to digital platforms, with the aim, reported by Bloomberg, of having a technology company “offer an interactive stream with social-media commentary and statistics that [can] entice kids raised on video games and Snapchat.”
Singer also suggests that OTT services be designed to dovetail with these new consumption habits, primarily through convenient access that allows fans to drop out but – crucially – drop back in again (through quick navigation between games, one-click access from social media and search, plus rapid sign-on and payment systems), and through improved sharing capabilities, particularly of highlights and fan opinion, but also through fun, quick-play contests to keep fans and friends engaged.
The behavioural shifts the market is seeking to harness are occurring gradually rather than overnight, meaning the balance between OTT and linear TV will change only slowly too, as ‘legacy’ broadcasters remain a central part of the domestic media environment for all demographics from Millennials up.
Bruin Sports Capital’s David Abrutyn observes: “Where the tipping point at which OTT surpasses linear television will be is hard to say. All the metrics suggest there will be a slow and gradual migration to a much more comfortable consumer experience [with OTT] as technology improves year over year over year and the number of people who are cord-cutters and cord-nevers entering the market increases.”
But he adds: “Does that make people less reliant on linear? Watching on an iPhone is not the same experience as on a 70-inch screen with surround sound in your living room. That is something a lot of people will still enjoy so the two will co-exist and you can win on both sides. In the next five years we will see significantly more people consuming digitally but, just like with the linear TV experience, it centres around what is the consumer experience and is that meeting the needs of the audience? Video quality; consumer choice; different viewing angles; data – the things we can provide that make for a compelling product. That bar will get raised higher and higher every year because of the calibre of the people and organisations working every day to create the best experience for consumers.”
4.3:FANGs in or out?
The 800lb gorillas in the room of OTT sport are the FANGs of the tech economy – the global digital giants of Facebook, Amazon, Netflix and Google, who have the reach and resources to shape the future of the market around whatever model they choose. So far, though, they are yet to make a decisive move. Netflix prefers to invest its billions in original films and TV programming and has told shareholders that acquiring live sports rights “is not a strategy that we think is smart for us”, while the others have so far only dipped a toe in the water by comparison with the splash they could make if they decided to go all in.
Amazon has been a participant in the NFL’s Thursday night streaming experiment, will replace Sky as the broadcaster of ATP Tour tennis events in the UK from 2019, and partnered with the UFC to sell its first pay-per-view event in February 2018. It is also reaching out to younger audiences through its subsidiary Twitch, which has expanded beyond its esports base to stream live basketball from the NBA’s D-League and host a new multi-sports channel from international broadcaster Eleven Sports. Google’s YouTube TV, launched in April 2017, has signed a series of deals with MLS teams, while Facebook has made perhaps the strongest statements of intent with its (failed) $600 million bid for rights to cricket’s Indian Premier League on the subcontinent, its subsequent hiring of Eurosport chief executive Peter Hutton and signing of a deal valued at $30-35m for exclusive live rights to 25 MLB games during the 2018 season.
All of the FANGs have the power to blow the incumbents out of the water in the same way that Sky swamped its terrestrial rivals in the bidding for the Premier League’s first set of rights back in 1992 – “£6bn to them is not the same as £6bn to Sky,” observes StreamAMG’s McKiernan – but just because they can spend doesn’t necessarily mean that they will. Speaking to the media in October 2017, Facebook’s head of global sports partnerships, Dan Reed, underscored the fact that the company made no rights payments on the vast majority of the 3,500 live sports events it streamed during the first six months of the year, describing the primary currency of its sports partnerships as being an exchange of content that will drive time spent on the platform for Facebook in return for “free consulting” that helps the rights-holder generate commercial benefit from its presence there.
All FANG involvement to date can be seen as an effort to test a variety of sports, content formats, distribution structures and business models – a manoeuvring for position that highlights the fact that there is as yet no clear view on how return on investment would differ for the big beasts of technology from those of television. Amazon at least has a non-media business into which it can leverage new sports subscribers in the same way that pay-TV providers used live rights to sell more valuable triple-play communications bundles of television, phone line and broadband connection, but market researcher Juniper estimates it would still need to double its current UK subscriber base to make money as even a junior partner among Premier League football’s domestic broadcasters. Facebook’s advertising revenues can potentially benefit from more people spending more time on the platform, but Reed himself admitted it is still too early for the company to be able to say definitively what its monetisation strategy for sport will be.
If the revenue side of the proposition is still uncertain, the costs of getting into the live rights game are easier to add up, but offer significant pause for thought even to companies with pockets as deep as those of the FANGs, due to the technical and logistical complexities of becoming a broadcast production company that taking on top-tier rights would involve. Add to that the fact that the global nature of the technology giants’ preferred business models is difficult to create in the piecemeal world of sports media rights, as well as the technical issues discussed earlier in this report, and the difficulties they face in planning a roadmap into live sport become easier to understand, particularly in terms of how they differentiate themselves from the broadcasters they are touted to supplant. On that last point, Craig Niven says: “For rights-holders, there are essentially two approaches to OTT. The first is where you own the content on your own platforms, and the second is where your content is distributed through a media partner’s platform. If that media partner is going to be a Facebook, an Amazon or a YouTube, the content distribution business model isn’t all that different to a traditional broadcaster: they just consolidate content and sell it as a package.”
Many top-tier properties are already salivating at the thought of the impact the competition of these major technology players could have on the value of media rights that have become vital to the commercial wellbeing of their current holders, but there are a range of views on how that scenario will play out. SportRadar OTT’s Rainer Geier is “100 per cent sure they will come in,” and that in the near future, “there will be a big bang and they will acquire top-tier rights on a global basis”, while Matt McKiernan predicts: “Within five or six years from now we will see one big federation do a deal with Facebook or Amazon. Everyone else will look at it and if it’s successful they will all jump on the bandwagon and do a single deal worldwide.”
At the other end of the spectrum, though, David White believes the FANGs could in fact double down on Facebook’s current ‘partnership’ approach and take the view that the audiences to which they can offer direct access are worth more to sports properties than those properties’ live rights are to them. Under that scenario, he says, “we might see a model where the tech giants don’t buy rights but rather they deliver rights and take a fee for that delivery”.
The common, fundamental issues that all rights-holders considering a future in OTT will continue to face are of whether they retain or sell and, if they choose the latter, what sort of partnership will best marry their ambitions of revenue and reach. NeuLion’s Chris Wagner says of that challenge: “When you own the sport, the league has to monetise its events. The question they will all have to ask is, can they do so exclusively through a third party, can they monetise DTC or is it a mix of the two?
“The EFL I would imagine had an opportunity to look at Facebook or Amazon [before launching its own proprietary OTT platform] but they think they know their fans better than anyone else and can build a valuable business through that. The NBA think the same way but they find what works for them is to have a distribution strategy that combines DTC with exclusive and non-exclusive deals in certain markets and takes in third parties that could be tech companies or broadcasters or a store like Amazon. Ultimately, the balance is driven by the economics.”
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