The OTT report | Chapter one: The story so far

1: The Story So Far: Streaming’s Rising Tide

Sport is often perceived as playing catch-up in a streaming revolution whose pace has so far been set by music, film and television. But the fact is the industry has had skin in the game for more than 20 years now.

Sports broadcasting first went over the top as long ago as September 1995, when ESPNet SportsZone streamed live radio coverage of the Seattle Mariners’ Major League Baseball (MLB) game at the New York Yankees over something called ‘The Web’, which the Seattle Post-Intelligencer helpfully explained was “a rapidly growing section of the Internet enlivened by pictures, sound and video”. The Mariners’ local tech business connections – RealNetworks streaming pioneer Rob Glaser is a long-time shareholder in the franchise, while ESPNET SportsZone was part-owned by Microsoft co-founder and Seattle native Paul Allen – got them first out of the blocks but inferior sound quality to standard radio and technical limitations that restricted access to the stream to only a few hundred people at the same time meant this exciting new era of sports media consumption made little immediate headway. “Why would anyone want to listen to a radio on a computer when there’s a perfectly good one in the car?” the Tampa Tribune wondered.

Some 22 years on, the internet is now a logjam of streaming services of all shapes, flavours and sizes, but with MLB still very much on base and having undergone an expansion that is emblematic of the pace of change experienced throughout sports media at large. Having started streaming live videos of games in 2002, its annual volume of broadcast output reached 18,000 hours in 2009 before rocketing to 400,000 hours just five years later, fuelled by the in-house expertise of MLB Advanced Media, the technology arm that proved so successful it spun off a separate entity, BAMTech, which provides end-to-end content delivery solutions to other leagues, broadcasters and non-sports platforms such as Hulu and is now majority-owned by Disney following successive buy-ins that earned MLB and its member teams more than $2.5bn over 2016 and 2017.

1.1: More screens. More choices

With comScore data indicating that viewership of OTT video services reached majority status in US homes during the first quarter of 2017, these are now clearly mainstream delivery platforms for entertainment content. This level of access has been achieved through a confluence of three important trends: expansion of ownership of streaming-enabled devices, changing television viewing habits, and the emergence of new technologies and platforms to exploit the opportunities created by the first two shifts.

Chris Wagner, executive vice-president and co-founder of digital video technology specialist NeuLion, which powers the OTT services of sports properties including the NBA, UFC and English Football League, says of the cause and effects of the change: “We are as consumers spending less time in front of the TV set. Cable subscriptions are decreasing, certainly here in the States. In 2050, there will be more smartphones than people. Quality [of OTT services] is now better than the legacy television experience as the ability to personalise is far better – the consumer wants to pick and choose. These are all big macro trends that mean the whole video ecosystem is under complete change and that the urgency to go DTC is bigger than I’ve ever seen it. Every media company, especially in sports, is now in a position where they have to have a DTC service because that is where the audience is.”

The key enabler of the current virtuous spiral of growth OTT services are enjoying is the technology element: without the widening availability (and, crucially, affordability) of streaming-ready devices and the network capacity to deliver reliable, high-quality video to them, consumers would not be able to move their consumption habits away from linear television and towards OTT. That in turn would inhibit the expansion of service provision and choice by keeping addressable audiences below the levels needed to attract new entrants on the supply side.

Smartphone penetration in Western economies has been approaching saturation point for a number of years and has been a primary driver of video consumption over social media and platforms such as YouTube. At the same time, however, it has formed a bridgehead for OTT services to reach more and bigger screens by normalising this type of consumption for a widening range of demographics. As Rainer Geier, managing director of streaming technology provider Sportradar OTT, puts it: “We are now going from linear broadcasting to OTT. We expected the transition to come earlier but in the last two years it has really been increasing and reaching a critical size. That comes with mobile devices and mobile usage by Millennials particularly.”

It is the arrival of OTT capabilities in the centre of the entertainment home through smart TVs and video-streaming devices, however, that has had the most powerful impact on the big-screen viewing that dominates live sports consumption. According to the Internet Advertising Bureau, ownership of smart TVs among US adults grew by 75 per cent between 2015 and 2017 to achieve 42 per cent penetration overall. Ownership of streaming devices such as Roku boxes or Amazon Fire sticks also jumped 48 per cent over the same two-year period to reach 34 per cent in 2017. Data from the UK communications regulator Ofcom, meanwhile, puts streaming device penetration among Britons at 21 per cent in 2016.

Ownership of video streaming devices, 2015-17

Base: 651 and 821 adults aged 18+

Source: IAB Research

More significantly, owners of these devices are increasingly confident in using them, with the result that consumers are watching less conventional linear TV and more streamed services (primarily on-demand), even if they do so on the same screen. The IAB research found that the proportion of streaming-enabled TV owners in the US who streamed video on a daily basis rose from 32 per cent to 46 per cent between 2015 and 2017, while Ofcom found that streaming devices in the UK were used by 86 per cent of people who had access to one. The result of these shifts is that, in the UK for example, average daily time spent watching broadcast television fell by 12 per cent between 2011 and 2016.

This expanding OTT audience has attracted more OTT services, which have in turn attracted more viewers by making more content available to them. Estimates by Ampere Analysis indicate that Netflix subscription numbers in the UK grew from 3.6 million in Q4 2014 to 6.0 million by the same quarter of 2016, while those of Amazon Prime expanded from 1.1 million to 3.8 million.

The shift is evident in live sports audiences too, so while Super Bowl LII was in conventional viewing terms only the ninth-most watched edition to date, it was by far the most streamed, with NBC reporting an average minute audience of 2.02 million, peaking at 3.1 million concurrent streams and with a total of 633.7 live streaming minutes consumed across 6.1 million unique devices, the last two of those numbers up 185 per cent and 112 per cent respectively from NBC’s last Super Bowl stream in 2015. In the UK, broadcast viewing figures for Sky Sports live Premier League output fell 14 per cent in 2016/17, but audiences watching via its OTT services Sky Go and Now TV were up 31 per cent. And for the summer Olympic Games, streamed video views grew from 700 million at Beijing 2008 to 4.4 billion at Rio 2016 as total viewer hours fell from 37.3 billion to 30 billion.

Olympic Games broadcast metrics, 2008-16

Source: IOC

“There will always be a place for linear television,” says David Abrutyn, executive vice-president and principal of global sports investment firm Bruin Sports Capital, which is involved in OTT ventures with the NFL and the ATP in tennis. “But if you are looking at the amount of video being consumed by OTT platforms, it is already several billion hours annually and the data suggests that, from a US perspective (although the trend will be similar elsewhere), as many as 30 per cent of households no longer have traditional pay-TV. Over the next several years you will have more cord-cutters trying to meet their needs and then a large section that will be cord-nevers: 18-year-olds and over who have never had a cord. How will you reach those people who consume not just sport but traditional TV in a different way to the way 40-somethings might? That is the challenge: to put the jigsaw pieces together and reach audiences wherever they want to consume their sport. In today’s consumer-driven marketplace you have to be where the audience wants to engage with you. There was a perception that live sports was one of the reasons why people wouldn’t cut the cord but if you look at Direct TV, Hulu and ESPN with their much talked-about OTT service, we are creating an ecosystem in which you can cut the cord and still have sports available to you.”

1.2: Rights-holders: A mass participation event

There are now reported to be more than 200 OTT services available in the US alone, with a new offering joining the market at least once a month on average during 2016 and 2017. Growth rates in the sport sector are if anything even higher, to the point that NeuLion streamed 63,000 live events during 2017, comprising around 300 petabytes of data. And with the following just a snapshot of some of the parties coming to the table in 2017-18, the numbers are likely to continue rising well into the medium term:

•    ESPN Plus is slated to launch in April 2018, offering live sports not available through its pay TV service for $4.99 a month.

•    Formula 1’s F1 TV will be available in around 40 countries for the 2018 season, charging $8-12 a month for commercial-free coverage and exclusive features, and setting a medium-term audience target of five million subscribers.

•    Spanish football league LaLiga announced it will introduce its own multi-sport OTT service in August 2018, aiming to improve the visibility of 64 Spanish sports federations alongside coverage of its own competition.

•    The Professional Bull Riders series launched its own western sports service, available for $6.99 a month through its own app and website initially but coming to services including Amazon Prime, Apple TV and Roku later in 2018.

•    The Volvo Ocean Race began live-streaming its in-port competitions over Twitter from January 2018.

•    In September 2017, the International Tennis Federation unveiled its own live streaming platform for its Davis Cup and Fed Cup competitions.

•    A 10-year, $525 million agreement between the Women’s Tennis Association and digital content specialist Perform Group led to the launch of OTT service WTA TV, offering live and on-demand of almost 2,000 matches for a monthly fee of $9.99 or $74.99 annually.

•    Also in tennis, rights distributor Lagardère Sports enabled triple Grand Slam winner Stan Wawrinka and world number seven David Goffin to stream their matches at the 2018 Open 13 Provence and Open Sud de France tournaments respectively live on their Facebook pages within certain territories.

•    World aquatic sports governing body Fina launched its FinaTV OTT service at its 2017 World Championships, the first of its marquee competitions to be streamed through the new platform.

All these rights-holders clearly have a primary focus on the revenue opportunities of going DTC, but with development of these services complicated by existing media rights agreements – F1 TV is available in France and Germany but not the UK, for example – the initial focus of the majority is on expanding their fan bases beyond the audiences of their pay-TV (and, in some cases, free-to-air) output. This is true at both ends of the scale, as the examples of the proprietary OTT services of the NFL and European Hockey Federation demonstrate.

1.2.1: NFL Game Pass

Game Pass is the NFL’s own OTT service, which offers different levels of service to fans according to their location. Within the US, Game Pass provides live streams of pre-season games and on-demand replays of all regular season contests, although all out-of-market Sunday games can be watched live via an additional pay service at nflsundayticket.tv. Outside the US, Game Pass subscribers can watch every game live or on-demand and have round-the-clock access to the NFL Network channel (with some blackout restrictions in Canada, the UK and Republic of Ireland). Both products include a condensed ‘game in 40 minutes’ option which is considered to have strong appeal as a view-in-commute product for international markets in which live action plays out overnight. An annual subscription costs $99 in the US or £140 in the UK.

The service re-launched in Europe in September 2017 with a renewed focus on portability, control and data visualisation in response to the views of 5,000 subscribers surveyed during the off-season, and the NFL says it will be an increasingly important focus of its business strategy over the next five years. The League also streams all games live in Canada through the sports-dedicated subscription platform DAZN and has made Thursday night games available free-to-stream via Twitter and Amazon Prime, using multiple platforms to test penetration rates and explore customer acquisition options, in expansion markets especially.

David Abrutyn , of Bruin Sports Capital, which runs Game Pass in Europe through OverTier, a joint venture with WPP, underlines the focus of the product on extending the league’s visibility and reach. “The NFL Game Pass product enables NFL fans around the world to be engaged in viewership of games as well as all the collateral programming that goes with it,” he says. “If you are serving more people than you did last year, that would be success.”

1.2.2: EuroHockeyTV

EurohockeyTV is the streaming platform of the European Hockey Federation, set up in the summer of 2017 with the aim of growing interest in the sport and providing access to live action for audiences in regions under-served by television coverage. Built in partnership with Sportradar, EurohockeyTV will stream 163 matches from more than half the 30-plus tournaments it runs at senior and junior level during its first year of operation and aims to expand its scheduling by opening the platform for national associations to use as a home for their own live output. The federation has sufficient budget to manage broadcast coverage at eight tournaments, while individual hosts are able to perform the same duties at a further eight. The service does not charge viewers for access but requires one-time registration to watch live streams. All on-demand content is open access.

The first events steamed live by EuroHockeyTV were the 2017 European Senior and Under-21 Championships, after which registrations reached 30,000. Euro Hockey League coverage attracted a further 5,000 subscribers with winter indoor competitions taking the base up to 40,000 in the early months of 2018. The federation’s year-one aim is to reach 60,000 registrations by April 2018, which it expects to do with a further round of EHL action.
EHF General Secretary Angus Kirkland says of the platform’s longer-term goals: “What we are trying to create is a home for hockey in Europe where people will automatically go to watch. We are building a community and the more content you can have, the more people are getting involved and the money will eventually fall out as we become more able to bring in sponsors and advertisers too.”

1.3: Broadcasters: TV still part of the big picture

Streaming may be the future of sports media but cable, satellite and terrestrial broadcasting is a long way from being consigned to its history. Sport still needs what are now being termed legacy broadcaster systems, and the business models of these platforms still need sport. But there are also areas in which the interests of OTT and cable/satellite services will continue to coincide.

For sports properties seeking to reach mass audiences, conventional television is still the only game in town. OTT audiences continue to set record after record, but they are coming off a relatively small, early-adopter base. The peak television audience for Super Bowl LII was more than 35 times the size of its online equivalent, while, more widely, research by UK industry body Thinkbox compiled from Ofcom, BARB and comScore data found that live TV viewing still accounts for 60 per cent of the average person’s video day – and falls only to 40 per cent even among the prime cord cutters of the 16-24 demographic.

Cable and satellite broadcasters are not doing sport a favour by giving them dedicated channels and vast amounts of airtime though – exclusive access to sport has been the hook on which many broadcast businesses have been built, not just in driving subscriber numbers but as a gateway to selling wider bundles of communications services. An October 2017 US consumer survey by PwC found that 81 per cent of sports fans subscribed to pay TV – nine points higher than the whole-sample average – but also that 82 per cent of this group would happily cut the cord if they could watch live matches elsewhere.

The question of which party needs the other more will play out in rights negotiations – with the spectre of an Amazon or Facebook bid floated during the most recent round of domestic Premier League bidding a likely sign of things to come – but even where an ambitious OTT provider does make a major purchase there are likely to remain some areas in which cooperation with incumbent legacy broadcasters is still of mutual advantage. Technological advance will erode this need over time but at present OTT services operate under restrictions of reliability and reach that do not generally apply to signals being beamed from satellites or through cables.

The most overlooked of these is out-of-home viewing, which can add significant numbers to live sports audiences. Nielsen’s US out-of-home reporting service launched in 2017 found that this segment gave sports events an average uplift in viewership of 9 per cent, with ESPN seeing a 19 per cent boost for its live college football coverage. In Germany, the biggest Bundesliga matches can attract out-of-home audiences of two million-plus, while in the UK it is believed that viewership in pubs and clubs can often eclipse domestic ratings for the Premier League, with audience demographics skewed towards the most valuable target groups of sports properties and associated brands.

Past-year viewing of live sport on television in a venue outside the home, October 2016

Base: 960 internet users aged 16+ who have watched live sport on TV or online in the last 12 months

Source: Mintel

For OTT newcomers to the out-of-home segment, the issues that are currently hardest to address are around latency and the policing of rights. Dependence on broadband networks – especially in rural areas – and the variability of WiFi connections within venues creates a risk of spoilers the near-instantaneous and simultaneous nature of broadcast delivery does not, whether that is through social media or the cheers of the bar next door alerting the audience to a goal being scored before it happens on the screen in front of them. And with one of the appeals of the lean OTT business model being its ability to thrive on low costs and margins, the resource required to police out-of-home rights – which still depends largely on physical inspections of premises – is a more significant burden than it is for incumbents with established systems of protection.

Broadcasters are in no way irrevocably welded to their satellites or tied inextricably to their cables, though, and in fact, on the contrary, many are looking forward to escaping the cost burden of keeping their distribution systems flying through space as they go OTT themselves. There is a wide expectation that these legacy platforms will go the way of the dinosaur, but circumstances dictate that their extinction date is not yet imminent.

Browse the sections of the OTT report and download the full PDF version here.

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