IMG hedges its bets with OTT safety net

BARCELONA, SPAIN - SEPTEMBER 2: Lionel Messi of FC Barcelona celebrates during the La Liga Santander match between FC Barcelona v SD Huesca at the Camp Nou on September 2, 2018 in Barcelona Spain (Photo by Jeroen Meuwsen/Soccrates/Getty Images)

  • IMG launches own direct-to-consumer distribution platforms for Italian and Spanish football rights
  • Agency turns down broadcast bids to launch Strive in Scandinavia but fills holes in global coverage with Serie A Pass
  • Move seen as a safety net for rights-holders rather than changing the distribution model for good

The start of the new European football season has seen the launch of two new over-the-top (OTT) streaming services, as the IMG agency rolled out Serie A Pass and Strive to go direct-to-consumer (DTC) with its rights to the top divisions of the Italian and Spanish game.

The Endeavor-owned agency is paying €340m ($402m) a season for the international rights to Serie A from 2018-19 until 2020-21 and is also the vendor of LaLiga coverage in the Balkans, the Nordic countries, Hungary and Romania over the same period. It has made conventional broadcast sales of the Spanish property in all those markets outside Scandinavia and has also done the same with Serie A in France and the MENA region (both retained by beIN Sports).

In other territories, IMG has accepted offers from pure OTT players (DAZN in Germany/Austria, Japan and Canada) and media companies with a foot in both camps: ESPN is now broadcasting Serie A in the US across its television networks and its new DTC service ESPN+, while in Spain the competition is screened on OTT platform beIN Connect and Mediapro-owned digital terrestrial broadcaster Gol.

In approaching 30 other territories, though, IMG has retained the rights itself and set up its first OTT football services – Serie A Pass and Strive – to distribute them on a DTC basis.

Serie A Pass and Strive: Inside the box

The development of the two platforms began before Endeavor’s $250m (€218m) acquisition of streaming technology provider, NeuLion, and so utilised the services of IMG Gaming, which delivers OTT content to betting shops worldwide and served 21,000 live sports events to the sector during 2017. IMG Gaming hosts both Serie A Pass and Strive and distributes their live streams and the supplementary programming produced by the agency’s production headquarters in London.

Serie A Pass is available in Brazil, 21 Latin American countries, the Netherlands, the Indian sub-continent, Singapore and the Caribbean.

The service offers all 380 league games live, plus replays and additional magazine and archive content, with subscriptions priced at €7.99/$8.99 monthly or €49.99/$59.99 per season.

Serie A Pass is described by IMG as primarily a complementary service aimed at calcio fans in markets where a non-exclusive deal sees the rights-holder broadcast only one or two live games a week. The concept was included in the tender document presented to the league in 2017 as a means of helping it reach as wide a global audience as possible and to be able to speak directly to more consumers.

In Sweden, Norway and Denmark, the agency has bundled both Serie A and LaLiga into Strive, which launched with the offer of a free seven-day trial and is selling subscriptions at 79Kr per month or 499Kr annually.

Strive differs from Serie A Pass in that it exists not to supplement the output of a broadcast partner but take on the role itself. IMG turned down offers in the Nordic region to go DTC itself, making the decision to set up Strive after considering both the value of the bids it received and the potential of the market to support an alternative OTT delivery model.

IMG senior vice-president Kristian Hysén says of the thinking behind the new service: “Whilst we did have conversations and negotiations with broadcasters and received offers, we felt, at this time, that launching Strive was the best option for us, the leagues concerned and for the fans. There is no doubt that OTT is here to stay in sport as it is in other genres like entertainment, as Netflix and Amazon Prime have proved. Technology allows for streaming to be viewed alongside the more traditional delivery methods and a mix of both is here to stay.

“We are also evaluating launching a linear channel [for Strive] and are discussing carriage deals with operators. Pubs and public viewing is another [potential] revenue stream and we are in the process of building an offer for betting companies. The final financial outcome and numbers are still to be seen but this is a highly interesting test case for us.”

There are two key drivers of the launch of Serie A Pass and Strive: one is purely financial, the other strategic.

The financial imperative

IMG’s purchase of the international rights to Serie A came at double the price paid by predecessor MP & Silva, leaving it needing to maximise its revenue from distribution deals to make a return on its investment. This appears to be a potentially more difficult task at a time when an increasing number of broadcasters around the world are reconsidering what they are prepared to pay for secondary rights, such as smaller domestic properties and the major leagues of other countries.

In Latin America this season, IMG was left without a broadcaster for Serie A when Fox Sports declined to bid to keep the competition on its schedules. In the UK, Eleven Sports was able to acquire LaLiga from Sky when the incumbent was not prepared to go above the £18m a year it had been paying under its previous contract, while BT has not sought to renew its rights to the NBA and UFC, with Marc Allera, chief executive of BT’s consumer division, telling the Financial Times: “At the wrong price, everything is expendable.”

Sean McGuire, managing director at strategy and rights advisors Oliver & Ohlbaum, says of this changing landscape: “I’m not surprised [IMG have done this] because the platforms – Sky, BT, Canal Plus, whoever – are being a lot more selective about where they deploy their money. If you are a top-tier right – say the Premier League or Formula One – then you cannot quite name your price but you have competition for your rights. The problem for lower tier sports is that they aren’t getting those increases and, if anything, are facing downward pressure. So there is an opportunity for those rights to find another route to market where there isn’t huge broadcaster demand but there might be consumer demand.”

So a service such as Serie A can add value to a broadcast deal for IMG by offering core fans extra content for an additional subscription fee, but can also fill a hole – or at least part of it – in territories where no television channel or OTT service is willing to pay (or pay enough) for rights. One experienced negotiator says of the situation: “It’s not what an agency sets out to do, so you have to draw the conclusion they are doing it because they can’t get the price they want. They have been overpaying for rights for some time now so it was only a matter of time before they needed to do something to balance the books, although this is more kicking it down the road for now.”

In particular, he characterises Serie A Pass as a new spin on an old trick, citing MP & Silva’s decision in 2013 to collaborate with beIN Sports and set up a dedicated Premier League TV channel in Southeast Asia when it couldn’t attract the rights fees it was looking for there, adding: “I don’t know that rights-holders really care that much [about whether IMG do this]. IMG’s offer for Serie A was high and they were happy to get it, so they will go with whatever IMG want to do. But we live in a world of short-term thinking so what happens in the next round is open to question. There is no doubt that if a broadcaster had made a decent offer for Serie A rights, this wouldn’t have happened.”

The strategic imperative

Another view of IMG’s move into becoming a DTC service provider highlights the strategic benefits of demonstrating its capability in the role, making Serie A Pass and Strive more of a piece with other experimental moves into OTT delivery being made by operators for whom consumer-facing sports broadcasting is not their primary business, as per Amazon’s forthcoming foray into English Premier League rights.

IMG does not necessarily see itself becoming a broadcaster – it maintains its rights business will remain B2B-focused as a distributor rather than a producer, regardless of how Serie A Pass and Strive perform – but being seen to be able to deliver DTC services could make it a more appealing partner to the growing number of rights-holders interested in exploring the potential of this model.

Secondly, the agency’s step up into direct delivery of two of the world’s biggest football properties could offer a more significant strategic advantage than data acquisition alone by creating a new point of competition in the rights market if it can demonstrate to broadcasters that it can go it alone in the absence of bids it considers to be acceptable.

Demonstrating that a combination of subscription revenue and data acquisition can deliver equivalent or greater value to a straight rights sale is the biggest challenge facing Strive, given the costs and complexities of running OTT services and the ongoing uncertainty of the returns to be generated in what is still a comparatively young sector.

For example, pay-television sports broadcaster Eleven Sports is paying a little over £20m a year for rights to top-tier Italian and Spanish football and needs to attract probably 700,000 UK subscribers to make a profit on it. Eleven has a range of other sports on its roster but, as a point of comparison, the most recent El Clásico [Barcelona v Real Madrid] game screened by Sky attracted only 225,000 viewers on average.

“The economics are not a complete slam dunk,” says McGuire. “Even with research, you don’t really know in advance how many people you will get.” But if IMG can make it work, he adds, “being able to point to the fact you have done it somewhere else and it is working effectively gives the rights-holder a credible threat. You have effectively got another bidder to keep everyone else honest”.

Logistical strength to tackle financial weakness

While IMG may be going OTT with Serie A and LaLiga both to address a specific financial weakness and develop a new strategic advantage, it can at least target both objectives from a position of strength logistically.

In establishing Serie A Pass and Strive, the agency has the benefit of scale and experience on its side, as well as the technological capability – through IMG Gaming now and potentially NeuLion in the future. One international rights advisor says of that position: “IMG has a different development story to other agencies. They started very early in television production with the Premier League so they have built up a lot of knowledge and experience, not just in producing live games but also highlights, previews and magazine shows. So it’s a logical step, particularly as OTT is able to offer much wider programming than traditional broadcasters.”

IMG also found itself with a combination of inventory and market conditions that made Scandinavia a prime candidate for a first push into OTT subscription services, in that the agency was able to bulk up the offer with both Serie A and LaLiga rather than just one or the other, and do so in a region Hysen describes as “digitally sophisticated”, with the widespread availability of high-speed broadband access creating a comparatively mature market for this type of product. In March 2018, for example, researcher Kagan reported that penetration rates for subscription video-on-demand services like Netflix had reached 86 per cent of fixed broadband homes in Denmark, 77 per cent in Norway and 76 per cent in Sweden. By comparison, the equivalent figure for the UK was 56 per cent.

A safety net for the bottom line

IMG’s insistence that it is open-minded about what success for Serie A Pass and Strive would look like implies that this is an experimental move made possible by a combination of its rights portfolio and in-house capabilities, but one whose timing has been determined by a need to cover a shortfall of interest and income from the broadcasters to whom it has traditionally sold.

At the same time, the agency maintains that its default distribution model of working with those broadcasters remains unchanged and it is still open to offers on Serie A where its OTT product is already in place but there have been no takers for linear rights. That, says one experienced advisor, is a mixed message to send. “I think it complicates the market tremendously and [broadcasters] are finding it very difficult,” he says. “They don’t really know how to deal with IMG these days: are they an agency they can buy from and trust? Or are they now the opposition? It does blur the line somewhat.”

What the agency may in fact be building is a safety net for rights-holders – and itself – should they fail to generate the fees they anticipate for their properties: IMG has specifically described both new products as offering rights-holders more flexibility according to the level of interest their property generates in any particular market.

One consultant summarises: “If you buy a property like Serie A on a worldwide basis, you will always be surprised in some regions in a positive way by getting more for the rights than you expected, but you will be surprised in a negative way in others where you get less than you expected. Building an OTT service gives you another option if you don’t get the revenue you expect, but it is not a short-term project you set up as a reaction to that. There is long-term planning behind this because it needs a lot of investment and organisation and commitment from shareholders. I have the impression this is a long-term plan where IMG is trying to build up some alternatives if the current big players are not willing to pay the licence fees they expect.”

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