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Sport must weather media industry turbulence | APOS media conference takeaways, Part II

Second of a two-part report from the APOS 2020 Virtual Series, the online incarnation of the leading Asia-Pacific media, telecoms and entertainment industry conference hosted by Media Partners Asia.

Ekstraklasa Live Park camera operator during Ekstraklasa match (Photo by Mateusz Slodkowski/SOPA Images/LightRocket via Getty Images)

APOS usually gathers leading executives from the Asia-Pacific and global media industries to discuss business direction at an annual get-together in Bali. This year, Covid-19 forced the event online, but it still attracted a host of stellar names.

SportBusiness tuned in across the three-day conference last week to draw out the most important takeaways for the sports industry. This is the second of two reports from the conference. The first report can be found here.

Sport’s role for streamers

Scripted series and films have powered the stunning growth of video streaming services globally, and sport has so far been only a small part of the story.

Discovery Networks International president and chief executive JB Perrette drew a comparison between the role scripted content is playing now and the role sport played in the pay-television era. “Right now, scripted series and movies look like what premium sports have looked like for the last few decades – they’re loss leaders,” he said. “When Rupert [Murdoch] launched Sky, he said ‘I’m going to take premium football, I’m going to lose a tonne of money, and I’m going to attach it to an entertainment train, and I’ll…make money when I upsell people to the package’.”

Joe Ravitch, co-founder and partner at merchant bank Raine Group, and a hugely experienced dealmaker in sport, media and entertainment, thinks sports content will become increasingly important for streaming platforms.

“As sports come back online…I think you will see the power of live sports continue to be, as it was before Covid, one of the most important drivers for the digital industry, for the media industry,” he told the virtual conference.

Speaking primarily about the US market, he said: “As the big international streaming companies try and move more aggressively into the sports environment and broadcasting live sports, I think you will see sports transition from traditional over-the-air broadcasting, and even pay-television, to a streaming environment. And I think that will really be a significant change. We haven’t seen that from any of the major sports yet, but I expect it to come in the next year or two.”

Although Netflix does not appear interested in live sport, plenty of other streaming platforms are, not least those being launched by the pay-television companies that historically built their businesses on sport. China has large sports streaming businesses in Tencent Video and PPTV. And Amazon is still nibbling around the edges. 

But there are as yet few signs that increased streaming platform interest will support sports media rights income growth. The streaming business so far looks nowhere near as profitable as the pay-television business once was.

Joseph Ravitch, co-founder and partner of The Raine Group LLC, speaks at the Bloomberg Sports Business Summit in New York in 2014. Photographer: Peter Foley/Bloomberg via Getty Images

Traditional television transitions to the streaming era

Whether the streaming era is as profitable as the old world or not, it is surely important for sport that its long-standing partners in television survive. There was plenty of evidence at APOS of strenuous efforts from pay- and free-to-air television businesses to adapt.

“There’s no question, traditional pay-TV, big package, big bundle is in sector decline,” Perrette said. “At different paces and at different rates in different markets, for sure, but generally I think that’s a fair statement to make globally.”

Discovery’s response has varied in different markets around the globe. It has been opportunistic as opposed to “monolithic”, Perrette said, resulting in outcomes like it having a bigger focus on sport in Europe than in other markets, with Eurosport, and a bigger focus on kids television in Latin America than other markets. 

One thing the company is definitely not doing is “a Netflix”, Perrette said, meaning investing heavily in scripted content, which is outside the company’s traditional focus. “There’s a lot of people trying to out-Netflix Netflix…I think there’s going to be a fair amount of carnage, because the amount of money being spent to chase that model in the scripted space is eye-watering.”

Discovery’s relationships with pay-television platforms is changing. It is still doing channel carriage deals in which it gets paid a flat fee per subscriber, but alongside these it is agreeing revenue-share deals in which the pay-television companies help sell its streaming products, such as Eurosport Player. These deals, such as that with Sky in Europe, are a “blueprint” for the future, Perrette said.

“In the old world, we were entirely a cost to [pay-television platforms]…Now, we’re trying to create a new model, which is let’s drive the distribution of these D2C (direct-to-consumer, i.e. streaming) products, and ultimately make that a revenue-generator for them.”

The switch of focus towards streaming has been painful, Perrette admitted. What has helped the company recently, he said, is a wave of hires from the technology industry, bringing know-how and business practices that are making Discovery more like a technology company than the broadcaster of old. 

“We’ve now changed the DNA a lot. This is still a work in process, but we have hundreds of engineers, most of them coming from the Amazons and Facebooks of this world, with real credibility and real chops, who are designing our technology.”

(Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

Covid-19 forces rights value reset in Australia

The Australian sports media market reacted fast to Covid-19, with broadcasters taking advantage of the need among rights-holders to get back up and running again by agreeing new deals on better terms. The market’s two biggest rights-holders, the Australian Football League and the National Rugby League, were among those to take a hit.

NRL free-to-air broadcaster Nine was at the heart of these talks and its chief executive Hugh Marks summarised what the market has witnessed.

“Sport is trapped in a tough cycle at the moment here,” he said. “It’s become of decreasing profitability to free-to-air broadcasters and to pay-television broadcasters. But the SVOD [subscription streaming] space or the digital video space is not able to pick up that slack at this point in time.

“So what sports are being forced to do through Covid is to accept they’re probably going to have to reset their businesses to a lower level whilst the total media market adjusts to new players or new entrants.

“How those rights deals will play out over the next 20 years, I don’t know. But in the next three to five years, there’s going to have to be some resetting of expectations. The rights fees that traditional broadcasters have been paying can’t be sustained or those businesses will go broke

“Covid’s really been an abrupt driver of that change. You’re seeing significant reductions in rights fees across rugby league and AFL, which are the two biggest sports. And some of the second-tier sports like rugby or soccer are really struggling to get much traction with traditional broadcasters. So there’s a huge shift going on in the sports market.”

Nine Entertainment Co. chief executive Hugh Marks (R) speaks as ARL Commission chairman John Grant (L) looks on during an NRL media announcement. (Photo by Matt King/Getty Images)

China rifts, short form rise and big bets

Joe Ravitch picked out several big trends that will increasingly shape the media business in the years to come, and that have also reared their heads in sport.

One is political tension between China and other parts of the world. “I think that one of the great tragedies of the last year has been the growing divide between the US and China,” he said. “We are now seeing what is referred to as a ‘decoupling’…driven by politics on both sides, driven by issues around Hong Kong…We are fundamentally at risk of a world where you have two parallel technology systems in 5G, you potentially have two global internets…and I find the decoupling to be something that will make world poorer and I hope that in the future it will not last.”

These rifts affect every industry and have already touched sport. In the last year, the NBA has fallen foul of US-China tensions on more than one occasion. This week the Indian Premier League lost its Chinese title sponsor due to the recent border clash between Chinese and Indian troops.

The second big trend for media is “massive capital inflows” to companies focused on the digital economy from investors seeking increasingly difficult-to-find returns in a world with record low interest rates, and this has accelerated during the Covid-19 pandemic. One of Raine’s companies, DraftKings, the American fantasy sports operator, has seen its value on public markets “explode”, Ravitch said. Indian telco Jio, as reported in Part I of our APOS Virtual Series report, has been “the best example by a million miles”, he added.

Ravitch said the huge amount of money seeking investment opportunities meant that “the businesses that are seen as able to prosper in a post-Covid world…the valuations are extraordinary. Whether they will last, I don’t honestly know.

“You have an interesting combination of trends driven by Covid, combined with a massive excess of global liquidity. They’re creating risk. They’re creating opportunities. There will be winners. But there will also be losers. People are going to lose a lot of money when the world settles down. And some people will come out of this much, much stronger. This is the time for people to be placing bets.”

Several high-profile sports properties have been targeted by investors in recent months, including rugby properties and the Italian Serie A football league.

Addressing sport more specifically, Ravitch noted that, unless many sports can resume play after Covid-19 with full arenas as quickly as possible, there could be some big changes in business models.

“It’s a very interesting dynamic that remains quite uncertain…fundamentally most of these economic models, especially given the salaries due to players, most of these economic models don’t work without the fans in the seats. And without a live audience, without signage, without people buying tickets, seats and suites, these sports leagues are going to be economically challenged to restructure in a very substantial way.”

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