Huge opportunity, but expect to see more testing and learning

Author: Luka Maselj | read time: 6 min

Roughly a quarter of a century after the British satellite Pay TV Sky showed its first Premier League game and sparked a TV revolution that would forever change the way of consuming sport, we are potentially on the verge of another huge transformation. OTT (‘over-the-top’) content providers have already started challenging the traditional media. Matthew Entwistle, Group Managing Director at Two Circles, spoke with SPORTO to provide some additional insight.

OTT providers offer access to their content independently of the traditional facility or network (such as cable or satellite). The likes of Facebook, Amazon (with Amazon Prime), Netflix, Google (with YouTube TV), Twitter, Snapchat and DAZN are leading the way by offering sports content, particularly live content, on-demand. But while the rights holders are keen to ‘go OTT’ and monetise their assets in a new way, Entwistle believes OTT deals or OTT strategy is not going to replace the traditional broadcast model just yet, pointing out several reasons. “Firstly, mainstream broadcasters still have deep pockets and losing key sports rights – particularly live, premium rights – is an existential threat to them,” he said. Entwistle believes traditional media outlets will continue to invest in the ‘top’ rights – because they have to. Another key thing is also that while it is absolutely clear that the viewing habits are changing, and fast, OTT can only be a solution for a certain amount of people. A 100% OTT approach would exclude a chunk of the market which still watches sports content through linear TV. It is a process that, in any case, needs time and the right approach.

Twin-track strategy

An important question popping up is who would use the service and consequently also pay for it. While it is clear that super-avid fans are prepared to pay extra for the content they love, going OTT also brings a huge risk of losing a much larger, less avid viewer base. “This means the vast majority of sports properties simply cannot generate a revenue stream from OTT that is big enough to replace the revenue they get from existing TV deals – not at the moment anyway,” warned Entwistle and underlined Two Circle’s stance on the matter: “While there is a huge potential with OTT, the best option is to use it alongside traditional routes to market, giving super-avid fans a reason to invest (for example, getting all games live), while letting less avid fans access the product through traditional means. It is a twin-track strategy.”

Matthew Entwistle, Group Managing Director at Two Circles

A big reason why a big change will not happen overnight is probably related to the fact that buying the rights as such is not the biggest problem, the problem lies in monetising them. Social media such as Facebook and Twitter struggle to drive direct consumer spend on their platforms (plus, they are dependent on the content that traditional media, which they will potentially be challenging for rights, is posting on their platforms), while Entwistle points out Amazon as “the interesting one to watch”. Their Amazon Prime network became much more well known globally after the launch of the Grand Tour series (with the former BBC’s Top Gear TV hosts), but – at least currently – still lacks the appeal Netflix has. Amazon recently secured exclusive rights for the US Open Grand Slam in the UK and Ireland and is supposedly a serious contender for (at least local) rights for the National Football League (NFL), National Hockey League (NHL) and Major League Baseball (MLB) when the current media deals expire in 2021.

What does all this mean for the value of rights?

Nobody really knows what the future will bring and who the winners and losers in the field of OTT will be. Based on Entwistle’s words, the process of the OTT evolution has already started a couple of years ago, but what we have seen so far is mostly a lot of experimentation and testing of new models. Some examples: Amazon paid €12 million to lure UK rights to the ATP World Tour from Sky and succeeded Twitter as the NFL streaming partner for ten Thursday night games (value of contract is rumoured to be around €40 million), Google’s YouTube TV is the presenting partner of this year’s National Basketball Association (NBA) finals, English Football League (second tier competition in the country) has its own streaming service for overseas fans (€130 to watch all their team’s league games in one season), Facebook paid around €25 million for a package of midweek, mid-afternoon MLB games, while the most digitally savvy sports competitions, such as the NBA, NFL or Ultimate Fighting Championship (UFC), have introduced their digital ‘passes’ to give fans even more access and insight. “Expect to see more testing and learning,” said our interviewee, who believes that, as a result, rights values for premium, must-have rights might be maintained (in 2015, Sky and BT paid more than €5 billion for a Premier League season of broadcasting rights), while the ‘middle’ is going to come under pressure. And how are rights holders going to respond to that? “What is clear is that leagues, teams and federations are going to have to adapt their strategies to put themselves in the right position for the future, whatever the final answer is,” said Entwistle, clearly stating that just continuing with the same strategies and routes to market is too big a risk.

Data is crucial, brands want proven ROI

Based on Two Circle’s experiences, this does not mean that this kind of changes is bad news. A lot of the forward-thinking sports rights holders they work with firmly believe that these changes are a huge opportunity. “They can flex how they interact with their fans, without any intervention from broadcasters, and differentiate their offer to their keenest fans, personalising content and learning more about what they love in the process,” explained Entwistle, who agrees that data is crucial when it comes to the value of sports rights and the way they are monetised digitally.

Traditional sponsorships are getting harder and harder to sell. “Brands want proven ROI over awareness or brand connections, and realise most sports fans go online first to get their fix,” Entwistle told SPORTO. The fact that more and more CMOs and budget-holders at big brands have digital backgrounds contributed heavily to this, “They are used to seeing, minute-by-minute, what the return is on their marketing spend and having the ability to adjust it in real-time. That means, for sports rights holders, it is no longer good enough to say ‘give me €5 million and we will put your name on our shirt’.”

Bottom line is that sport remains a huge passion point for consumers, and the people in the industry have no doubt that cut-through, and click-through, on marketing content that relates to the team they support is much higher than any other content. Because of the need to satisfy brand ambitions, rights holders need to create digital platforms and digital assets through which they can reach their audiences and, critically, know who is interacting with the content, and how. “This can only be done with data,” underlined Entwistle.

Millennials are just as engaged, but in a different way

There are two other important topics OTT is tackling. The first one is reaching the generations that are growing up differently, without a cable cord. As Netflix (among other) has proven with its on-demand TV platform (recently, they have teamed up with Juventus and Formula 1 to air documentaries about sports properties), people still want to consume (and pay for) content, but not like before. They want to access their content whenever (on demand) and wherever (on different devices, with an option to download and view even without internet connection). There are serious concerns that the current generation is moving farther away from the ‘traditional’ sport than the previous ones. But as Entwistle said, based on his and Two Circles’ experience and understanding of their clients’ relationships with their audiences, that is not the case, “So-called millennials are just as engaged with sport as the older generations – they just engage with it in a different way: shorter-form content, on-the-go access and always being connected. Being part of the event is also more important than ever.” Because of this, knowing who these emerging fans are, staying connected with them and building a personal relationship with them, is a crucial challenge. Data and personalising the experience for individuals has a big part to play, so rights holders need to be thinking about their engagement plan now. Or as Entwistle puts it, “They cannot sit around and get anyone else control the relationship with their most important fans.”

The boxing media world was stunned by the news about the eight-year $1 billion deal between Perform Group, owner of the streaming service DAZN, and Matchroom Boxing, a world leading boxing promoter (the photo features their managing director Eddie Hearn). DAZN will be the exclusive us broadcast partner – live and on-demand – for 32 fight nights per year, 16 us fight nights plus 16 fight nights in the UK.

In the end, all this will benefit the fan

The other important thing is what OTT brings to the end consumer – the one that is ultimately paying for what is shown via the many dif­ferent channels out there. Programmes shown there have a dubious importance for most of the sport enthusiasts and if a platform like DAZN, which is very successful in the DACH (Germany, Austria, Switzerland) region, is to become global, many would welcome it and gladly pay a premium fee for it. OTT is surely something that would benefit the fans even more than the other stakeholders in the sport business world. Entwistle shares the opinion that what is happening is benefiting us all, “More choice, more innovative approaches to content creation, more ways to access favourite sports or teams, and more ways to be part of a bigger sporting community. These changes are happening in society and sport is not insulated from that. We should seize the opportunity!”

The article was first published in SPORTO Magazine No. 11 (May 2018).