Hugh Scallon’s Post

https://lnkd.in/e2nAS4ZW Game Changer, or the first big move in Sports delivery? With Tuesday's news of the Disney, Fox, and WBD sports JV, we once again find programmers cleaving off a substantial portion of their content from the Pay TV ecosystem. Previously, these moves were primarily limited to the entertainment segment.  No more. The three companies will collectively be contributing >50% of the US sports right spend to the planned JV.  Unlike the sports segment, entertainment remains highly fragmented, lacking the massive reach of the US Sports leagues, which consistently account for >90% of the top 100 live viewed TV events, with a content offering nonpareil. Questions do remain on the service's appeal to sports fans.  Having operated both at the regional level, MSGN, Fox RSNs and national level, fubo, there are multiple US sports fan cohorts, from the marquee national event viewer found on broadcast and ESPN, to the hyper local fan, think NESN/ BoSox fans.  The absence of local NBA, MLB, and NHL games, along with half the NFL Sunday schedule and night game, represents a material programming void for the new JV.  The local games, deliver a massive cumulative audience, equivalent to the national sports nets, ex NFL, with the major DMA’s offering >400 live games a year. Nevertheless, the proposed JV still provides a compelling sports offering for a sizable fan segment and packaged in a highly efficient advertising juggernaut reaching the most coveted live audiences. ESPN's inclusion, the biggest contributor of both rights and events, featuring content that was largely behind the Pay TV wall, is the key variable in this equation and with it the greatest risk for legacy Pay TV players as programmers further distance themselves from the ecosystem. While the outlook for facilities based Pay TV operators has been increasingly challenging, the debate now shifts on whether subscribers losses go from a linear to non-linear equation as VMVPD’s continue to add share and leverage their IP infrastructure to deliver a differentiated, personalized viewing experience. Additionally, as their residential subscriber base is further separated from its video component, stand alone broadband subs, are at greater risk from new entrants, e.g., FWA, fiber, who now have a compelling national sports DTC offering they can market to consumers. Video has ultimately been the app that drives broadband, Still, many unknowns as we await greater detail on JV, ranging from broadcast affiliates payment risk, leagues facing different renewal dynamics, and evolving economics for the JV partners.  We tend to bandy about the words seismic and tectonic quite a bit in media space, but much more so than the Charter/Disney deal, this appears to be a potential game changer with 3 key players going to market with a critical mass of sports content, previously behind the Pay TV wall.  

Netflix succeeds through brand transformation, and the company’s agreement to stream NFL games on Christmas is a great example.   On May 15, Netflix announced plans to stream the NFL’s two Christmas Day games in 2024. This launch is part of a three-year deal, with the streaming service set to broadcast at least one Christmas Day game in both 2025 and 2026. This is big for Netflix: according to the NFL, last year’s Christmas Day games were among the 25 most viewed programs in 2023.   Airing games through connected TV is nothing new for the NFL, but Netflix has only recently entered the waters of live sports. It is impressive how quickly Netflix is becoming a sports brand. The company did not get involved with live sports until it aired the Netflix Cup in November 2023. Since then, the company has made up for lost time. In January, Netflix said it will begin to air the WWE’s flagship weekly program, “Raw,” starting in January 2025. And now comes an agreement with the NFL.   Netflix’s brand transformation milestone are impressive: 1. From DVD rental to streaming service. 2. From streaming service to movie production studio. 3. From subscription service to ad-driven business. In addition to launching in ad tier in 2022, the company announced its own in-house AdTech platform at the TV upfronts on May 15. 4. And now becoming a sports business.   These transformations do not necessarily surpass the previous ones. You can still stream movies and television on Netflix without experiencing any of Netflix’s original content, and enjoying sports need not be an either/or choice with non-sports entertainment. As for advertising: yes, you can subscribe to an ad-tier model, but advertising is certainly a major component of live sports. Analyst Guggenheim predicts that Netflix will earn approximately $185 million in direct advertising revenue from the NFL games.   Meanwhile, shares of Netflix stock are up 80% in the last 12 months–an impressive outcome born of brand transformation. #Netflix #NFL #LITrendingTopics #Sports #TheInsider #Streaming #Advertising #Brand https://lnkd.in/dAD53Eku

I couldn't allow the week to end without commenting on the NFL deal to stream Christmas Day games on Netflix. Last year the NFL broadcast on Christmas Day for the first time (outside a Sunday) in a space traditionally held by the NBA. Needless to say its audience blew the NBA away, and being the NFL, it has now exploited rapidly a new revenue stream by carving out a Christmas Day package for Netflix. First of all this shows the power of the NFL - in any other sport its broadcaster contracts would clearly define what other rights it can exploit. Either the NFL carved out Christmas Day when it was doing its major broadcaster deals (in which case why did no one bid then?), or it has the freedom to add additional packages as it sees fit. This comes off the back of the successful NBC/Peacock streaming of a playoff game last season, and its Amazon Thursday night package. From an NFL's perspective, increasing the number of exclusive streaming packages is the way to maintain its upwards rights fee trajectory, especially given ESPN's falling subscriber base which has to inevitable feed through to its ability to pay for rights. The EPL will be taking note. But why Netflix? Following Tyson v Paul Celebrity Boxing (I fear for Mr Paul) and WWE Raw acquisitions, now an NFL experiment. The Netflix juggernaut is slowing and needs some more gas. It got a boost from Covid, then removing sharing options, and then a new Ad tier. But all these innovations can't hide the fact that its early markets trend subscriber growth is slowing (Netflix will stop reporting subscriber numbers next year, always a sign of problems), and content consuming is falling (people have seen everything apart from the new stuff itself limited by the writers strike). And how many more "Drive to Survive" copies can we cope with? In the past Sport has been a driver of new distribution platforms but it was drama for the streaming platforms. Something that caused the likes of Sky Sports and Disney to reduce their dependence on live sport. However, people still watch sport in greater numbers than anything else. It is regular, it attracts a younger more male demographic (Netflix is female skewed), and it is unscripted so can be watched year after year. Prime is a marketing tool, Apple TV supports hardware sales (though this is shifting). But Netflix has is wholly dependent on content sales. Rather than be surprised by Netflix's move into sport, we should be surprised its taken it so long. Who is next? https://lnkd.in/eU93fWmp

From THR: Neither side commented on the cost of the games, but one source estimates to The Hollywood Reporter that this season’s pair cost about $75 million apiece. That would be consistent with what Netflix finance vp Spencer Wang told a MoffettNathanson conference shortly after the deal was revealed. “I would characterize each game as roughly the size of one of our medium-sized original films,” he said, adding that it would have “no impact on our operating margin guidance for this year.” For Netflix executives, it was probably an easy call to make — two midsize movies or two NFL games, which not only have the benefit of a built-in audience of millions but also plenty of advertising breaks to grow that side of the business. For a company that has been laser-focused on engagement and time spent, the deal is only too logical. JPMorgan analyst Doug Anmuth wrote May 15 that the deal “compares favorably” with those cut by Peacock and Amazon for their playoff and Black Friday games, respectively, each of which were estimated at about $100 million. And while Netflix sources continue to insist that it is not in the live #sports business — at least not in the sense of wanting giant long-term rights packages — the company is very much engaged in the live events business, an area where it has been building a regular cadence. The Netflix Cup and Netflix Slam exhibition golf and tennis matches were baby steps, with the recent Tom Brady roast building on that. If Netflix was crawling before, it appears ready to sprint now. Of course, not all analysts are quite as enthusiastic about the prospect. “We don’t think Netflix needs the consumer exposure that sports bring, though such a move would likely bring some incremental subscribers,” Morningstar’s Matthew Dolgin says. “We believe Netflix should avoid going down a path that could put it in a similar position as the legacy #media companies, where it feels compelled to retain sports rights with costs that become an outsize portion of its content budget.” Of course, at the right price, it is hard to ignore. For the NFL, the deal with Netflix is multifaceted. For starters, the league has made global expansion a top strategic priority, with games this season being played in the U.K., Brazil and Germany. Netflix is the largest subscription streaming service in the world, with scale on nearly every continent. “It’s a global opportunity for us where I think we’ll speak to fans in a unique way,” Schroeder says. And perhaps more importantly, it expands the number of rights partners for the National Football League (NFL) , a league where executives are obsessed with how technology is changing consumer habits. “The #technology is changing. The platforms are changing. The economy is changing. We have to be ahead of that strategy at all times so that we are where our fans are, on the platforms they want to be on,” Goodell told THR in a cover story last year. #advertising

From The Economist: Although much tv viewing has migrated to streaming platforms, when Americans want to watch sport, old-school “linear” tv is where they go. Is that about to change? On February 6th three of America’s biggest sports programmers—Disney (home of the espn sport network), Fox and Warner Bros Discovery (wbd)—unveiled a plan to bring their most valuable content to a new platform.  If it succeeds it could be a game changer for the #media business. Most other kinds of #tv have already shifted online. Last year streaming accounted for more minutes of viewing in America than either broadcast or cable tv, according to Nielsen, a ratings firm. Sport is the exception. Although big #tech has added sport to its menu—Amazon and YouTube have bought rights to American football, Apple has dabbled in proper football and Netflix is about to grapple with wrestling—true sport fans still need to shell out for cable. The audiences are vast: 44 of America’s 50 most-watched broadcasts last year were sport. The new service would be the biggest sporting bet made on streaming. The total value of sports rights on the platform—golf, nascar, hockey and much else—will be about $16bn a year, reckons Bernstein, a broker. In all, the content slate will encompass about 55% of American sports rights by value, says Citigroup, a bank. What is in it for Disney, wbd and Fox? They stand to lose out at first, as the juicy cable market shrinks. But the target market is streaming-only households that have never had cable, Lachlan Murdoch, Fox’s boss, told investors on February 7th. And by giving viewers a streaming bundle including sport, they could cut customer churn. People can easily cancel their Disney+ subscription after bingeing the latest “Star Wars” spin-off (some 5% do so every month). But they cannot binge a #football season. And when that ends, it will be time for #basketball, then #baseball and so on. Joining forces may also improve the trio’s bargaining power relative to #sports leagues. The competition for sports rights is intense as new bidders such as big tech pile in. If The Walt Disney Company, Warner Bros. Discovery and Fox Corporation bid jointly, they could rein in the price inflation that leagues now demand. For companies left out of the initiative, its successful launch would represent their “worst nightmare”, argues LightShed Partners. Firms like #Paramount and NBCUniversal may find it harder to lure viewers to their own sport-#streaming initiatives, even as the decline of the cable market, which is where they still make most of their money, speeds up. Time for a new game plan. 

This week for my Entertainment Business Capstone I read an article about FuboTV's $1 billion dollar lawsuit to block a joint venture between Disney, Warner Bros., and Fox Sports. The premise of the lawsuit was an announcement of a new media platform to be released this fall that was constructed by these three media giants. This new platform will be accessible to viewers individually or as part of a bundle, with Max, Disney+, Hulu, and ESPN+. FuboTV chief executive David Gandler suggested these companies are attempting to create a monopoly of the market with their imposing stature. This article interested me because Entertainment has long been a saturated industry, but new competitors have found ways to breach the market. From a basic business principle, competition is a positive thing, it allows for companies to adapt and improve in order to garner higher market share. If major conglomerates are able to monopolize the industry, the cost of entry for small players will skyrocket and diminish existence competition. However, from the opposite point of view, as a business decision the three major companies in question are filling in one of the only voids they had yet to cover in terms of streaming. As a consumer of content, monopolies allude to higher subscription rates and less advantages for us. While there are multiple implications that come from this deal and this lawsuit, I am interested to learn the outcome and more fascinated by the greater implications of the looming control that large corporations have on the industry. I will be closely following this lawsuit and the effects it has on streaming in the future. Shayne WilliamsonEsquire Group Inc. https://lnkd.in/dUE6erE7

The new #streaming service announced by Fox, Disney, and Warner Bros. Discovery is a game changer (pun intended). By combining their #sports rights into a single platform, they are creating a sports-centric service that is not just another streaming subscription but an aggregation of the only content consumers continue to show a willingness to pay for... sports content. Anytime direct competitors (in any industry) collaborate on a new business, it is very noteworthy. In this case, it's a massive move. 📺 The move to combine ABC, ESPN, Fox Sports, TNT, TBS, FS1, Big10, and others not only signifies a major shift in how live sports are accessed but addresses the rising costs of media rights. Individually, these companies can't keep pace with Amazon and Netflix in the rights bidding wars, but collectively, they have a chance. 🏈⚽🏀 This platform will unite the NFL, NBA, MLB, NHL, NASCAR, UFC, PGA, NCAA, Grand Slam Tennis, and FIFA World Cup under one roof! NBCUniversal and CBS, which have a lot of sports content, are missing from the announcement. I would bet that they may come on board in the future. Details of the service (name, pricing, management team, etc.) are still scant. However, the impact is likely already being felt by cable companies. 🆘 While I'm sure many cable operators knew this was coming, I have no doubt this week is filled with emergency strategy sessions, and the phones of TMT strategy consultants are ringing nonstop. ☎️ 🏛️ I would also not be surprised if lobbyists and anti-trust lawyers get calls this week and our government looks to get involved next week. The NFL may also have a thing to say about this, given how much their business still relies on broadcast television. However, I don't think much can be done to stop this train. Bob Iger's statement is correct: "This is a major win for sports fans." However, he didn't mention the huge impact it will have on distributors. 📉 Live sports have been the last thing keeping traditional #cable subscriptions alive. Live sports are the only content that still attracts consistently large audiences and drives engagement. It's the last content that has kept many cable subscribers from cutting the cord. Is this the death blow? Is this play game, set, and match? 🏆

From the FT: The Diamond saga is more than just a run-of-the-mill corporate restructuring. The case has become a proxy war for the future of live sports and television broadcasts in the US, as leagues and distributors debate the proposition of when, or even if, live fixtures migrate entirely away from linear television and on to digital streaming platforms. The number of subscribers to cable and satellite pay- #TV packages in the US has dipped from about 100mn a decade ago to roughly 60mn today. Diamond’s portfolio of live sports is accessed almost exclusively through cable television packages and its subscriber count has fallen by almost a quarter since it was acquired by Sinclair Inc. Broadcast Group from Fox Corporation just before the pandemic, near the high-water mark of the pay-TV market. “Sports leagues have to figure out the right pricing models to watch their games”, said longtime media analyst and consultant Brian Wieser. “The risk of getting that wrong is turning into a niche sport like boxing, which decided its best fights would only be on pay-per-view.” At the time of its bankruptcy filing last year, 40 clubs across three major professional sports leagues — Major League Baseball (MLB), the National Football League (NFL), and the National Hockey League (NHL) — had contracts with Diamond to air local fixtures. But the continuing shift from linear broadcast and pay television to digital streaming had shattered Diamond’s business model, which depended on elevated levels of pay-TV subscribers. #Media and #technology observers believe Amazon’s sports push has two motivations. First, by adding another plank to its Prime service, it can create more loyalty among customers who are charged nearly $200 a year for free package deliveries as well as streaming video. Second, Amazon in recent years has become a digital advertising powerhouse and the addition of streaming hundreds of games would provide even more inventory to pitch marketers. For Amazon, the modest investment could, if successful, set a new standard for distributing #streaming sport content. One person involved in the Amazon negotiations for Diamond described the deal with the Seattle-based behemoth using a sports analogy: Diamond was like a player with an expiring contract acquired at the midseason trade deadline. If there were long-term synergies, a longer arrangement could be later struck, leaving the interim period as like a trial period. “This way they get to see if there is a cultural fit,” said this adviser. “Amazon loves live #sports. The deal puts them in position to be the provider down the road.”