The gold mine beyond the border: It’s time for an OTT direct-to-fans proposition for sports organizations
The gold mine beyond the border: It’s time for an OTT direct-to-fans proposition for sports organizations
The untapped potential of international sports media rights
The sports industry (clubs and leagues) has seen no letup in the race to develop and modernize its business models in the last 20 years. Since the advent of pay-tv and mass media exposure, the industry has been steadily distancing itself from a reliance on traditional sources of income such as game-day and merchandise.
Pay-tv buyers (and free-to-air-tv buyers to a lesser extent) unlocked the media-rights market and the opportunity to monetize (at least indirectly) millions of supporters willing to commit time and money to watching sports with unprecedented convenience. It also grew the visibility and relevance of sports industry brands, boosting merchandise and advertising revenues.
Media rights today represent the bulk of revenues in the sports industry in both Europe and the US. However, international media rights are severely under-monetized considering that:
- Majority of football club/league supporters are abroad (up to 90% in the case of English Premier League and Spanish La Liga).
- Minority of media rights revenues comes from international TV rights (about 35-40% for the abovementioned cases of Premier League and La Liga.
Figure 1: Share of international TV rights and followers of Sports leagues
Note: Data on share of international TV rights for Bundesliga and NBA is as of 2017
Source: Sportcal, FIFA, Google, Delta Partners Analysis
The clear mismatch underscores the opportunity for a potentially unprecedented boost in sports industry revenues. What if clubs/leagues find the magic formula to double or even triple what is already their main source of revenues (TV rights) by leveraging under-monetized international followers? Is there a gold mine out there?
The hurdles limiting the potential of international sports media rights
Monetizing the international media rights market is a complex task for the sports industry:
- It’s a buyer’s market. The lack of a commercial footprint abroad favors bulk contracts (e.g. one buyer purchasing rights for multiple markets abroad) rather than a market-by-market approach. There are typically very few (often, only one) buyers willing to extend the bulk offers that leagues are looking for (they also limit their sales efforts). As a result, great value and synergies are normally captured by the buyer, while sports leagues end up with a smaller share.
- Identifying international supporters is difficult. Clubs and leagues struggle to measure pockets of followers abroad for lack of local market understanding and difficulty in identifying supporters who often have no direct commercial link with teams (e.g. they do not purchase anything from clubs/leagues that can lead to tracking and identification). Many sports organizations will be surprised to discover they have millions of “invisible” (to them) followers in countries such as Nigeria, Japan or Indonesia who consistently invest time and money as fans and yet are not monetized.
- Limited potential of traditional advertising: The traditional media format of sports competitions (e.g. same video material distributed across market) has lower advertising potential abroad. For example, the relevance of domestic sponsors might be lower abroad (visible in shirt or stadium advertising), and at the same time it is difficult to refresh field-side advertising for relevant sponsors in the abroad market (e.g. field-side advertising does not change).
- Content is difficult to adapt/personalize for the abroad market: Technical limitations (e.g. lack of dedicated cameras, content production features, such as zoom-in on selected players, commentary, curation, etc.) result in a less attractive product for the abroad market with lower commercial potential).
Overcoming those hurdles through direct-to-fans OTT
Mobile/IP distribution and increasing broadband penetration creates new opportunities to reach a globally distributed fan base through a direct-to-fans OTT proposition, potentially addressing several of the hurdles currently affecting the monetization of international supporters:
Figure 2: How OTT proposition responds to consumer preferences
- Supporters become visible: The registration/subscription model enforced by the OTT proposition can be monetized by leagues/clubs in the short- and long-term.
- Advertising potential increase: Digital advertising allows the insertion of tailored ads to digitally override field-side banners located at the sports venue.
- Supporters are directly addressed: Avoid intermediaries and tailor a sports product to the size and spending power of followers in the abroad market. A selective approach can allow sports organizations to decide on which markets to cherry-pick and which to continue with bulk TV-buyers.
- Content can be 100% customized: Dedicated content personalization (both game and non game-day) can be seamlessly produced and delivered to the abroad market. For example, producing content and zoom-ins for a specific national player can appeal to local followers, who only follow a certain team because of the national star playing there.
In addition, OTT platforms provide a compelling proposition that is not matched by traditional pay-TV providers, and that is much closer to consumer trends.
- From linear to on demand
- From “couch and TV” to “anywhere”
- From electronic programming guide (EPG) to recommendation/personalized guide
- From broadcast/unidirectional to interactive
Given these advantages, consumers are increasingly adopting OTT services to the detriment of traditional pay TV, which will only be accelerated by the advent of 5G communications. An additional benefit of a direct-to-fans proposition is the upsell synergy that can be achieved once followers are identified, profiled and registered in the platform (versus their previous “transparency” to the sports organization). For example, registered followers can be targeted with merchandising offers or travel packages to meet and greet the team during a home game or tournament.
International leagues are already on their way to create a direct-to-fans model OTT
The adoption of DTF distribution by leading leagues is increasing, with US professional leagues (e.g. NBA, NFL) at the forefront.
The American NBA (National Basketball Association) started its DTF proposition several years ago through a cable offering, later developed into a full-fledged OTT proposition (NBA’s OTT League Pass). It offers dynamic live content packages and product integrated with exclusive offline material. The system is evolving towards a system of micropayments and microproducts (e.g. allowing the purchase of the season’s last quarter of games at a reduced price). In addition to DTF subscription, the NBA has developed strategic partnerships in several markets to offer the OTT subscription as a part of product bundles.
F1’s (Formula One) OTT offers segmented content propositions (live and non-live) in its OTT platform. It allows to stream F1 live and on the go, and to access content covering over 35 years of F1 history. Clients can either purchase a F1 TV pro package (including live streaming with on-board cameras) or F1 TV access featuring replays (after two to 14 days from the race) and exclusive content (but no live races).
The American NFL (National Football League) has its own OTT platform, with live and on-demand content, exclusively for non-US countries. Service is provided through a game pass (including live streaming, NFL Network access and on- demand replay) and available in different forms between the US and non-US.
Also, UEFA has been exploring the possibility of creating its own direct-to-fans internet streaming service to show Champions League matches. The move comes also in response to growing concerns that traditional broadcasters might not maintain the current financial commitments in the upcoming media rights renegotiations on a country basis, from 2021 until 2024. Consequently, one of the ideas is to evolve UefaTV online portal into a full-fledged OTT proposition accessible to millions of supporters.
Figure 3: Trends in DTF
Source: Corporate news, Delta analysis
Recommended way forward
Creating and monetizing a compelling D2F proposition, especially internationally, is complex. What is the content to be produced? What is the optimal production process? What is the target platform to be leveraged? What is the monetization strategy? Those and other questions need to be tackled considering the technical and commercial capabilities of the sports organization, the characteristics of the target market, the availability of alternative (e.g. pirate) channels and other factors.
We recommend that sports organizations take a simple, three-step approach:
Step 1) Understand the size of the international OTT opportunity
The first step in the definition of the OTT opportunity is understanding the value at stake. Is there a sizeable enough value to be captured internationally? How well are international versus local followers currently monetized in terms of media rights revenues? Is there a gap to be filled with a DTF/OTT proposition?
The size of the international OTT opportunity is a function of the number of followers abroad, and the related average revenue per follower. While sports organizations know exactly what revenues are collected every year from each foreign market (through signed contracts), an exact understanding of the corresponding number of followers in those markets is less accessible.
For example, while two rights deals might have the same face value, one could have been under-monetized by the sports organization if awarded to a market with a significantly higher number of followers. Leveraging our supporters-estimation methodology, we observed differences in achieved monetization of the same sports organization of 1.5 to 2.5 times across international markets.
Step 2) Identify the target markets
Sports organizations should carefully select foreign markets, assessing both marketing factors (highest potential) and commercial factors (lowest cannibalization potential).
- From a marketing standpoint, priority markets should have a large pocket of followers (absolute number) whose purchasing power is relatively untapped by the media-rights buyer.
- From a commercial standpoint, sports organizations should prioritize markets where introduction of a DTF proposition will have a minor impact on the ongoing revenues of the local media rights buyer.
Step 3) Define the optimal approach
We have identified at least six different commercial models that sports organizations can adopt, and in some cases already are, whose variations be defined along the following lines:
- Exclusivity: How much does the DTF proposition coexist with or replace the traditional distributor model?
- Content: How much of the premium content (e.g. live matches) is reserved/accessible through the DTF proposition?
- Subscription model: How much content is accessible through short- or long-term subscriptions?
Most commonly, leagues tend to follow hybrid models, where DTF coexists with distribution to buyers for both premium and non-premium content:
- In concurrent hybrid models, leagues offer their DTF proposition also in countries where a TV-media buyer (pay-TV) has purchased rights. Profits from direct-to-provider have to offset the decreased revenues from the TV buyer (as a consequence of the lost exclusivity).
- In non-concurrent hybrid models, leagues offer their DTF proposition only in markets where they have no wholesale distribution agreement with any TV-buyer (either because the buyer does not exist, or those that do offer sub-optimal returns versus the DTF proposition.
A roadmap for implementation
Evolving a compelling OTT service requires consideration and coordination across multiple areas that need to be carefully assessed by the sports organization:
- Technology: Design the infrastructure that will support the development of the OTT product.
- Content: Define the content mix on offer and the production finance options.
- Talent: Attract the best human resources to create the desired content.
Nicola is a Dubai-based Principal. He has more than 10 years of professional experience, eight in management consulting with a focus on telecom and media. He has advised several TMT organizations on commercial and digital topics. His areas of expertise include corporate strategy, organization, development strategies and B2B/ICT. Nicola is a member of Delta Partners’ Media, Sports and Entertainment practice, has an MBA from INSEAD and a MSc in Finance from Bocconi Business School in Milan and a BA in Business Administration from University of Catania.
José is a Dubai-based Partner and Head of Delta Partners’ Media, Sports and Entertainment practice. He has more than 20 years of professional experience in Media, Content and Consulting. Jose is the former CEO of Telefonica Media for Latin America, and former Board Member of several sports teams in Latin America. He also held numerous roles within Telefonica, including head of Digital Home Global and Terra-Lycos multimedia director.
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