The Challenges of OTT Sports (and Some Solutions)
What’s the most obscure sporting event you’ve watched this summer? Have you been following the Tour de France, Canadian Football League or Bundesliga second division?
The sports-focused OTT platforms that own the rights for those events — NBC Sports Gold (Tour de France), ESPN+ (CFL), and FloSports (Bundesliga) — are hoping you’ll tune-in. But unless you’re a super fan, or your cousin plays on the team, they know that you won’t. This is just one of the many challenges facing a highly competitive and still evolving subscription sports TV industry.
2019 has been a big year for streaming, with various platforms spending tremendously on content in hopes of luring new subscribers. A couple examples: Disney spending $15M/episode (Game of Thrones money) on its new Star Wars show and HBO Max shelling out $400+ million for five years of exclusive access to Friends. All of this is in an effort to catch Netflix, who is on pace to spend $17.5 billion on content this year. It’s an expensive strategy, but the potential pay-off is a hit show that puts a streaming platform on the map, like The Handmaid’s Tale did for Hulu or House of Cards did for Netflix. Sports content is not the same — a hit sport cannot be created (the UFC might be the best counterexample, but that took 25 years and is still relatively niche).
Compounding the issue of limited mainstream content is the fact that sports leagues thrive on distribution. Asked earlier this year about putting the NFL on a digital-only platform, Brian Rolapp, the NFL’s chief business officer, confirmed that the league turned down the highest bid for its rights in order to focus on distribution. “When [we] put a game exclusively on digital, are [we] growing the distribution and availability, or are [we] limiting it, and to the extent how much?” he asked. “We weren’t sure we wanted to do that yet.” Put another way, NFL fans in Arkansas don’t stream Amazon Prime Video.
The traditional broadcast partners of major North American sports understand the landscape in the same way the leagues do. NBC, CBS, and FOX all command their largest audiences (and ad rates) when they are broadcasting the NFL, and they will pay handsomely to retain their rights in any upcoming negotiations with the league. According to Variety, the networks “are believed to be paying a combined $3.1 billion per year for Sunday games”. These economics put even the most well-funded sports streaming platforms out of the game.
Boxed out from major sports rights by both the leagues and traditional broadcast partners, sports-focused OTT platforms have instead focused their efforts on hardcore single sports fans. Consider the duality of NBC Sports.
Their flagship Olympics coverage on NBC is meant to appeal to the nation with commercials that focus on the inspirational and fun-for-everyone nature of the content.
When marketing their streaming platform, NBC Sports Gold, they instead focus on functional benefits relevant only to niche sports fans. Not only is this is a messaging shift, but also an organizational one. In many cases, subscription sports streaming is the first time these networks have moved into the direct-to-consumer world, forcing the firms to shift priorities, hire new departments, and build new organizational muscles.
Even if these companies execute the shift perfectly and capture every fan of a given sports, they’re still faced with another challenge — churn. As recently described by Andreesen Horowitz General Partner Andrew Chen, consumer companies always start focused on acquisition, but shift to mitigating churn and increasing retention as they saturate their target market. Says Chen, “filling up a [leaky] bucket gets progressively harder if you want to keep up your growth rate, because you need to double or triple your acquisition in order to counteract for [churn].”
The digital nature of these platforms increases the challenge, as Hulu CMO Kelly Campbell recently explained. “With cable it’s miserable to try to turn services on and off, but with Hulu if you want to upgrade so you can watch your favorite sports team play, you can do that, and then maybe during the summer you turn that part of the plan off.” Hulu is facing this challenge when talking about mainstream sports streamed via their Live TV product (March Madness, MLB playoffs), which means for niche content providers, the problem is even more acute. Lifecycle marketing takes on an outsized importance in these businesses.
The first platform to breakaway from this pack will have a significant advantage, as they can leverage increased subscribers to push back against the distribution challenges the group currently faces. Each additional rights package captured will be followed by increases in subscribers and revenue, extending the lead. Below are some ideas for making the first move.
Reduce churn with original programming:
As Game of Thrones was winding down earlier this year, HBO went on the offensive to combat churn. Each episode started with a pre-roll of the networks top shows, including clips from the visually stunning Chernobyl, as well as hits like Succession, Big Little Lies, and True Detective.
For any OTT-sports platform, top-tier sporting events are their Game of Thrones, and they must prove to subscribers that they have additional content that’s worth the price of a year-long subscription.
ESPN+ has made the most progress in this area, primarily by including the entire 30 for 30 library in their subscription, but also with new original shows like Quest for the Stanley Cup and the upcoming Peyton’s Places. Amazon Prime Video has created the behind the scenes “All or Nothing” show, which follows the Hard Knocks model.
No platform has yet created a need-to-watch show — something that puts a platform on the map and drives social conversation and subscribers. While sports-focused content may never cut through at these levels, convincing a subscriber to stick around year-round will be near impossible without premium original programming.
Increase resurrections with free services:
Even if these platforms can develop top-tier original content, there will still be a segment of their audience who only subscribes for seasonal live sports. As such, a resurrection strategy is needed. A compelling recent development is the introduction of free and ad-supported programming to keep customers engaged with the brand once they’ve completed a free trial or churned out completely.
DAZN has chosen to move some of its content in front the paywall and onto Youtube and Facebook. Sarah Beattie, VP of New Markets at DAZN, explained the strategy. “If we can engage [customers] in a meaningful way off-platform, our opportunity to convert them to either a free trial customer or a paying customer is that much stronger,” she said.
Fubo TV has taken a different strategy and will be launching Fubo Sports Network, a free ad-supported channel meant to drive brand awareness and increase its customer base in the cord-never generation.
Ultimately, every platform in the space must decide how much content can be free (more customers) and much must be paid (more revenue). Many of the sports-focused OTT services currently offer a free trial (typically 7-days), but additional options remain. Should previously churned customers get a second trial (especially as platforms increase the content offered)? Should the services offer live-game look-ins to draw customers to new sports?
Strong customer acquisition efforts paired with the right resurrection strategy would put any platform in a strong position, but the capped audience for the niche sports still poses a challenge.
Drive acquisition via bundles:
T-Mobile has been offering its subscribers a free annual subscription to MLB.tv since 2013, and earlier this year announced that they would continue the partnership for four additional years.
In addition to acquisition and branding, the partnership also serves another purpose — helping customers get over subscription fatigue. 47% of respondents in Deloitte’s 2019 Digital Media Trends study said that they are frustrated by the growing number of subscriptions they need in order to watch what they want. A wireless subscription like T-Mobile or AT&T is a must-have — OTT sports platforms can make gains by latching onto these uncuttable services.
As more streaming platforms hit the market (Disney+, HBO Max, and NBC Universal are all on the way), bundling seems like a natural opportunity to reach more customers and provide additional value. There are also partner opportunities outside of the streaming space, including with the leagues and teams represented by sports platforms. Canadian Football League season ticket holders should get free subscriptions to ESPN+, and if you buy hospitality tickets for the Tour de France, an NBC Sports Gold subscription should be included.
Netflix has put a renewed focus on this strategy after reaching market saturation in the United States, helping them increase penetration in previously hard to reach segments. “The bundles that we are doing are nice incremental accelerants to our acquisition,” said CPO Greg Peters on their most recent earnings call, “especially into a user population that may not be as tech-forward as the folks that sign up with us directly.” Sports platforms face a similar challenge with rural fans, and bundles can help them cut through.
