How the NBA can thrive in media disaggregation: the Product in the Market (2/2)
This article is part of a two-part series on the NBA:
- How the NBA can thrive in media disaggregation — 1/2: the Product and the Market
- How the NBA can thrive in media disaggregation — 2/2: the Product in the Market
In general terms, it can be stated that sports rights owners can distribute their content through 5 distinct archetypes. And, standing out from many rights owners, the NBA covers the whole framework:
This balanced mix between B2B, B2B2C, and DTC channels not only maximizes revenue opportunities by leveraging the desirability of its IP by third-party media companies, but also ensures the discoverability of the League’s content beyond these. Not to mention the development of proprietary capabilities across the media value chain, positioning the NBA as its own media house.
But each of these layers has sub-layers, especially Licensed content. Let’s drill down.
Fragmented media distribution: back to the future
In Europe, most rights owners have contractual relationships with only a few domestic rights-holding broadcasters (typically 2 to 4). The situation is very different for the NBA, due to the structure of the US market, as well as its large content inventory (1,230 games per year, excluding play-offs).
Firstly, the League has centrally managed national deals. National games (around 200/ season and almost all play-off matches) are considered the most attractive, selected based on matchup importance, competitivity, market size and popularity, as well as specific narratives (e.g. legacy rivalry between Bulls and Pistons).
For the current cycle (2016–2025), national partners include ESPN/ ABC (Disney) and TNT (Warner Bros Discovery).
Within this buyer group, game packaging and allocation are therefore not based on a network’s geographical coverage, but on game characteristics. These packages are designed to offer a variety of game types and ensure a balanced distribution of appealing matchups across the two broadcasting networks.
Secondly, the NBA allows each franchise to sign regional media deals covering all their games in their respective territories (in-market games) e.g. a Celtics game played at the TD Garden Arena in Boston.
Thirdly, out-of-market games that are not broadcasted by local or national broadcasters are available on the NBA League Pass, and even some on the NBA TV channel (e.g. from a local Celtics fan, a Celtics game played at Madison Square Garden in New York not covered nationally, typically produced by New York’s regional sports network).
In the lot, we can even add new, carved-out distribution agreements with emerging platforms such as Buzzer (focus on discovery and micro-transactions — note that the platform recently shut down) and Meta (focus on VR). This is deemed non-cannibalistic, too, as these cover audiences that are assumed to be not directly addressed by national broadcasters, regional networks, or the NBA League Pass.
This structure not only ensures full coverage for local fans, but also allows the League to have a non-cannibalizing avenue to retain rights and be its own broadcaster, while allowing for multiple licensing relationships at the same time.
Most importantly, it is not a recent response to market disaggregation, but a lifelong obligation to adapt to the legacy market.
A structure inherited from the past that is increasingly becoming a strategic advantage for the future.
On the art of slicing and dicing
Let’s face it: in Europe, the discussions between rights owners and their media partners on the need to soften exclusivity terms (see first chapter) are likely to be particularly heated, often perceived negatively as ‘asset withdrawal’.
For the NBA, it is just a matter of pushing the cursor a little further.
Internationally, the League has an even more aggressive distribution strategy, whereby Licensed content (#1) overlaps completely with Licensed-and-operated (#3) and Operated platform (#4). In other words, all games — including the play-off ones — are simulcasted by both rights-holding broadcasters and the NBA League Pass, with some restrictions (e.g. in France, no French commentary on the League Pass’ feeds). Speaking of France, even the only local event (NBA Paris) was carved out of the deal with the local broadcaster beIN SPORTS, licensed to Canal+.
This art of squeezing value — perhaps only matched by the NFL — is becoming an invaluable strategic capability for the League.
New cycle, new (high) stakes
So, the NBA is at a T-moment in its modern existence.
Its national media rights agreements — worth USD 2.6 billion annually and 24 billion in total (which by the way are now pale in comparison to the NFL’s USD 110 billion) — are coming to the end of a 9-year cycle at the end of the 2024/ 2025 season.
And, without even extrapolating, the upcoming set of deals will be ‘market making’. In other words, it has the potential to change the face of the country’s media landscape, significantly raising the profile of some properties, drastically lowering that of others.
The NBA has publicly announced its intention to triple its current revenues, aiming for an annuity of USD 75 billion on long-term contracts of 8–10 years.
So, we know what is at stake. But who is at stake?
Rumors appear daily — the main ones include incumbents Disney and Warner Bros Discovery, NBC Sports, Fox, Apple, and even Netflix. But let’s try to provide a stable overview of the situation, rather than feeding assumptions and speculative scenarios.
In this context, the main tailwinds for the NBA are:
- The NBA is the last of the US major leagues to bring their post-2025 rights to market, locking in the landscape for the next decade — a sense of urgency being a psychological advantage for the League
- The strategic transition of broadcasters building their own streaming proposition outside of Pay-TV bundles, increasing demand for premium IP/ differentiated content
- Beyond incumbents, the increasing presence of large technology groups such as Amazon, Google/ YouTube, and Apple in the sports space, which can create value indirectly by stimulating competition and incentivising incumbents to up the ante, or directly by acquiring rights packages
- The convergence between betting and mainstream media, including rumors of large betting operators such as DraftKings and FanDuel seeking to acquire live rights to offer ‘watch-and-bet’ experiences — particularly in the context of softening online gambling rules across the US
Conversely, the main headwinds are:
- A buyer universe in full transformation, reshuffling the Key Purchasing Criteria (KPC) and value drivers once well understood/ capitalized by the League
- Amongst incumbents, pressured unit economics with a greater focus on profitability and direct refinancing, creating uncertainty about spending level (e.g. Warner Bros Discovery claimed it didn’t need the NBA, before saying it actually hoped to retain it)
- A time-to-market potentially hampered by recent significant rights investments in the NFL as a must-have TV property in the US — including Amazon and Google/ YouTube — reducing the share of wallet for the NBA
Steering the market to the best-case scenario
For the NBA, the main challenge is to model market scenarios, including external — buyer needs and strategic priorities — and internal– rights packaging and bidding strategy — factors to determine which scenario would allow the League to capture the maximum value from the underlying market structure.
That is, to reach (or even exceed?) the USD 75 billion mark.
Once the best-case scenario is defined, the point is to determine what are the levers and how to proceed in order to steer the bidding process towards this desired scenario.
All the stakes lie in the answer to this question. No more, no less.
As stated above, one of the most important drivers for the NBA to reach the best-case scenario is embracing market disaggregation to expand the addressable buyer universe. This is to stimulate competition, maximise the number of opportunities, and diversify risk.
But concretely, how do you do it?
Before looking at rights architecture and packaging, the first growth lever often used by rights owners is the product itself. As part of its record-breaking USD 10 billion per year deal, the NFL added an extra game (from 16 to 17 per franchise), which basically means more aggregated audience and commercial inventory — and therefore enhanced refinancing ability — for broadcasters.
In its case, the NBA already has a huge library of live content — even too large according to some (e.g. Warriors’ coach Steve Kerr has often spoken out in favour of a 72-game season). The League just has no headroom on expanding the regular season.
This leaves only the creation of new competitions on the table.
Commissioner Adam Silver recently announced the idea of creating a new, in-season tournament to add stakes to selected regular season matches sometimes deprived of the excitement of the end-season play-offs. As a result, four matchdays in the regular season will also count as tournament matches, qualifying 8 teams for a single knockout tournament finishing before Christmas (similar to March Madness or a European football national cup, as played in one go).
However, the impact of this initiative can be considered relatively low in terms of short-/ medium-term value creation, as it refers to an unproven property with uncertain adoption by fans and audiences. If licensed over a period as long as 8 to 10 years (or more), the tournament’s rights are likely to include a performance component, with fees based on pre-defined thresholds and criteria. Risk sharing, in a way.
So, it is fair to say that the most significant headroom for the NBA is not adapting its product to grow by volume, but rather grow by value by reallocating existing volume in line with the market tailwinds and headwinds mentioned above.
That is, the optimised reallocation of content across the 5 distribution archetypes according to their respective revenue potential. And even within distribution archetypes as well.
Facilitating new entrants vs. safeguarding incumbents
On pillar #1 Licensed content, the trade-off for the NBA is to manage defensive initiatives to maintain value capture from incumbents, versus offensive initiatives to address new types of buyers and thus future-proof its media revenues.
In short, it’s all about finding the right level of disruption.
As a major tailwind, the sports industry is now taking full advantage of the race to video aggregation as the next area of dominance for the major technology groups — especially Amazon, Google/ YouTube, and Apple, on Big Screen/ Connected TV.
Long story short, Connected TV is a fragmented universe which, unlike Mobile, is not controlled by a duopoly of hardware providers and operating systems (iOS and Android). In this environment, differentiation is to happen more upstream in the value chain, driven by services and, therefore, content.
This is where premium rights owners come into play
The NBA is reportedly trying to create a ‘streaming package’ comprising between 20 and 40 games (1 or 2 games per week) targeting technology groups, complementing core packages reserved for incumbents. The obvious benchmark for the NBA is the NFL and its lucrative streaming-only deals with Amazon for TNF (USD 1 billion/ year), and its recent deal with Google/ YouTube for the Sunday Ticket (USD 2 billion/ year).
Note that the term ‘streaming package’ refers to the nature of the targeted players, not the distribution technology. As in the case of the NFL, it is certain that incumbents will expect ‘platform-agnostic’ rights allowing them to activate content on their legacy offering, as well as on their streaming offering, or both (especially given the long-term nature of the deals, which can span 10 years).
So, how do you strategically carve out those rights?
Simply tapping into national packages typically targeting incumbents — thus reducing the number of games licensed — could be risky, all the more so as they are already threatened by stagnating or even declining audiences. This could damage the NBA’s relationship with historical partners who have co-invested heavily in the product and contributed fully to the League’s success over the years.
It is critical for the NBA to look beyond short-term refinancing ability, remembering that its relative value to an ESPN or a TNT is paramount, while it is secondary to an Apple or Amazon with an ultra-diversified revenue model.
What’s more, in the long term, it is also crucial that the League avoids a ‘Spotify’ scenario where a single aggregator (e.g. Apple) has such control over demand that it is able to completely commoditise supply (i.e. content/ NBA rights).
Hence the importance of maintaining a degree of market fragmentation despite the friction this creates for fans.
Reallocating regional sports networks’ inventory
Where a value re-allocation manoeuvre would make more strategic sense for the NBA is to work where rights are likely to be devalued: with regional sports networks (RSNs).
In the first chapter, we talked about the financial difficulties of RSNs, which are directly affected by cord-cutting due to sub-scale operations. Actually, most RSN channels are in such financial difficulty that it is fair to speak of a broken market, and multiple repair scenarios are now on the table: creation of a cross-market streaming service (Bally Sports+) to gain greater scale and cross-subsidization, takeover and self-exploitation of the rights by the franchises or the League (e.g. Clippers Vision), or a joint operation potentially including an equity stake.
The point is that it might make sense for the NBA to withdraw select game rights from RSNs and turn them into national games, carving out the inventory needed to create a so-called streaming package (relatively similar to the NFL model).
While devesting in a declining buyer group to better invest in a rising one seems to make sense, the challenge will lie in the execution and negotiation with the different teams which are accountable for those rights. This may notably impact the strategic plans of franchises which have already invested in changing the current system, including the LA Clippers with Clippers Vision, the New York Knicks with MSG+, or the Phoenix Suns.
Of course, this does not mean that local rights no longer have any value on the market, but that the business model of those who exploit them is dysfunctional. This lowers the opportunity costs for a carve-out or co-exclusive rights.
New players, new requirements, new opportunities
While the overall direction regarding the creation of a dedicated package for streamers seems clear, the strategic priorities of each player still need to be weighed individually.
Apple could set itself up as the buyer of choice, as it is the only one of the three major technology groups that has not already invested heavily in the NFL (i.e. timing fit), and as the highest-value company in the world has recently increased its investments in the sports space including a 10-year global deal with the MLS ($250m/ year), and a relatively smaller investment in domestic MLB rights ($85m/ year).
This scenario can be plausible considering the following elements:
- None of the league’s international media rights deals extend beyond 2025 (the term of the domestic renewals), so the NBA would be allowed to grant international rights to Apple (which the company seems to be seeking to secure)
- Speaking of which, it is rumored that Apple failed to acquire NFL Sunday Ticket against Google/ YouTube, as it was not able to secure global rights and gain enough control of the product
- The fact that Google/ YouTube is in the midst of an experiment with the NFL and therefore unlikely to accelerate this test phase with another major investment
- The fact that Amazon is buying rights with a platform logic and the prospect of beefing up its ecommerce revenues, therefore suggesting a relatively limited incremental value in the home market given current ownership of NFL assets
The above should be treated with caution, as other factors could still come into play, such as a potential investment by Apple in Premier League rights, or a stronger push by Amazon into sports against a potential strategic shift by Amazon Studios away from major investments in scripted content.
As for the impact on the League Pass, it has always been seen as a tool for optimising the domestic market, and would therefore continue to play its role even if its live offering were to diminish slightly. Especially when considering its diverse library of content, fully integrated into the NBA’s main mobile app.
In keeping with the idea of appealing to the widest possible range of buyers in order to diversify risks and opportunities, it is likely that the NBA will also be exploring incremental opportunities in addition to the reallocation exercise, including through innovations such as:
- PPV rights for news apps, publishers, or pure players with a similar proposition to that of Buzzer –particularly relevant to capture value from casual fans who leave Pay-TV bundles and are not willing to pay for full season packages
- Mobile rights like NFL+, but with a B2B/ B2B2C rather than DTC focus, especially targeting telco operators offering mobile services
- Betting streaming rights, restricted or not, calling on betting operators increasingly investing in sports content
- Real-time highlights as a new live product reserved for publishers (for example)
To sum up, while the NBA’s growth in volume seems limited, the League has a strong structural advantage, given the existing fragmentation of its rights, to optimize the allocation of its content and grow in value.
An extensive portfolio of assets to cater for increasing buyer needs
Once the buyer universe has been analyzed and the rights packaging strategy leading to the ideal scenario has been determined (who?), the question arises about the assets and other services to be provided with the content (what?) in order to:
- Strengthen the incentive to participate in the bidding process
- Maximize its outcome
In other terms, optimizing the buyer’s ability to valorize, i.e. refinance, the rights.
The key point is to recognize that, in line with the changing and expanding buyer universe, the service needs of potential rights buyers have evolved — and increased — drastically.
Let’s look at the challenge from the perspective of the rights owners’ content distribution framework outlined above.
B2B (#1) and B2B2C (#2, #3, partly #4) archetypes can all be considered for rights licensing agreements, each providing a different level of ancillary services around the content offered to media partners.
Horizontally, the asset base starts with the raw audiovisual rights to produce or broadcast content (IP rights). These are often accompanied by production services that provide the buyer with a semi-finished product, especially if the content is packaged in a channel (linear, or on-demand content hub, i.e. archetype #3).
The following value-chain stages refer to the addition of technology (back-end) and user-focused services (front-end) to create a finished, ready-to-exploit product (i.e. platform — archetypes #4 and #5). User-focused services can be both in-stream (e.g. immersive features such as multicasting and advanced stats, interactive features such as in-stream live chat, prediction games, and watch-and-bet) or out-stream (e.g. standalone member loyalty or betting assets, e-commerce rights and services).
For sports rights owners, the first consideration is whether they have a complete portfolio of assets to cover all their partners’ needs according to the B2B and B2B2C archetypes exploited — in the case of the NBA, all of them.
As outlined in the first chapter, the NBA stands as one of the most innovative sports organizations in the world, with advanced technology capabilities — whether self-acquired or within reach via its multiple partnerships.
So it’s more than fair to say that the NBA has what it takes on this front.
The second, more delicate question is which distribution archetype and corresponding assets should be preferred to which buyer. Or whether an asset should be licensed rather than self-exploited.
After all, a licensed asset that is not valued by the licensee means a value leakage for the licensor.
Broadcasters to valorize downstream services
For media companies, especially national broadcasters such as ESPN/ ABC or TNT, it has already been stated that key strategic priorities are to retain users in their ecosystem — either by boosting the resilience of their legacy offering or migrating cord-cutters into their new offering — as well as to increase ARPU on the latter.
Broadcasters’ objectives mainly impact downstream aspects of their value chain, namely user retention and monetization.
In line with the above, audience engagement assets are likely to be perceived as differentiating by media companies, with a potential uplift on the NBA’s rights value. Especially if they can be tied to a concrete retention (e.g. user loyalty) or upsell case (e.g. content commerce).
These needs are accelerated by the aspirations of media companies to refinance content beyond pay-to-access, by experimenting with pay-to-play, pay-to-own (including physical, digital, or “phygital” assets), with somehow limited investment abilities. So, for the (high) amount of content rights commanded, they expect rights owners to come and help.
The reverse is true for upstream services.
Broadcasters — whose core business is and will remain content editing — may only need a highly tailored, flexible catalogue of video technology services to fit in their proprietary assets. At least for major broadcasters with in-house resources (i.e. NBA’s target group), it is unlikely that off-the-shelf content augmentation services will make a difference (the exception being live event production, which may reduce the costs of acquired rights, provided they are not charged too heavily as a technical fee).
Looking at our distribution framework, we can therefore conclude that broadcasters’ preferred distribution archetype remains #1 (Licensed content), with the addition of downstream assets in the form of modular add-ons (i.e. not fully integrated into a ready-to-use channel or platform).
Technology groups to valorize upstream services
As far as major technology groups are concerned, the situation is obviously different.
It is to consider that their media initiatives fit into a (ultra) large ecosystem of diversified services, whose value drivers vary according to their business model and primary source of revenue:
- Google/ YouTube: video/ audience aggregation as a driver of advertising revenue
- Amazon: video/ audience aggregation as a driver of retail/ ecommerce revenue
- Apple: video/ audience aggregation as a driver of hardware + service revenue
Observing the above, the common denominator of the three tech groups remains their willingness to act as media aggregators — not as editors like media companies — suggesting that core content, downstream services would be perceived as needle movers.
Think: a light Software Development Kit for broadcasters; plug-and-play solutions for tech companies.
For example, as part of the deal between Apple and MLS, the League announced a roster of multiple technology partners — including IMG Arena, NEP, and Sportec — to be able to provide a finished, ready-to-use product to its new media partner.
Content rights without accompanying assets would have a much lower perceived value for technology groups, which not only lack the ability to create a sports media product from scratch, but also lack the desire to do so.
It can therefore be stated that technology groups’ preferred distribution archetype is #3 (Licensed channel) in the case of video aggregators, or #4 (Licensed-and-operated platform) in the case of system operators (e.g. Samsung).
Is there really room for a branded streaming package alongside the NBA League Pass?
The sticking point, however, is to what extent the NBA will be willing to provide an end-to-end product to a third party without controlling its operation.
As mentioned earlier, the NBA has invested a lot of strategic resources into developing its own media proposition via the NBA League Pass (#4 and #5; operated platforms).
And an interesting fact is that all three recent streaming deals by major US leagues have been branded content packages:
- In the international market, DAZN and NFL Game Pass International
- In the home and international market (global deal), Apple and the MLS Season Pass
- In the home market, Google/YouTube is NFL Sunday Ticket (to a lesser extent, as it does not have a pre-existing technology platform)
The names are misleading; DAZN will completely absorb the existing UX/ UI of NFL Game Pass International to keep only the content. The same goes for Apple, which will completely sanitize the MLS Season Pass under its proprietary look-and-feel.
This probably represents a major trade-off point for the NBA in this upcoming rights bidding process: should the NBA League Pass be considered an end-to-end product that cannot decouple content and tech (allowing for its own exploitation, or 1:1 integration on telco and Connected TV devices), or a simple out-of-market package like the NFL Sunday Ticket?
This comes down to a strategic choice: pursuing a standalone media play (e.g. the NBA may even think of acquiring and aggregating third-party sports rights, like the NFL and its new B2B rights initiative), or accepting a downgrading in the value chain to a supplier-only role (e.g. WWE and Foxtel).
In the case of the WWE or, more recently, the NFL with DAZN, the choice is that of pragmatism, as Entertainment Strategy Guy put it so well:
Things like ‘controlling the customer relationship’ or ‘leveraging the data’ or ‘optimizing the user experience’ are devilishly hard to quantify. Figuring out that you lost 5 million monthly subscribers is easy to quantify!
All things considered, the NBA is likely to follow the Amazon/ NFL playbook rather than the Apple/ MLS one, with the creation of a new streaming package by potentially carving out some League Pass games, but not the entirety of its library, let alone the licensing of its label.
At least not in the domestic market.
Internationally, however, it will be interesting to see if the NBA will have the ambition to push the development of the League Pass as a destination platform vs. resorting to a lucrative deal with an aggregator like DAZN or Apple. But this is a different story.
A prime position to face the future
All in all, this analysis aims to show that the NBA remains formidably positioned to benefit from market disaggregation.
While most sports rights owners are just learning how to navigate co-exclusivity, it is only a matter of pushing the cursor a little further for the NBA, re-allocating value in this current buyer universe and expanding it slightly to new clusters, including technology groups.
On the service layer, its comprehensive and well-advanced media asset portfolio, enhanced by multiple partnerships, offers the NBA a broad catalogue that it can ideally modulate to cover the (new) needs of potential buyers, thereby maximizing value creation for them, and for itself in the process.
Moreover, although sometimes seen as a disadvantage in that it diminishes the scarcity effect, the NBA’s large content inventory can be seen as a unique asset for media companies in that it ensures predictable and repeated premium programming over a period of almost 260 days, acting on both audience acquisition and retention. A structural advantage that is difficult to match by other sports, and even non-sports properties.
Key obstacles for the NBA include limited headroom for volume growth due to its already maxed-out supply of live content, content discoverability in an increasingly fragmented distribution landscape post-2025, and the strategic management of the NBA League Pass with regards to the trade-off between pursuing its DTC ambitions vs. capitalizing on (potentially lucrative) B2B licensing opportunities.
But these risks are all linked to their equivalent in opportunities, demonstrating the NBA’s dominant position in the market.
Read the rest of the NBA series: How the NBA can thrive in media disaggregation
- The Product and the Market
- The Product in the Market
