The Hollywood Reporter: Sports Rights’ Streaming Wave May Finally End Pay-TV Bundle

Michael was recently featured in the Hollywood Reporter discussing ad-supported streaming:

Sports are a key strategic foothold for ad-supported streaming, because unlike entertainment options, which are either ad-free or ad-light (HBO Max and Peacock each have fewer than 5 minutes of ads per hour, compared to more than 15 minutes on linear TV), they can keep their existing ad loads, which are tucked into breaks in the action, Cross Screen Media CEO Michael Beach says.

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NBCUniversal, Disney and ViacomCBS, along with tech giants like Amazon, are shifting resources to snap up live programming from major leagues in a new arms race to fuel direct-to-consumer services.

Before NBCUniversal’s Olympic coverage was beamed to its Peacock app, it passed through the streamer’s digital network operations center. The Peacock DNOC, as it’s called, sits in a far corner of NBC Sports’ headquarters in Stamford, Connecticut, with a wall of monitors at the front of the glass-encased room and a two-story window overlooking oversized Olympic rings in the parking lot outside. Rows of desks are stacked with Rokus and Xboxes and PlayStations and Fire TVs, with technical staff making sure the live connection is working on every conceivable device and TV.

Peacock, led by chairman, direct-to-consumer and international Matt Strauss, is NBCU’s big bet on streaming, and it is hoping that live sports will drive users and subscribers. For the Tokyo Games, the company made gymnastics and track and field coverage exclusive and free to Peacock, and men’s basketball exclusive to the paid tier of the service. The Peacock DNOC may as well be a visual representation of that bet.

“This didn’t exist a year and a half ago,” says NBC Sports vp engineering Tim Canary, giving a tour of the space to The Hollywood Reporter in late July. Two years ago, the area was filled with regular office desks and cubicles, but when NBCU decided it needed to go all in on streaming, and that sports would be a cornerstone of the strategy, the space was repurposed into Peacock’s sports hub. While it is too soon to know for sure if Peacock’s Olympic bet has paid off, there are early signs it may be working.

According to research from Antenna Data, the Olympics were the biggest paid signup-driving event for the service so far, driving 151 percent more paid signups than The Office, 108 percent more than the WWE’s WrestleMania and 50 percent more than the film Boss Baby: Family Business. NBCU says that users have streamed more than 4.3 billion minutes of coverage (including on NBC Sports’ website and app), and that the games marked the “best two weeks of usage” in Peacock’s history.

As every major entertainment and media company goes all in on streaming in a bid to dethrone Netflix, they are seeking exclusive content that can drive new subscriptions and make their services a must-have. For Peacock, it’s the Olympics and WWE; for ESPN+, it’s a full suite of sports and UFC premium events; and for Paramount+, it’s March Madness and the Masters.

But with new sports rights becoming a scarce commodity, these same companies are trying to figure out how to make the most of what they already have, trying to get ahead of a pay-TV business in continued decline.

“I think at the moment, everyone is looking at streaming as supplemental to the linear television experience, but five years down the road or three years or 10 years, whenever Disney decides that ESPN+ is a replacement for ESPN … then the bundle falls apart,” says S&P Global senior director Naveen Sarma.

When it comes to streaming sports, Disney has the most mature offering. ESPN+ launched in 2018, featuring leftovers from the company’s bucket of rights packages and a few new deals for smaller sports. But the strategy has changed, and now the company pursues streaming rights alongside all major deals.

As Disney CEO Bob Chapek told a JPMorgan conference May 24, “that flexibility for us as we need to pivot towards a direct-to-consumer ESPN+ platform has been an important component that we insist upon for each one of these deals.”

“When the time is right to really stomp on the gas and go even stronger into our direct-to-consumer platforms for sports, we’ll do that,” Chapek added.

JPMorgan, in a June report about the streaming service, estimated that a premium ESPN+ tier based on the linear channels could reach 15-25 million subscribers at a price point of $15-$25, and that it thinks “fall of 2023 provides an entry point for more sports to be made available DTC given the new NFL agreement and potentially other deals.”

And Disney hasn’t limited its sports streaming aspirations to ESPN+. Its recent deal with the NHL includes 75 games that also will stream on Hulu.

ViacomCBS’ Paramount+, meanwhile, has leaned on CBS’ suite of sports deals, most notably college basketball, the NFL and golf tournaments like the Masters, while adding new soccer and combat sports rights along the way.

Even HBO Max may get into the game, with WarnerMedia news and sports chief Jeff Zucker suggesting NHL games could find their way to the service as part of a newly signed deal with Turner Sports “as the consumer continues to skate to where the puck is.”

And while Netflix remains focused on an ad-free model, most other streaming competitors are embracing ad-supported options.

Sports are a key strategic foothold for ad-supported streaming, because unlike entertainment options, which are either ad-free or ad-light (HBO Max and Peacock each have fewer than 5 minutes of ads per hour, compared to more than 15 minutes on linear TV), they can keep their existing ad loads, which are tucked into breaks in the action, Cross Screen Media CEO Michael Beach says.

“Advertisers are, at the national level, are willing to pay more for sports than just about anything else advertising-wise,” Beach adds.

Even regional sports networks, which air NBA and MLB teams like the Yankees, Dallas Mavericks and Miami Heat, are thinking about streaming. Sinclair Broadcast Group’s RSN holding company, Diamond Sports, is planning an entry into the market. According to an internal presentation the company prepared for potential lenders, “Project Active,” as the streaming effort is called, is built around “gamification,” “sports betting” and “community engagement.” The offering would have multiple tiers, from a free, ad-supported tier built around highlights to a full-suite offering with live games “untethered from the pay-TV ecosystem.”

Sinclair CEO Chris Ripley referred to the company’s plans as “a metaverse or marketplace, where we can serve up a more personalized and optimized experience for the viewer,” during the company’s quarterly earnings call Aug. 4, turning to a buzzword recently trotted out by Facebook and Microsoft. But the strategic undercurrent remains the same: streaming video, with some gaming and betting layered on top.

Still, the future of live sports on streaming revolves around rights and that direct-to-consumer relationship. And whenever a rare rights opportunity arises, there is interest. In Idaho the week after July 4, the investment bank Allen & Co. constructed an outdoor pavilion at the Sun Valley Resort for attendees of its annual mogul-filled conference. Billionaires, world leaders and top executives mingled in the setting, moving from table to table. According to someone familiar with the scene, NFL commissioner Roger Goodell and New England Patriots owner Bob Kraft made the rounds, asking various attendees (including Apple leaders Tim Cook and Eddy Cue and ViacomCBS chair Shari Redstone) whether there was interest in its NFL Sunday Ticket out-of-market streaming package and its NFL Media assets.

Sunday Ticket, which DirecTV has offered exclusively since 1994, is one of the few major sports rights set to become available in the coming months. ESPN chief Jimmy Pitaro has said his company has had “exploratory conversations” with the league about it (likely as an ESPN+ add-on, a la UFC), but the league is trying to bring in tech giants and other media companies as well, hence the meetings at Sun Valley.

But what happens if the leagues decide to cut out their media partners in the future? “Does the NFL want Apple or somebody to pay the premium they are looking for and bake it into their $5-per-month package? Or do they want Apple to buy it and charge $200 a year or whatever the Sunday Ticket incremental cost was before?” Beach says. “For me, it is a total trial balloon for the league [eventually] going to direct-to-consumer.”