#47 Portfolio vs. Featurization of Sports Programming

For the first time in its domestic market, an NFL game was broadcast exclusively on a digital-only platform on December 26, 2020. The San Francisco 49ers vs. Arizona Cardinals game drew a worldwide (!) average viewership* of 4.8M across Prime Video and Twitch (as well as NFL Mobile/Verizon Media; under a USD 500M per season deal limited to live local-market games and primetime national games—which the aforementioned game was despite its time slot in the early evening). The digital-native currency "viewers" (which Prime Video counts based on the lowest-possible hurdle of the consumer initiating a stream instead of at least a minimum watch duration of a few seconds) made another good-but-somewhat-meaningless headline for the narrative of Amazon conquering live sports: 10.7M on Prime Video and Twitch.

* In other words, how many viewers watched any given minute of the broadcast:

• Average Minute Audience = Total Minutes Watched / Duration of Broadcast

• Average Minute Audience = (Uniques Viewers x Average Watch Duration) / Duration of Broadcast

Considering the game’s availability on (1) linear broadcasters in the local markets of San Francisco and Phoenix (KNTV-NBC and KSAZ-Fox combined for an additional average audience of 1.2M), (2) the game's availability on the league's owned and operated NFL GamePass outside of the United States, (3) the global nature of Prime Video, and (4) the local presence of the NFL/Verizon Media mobile properties (e.g. Yahoo Sports app, NFL Mobile app) into account, any comparison that puts the communicated numbers into perspective would probably fail. The season's first three Thursday Night Football games and two other Saturday-Specials in Week 15 that were available exclusively on the NFL Network are the closest comparisons—both in distribution/accessibility and viewership:

• WK 2️⃣ — Cincinnati Bengals vs. Cleveland Browns: 6.68M (NFLN)

• WK 3️⃣ — Miami Dolphins vs. Jacksonville Jaguars: 5.43M (NFLN)

• WK 4️⃣ — Denver Broncos vs. New York Jets: 5.41M (NFLN)

• WK 1️⃣5️⃣ — Buffalo Bills vs. Denver Broncos: 4.53M (NFLN)

• WK 1️⃣5️⃣ — Carolina Panthers vs. Green Bay Packers: 5.61M (NFLN)

• WK 1️⃣6️⃣ — San Francisco 49ers vs. Arizona Cardinals: 4.8M (Prime Video, worldwide)

Source: Sports Media Watch (2020)

The US-only reach of NFL Network (+/- 70M "Households" á 2.6 people on average) and Prime Video (+/- 126M "Members") are difficult to compare but Prime Video is certainly closer to traditional satellite/cable television than the other (pure-sports) streamers.

How important is any distribution system's reach, especially to capture the casual sports viewership? The 11x "Thursday Night Football" games simulcasted by FOX and Prime Video (instead of being only available on NFL Network) averaged 13.96M viewers during the 2020 season—still down 6% compared to the previous season. As it is true for any rights owner, exclusive digital distribution with new partners would be an experiment. It is a trade-off between how much (more) the streaming-only player pays for exclusivity and how much viewership/reach rights owners would be willing to sacrifice.

The NFL is probably one of the very few rights owners that can still demand the best of both worlds (revenue + scale) and we will not see a prime domestic package going streaming-only anytime soon. NFL's traditional broadcasting partners launching complementary streaming apps, untethered from their traditional pay-TV subscription, adds further complexity to the future packaging process. In comparison to an ESPN+ (ESPN), Peacock (NBC), Paramount+ (CBS), or new market entrants such as Apple TV+ (Apple), Amazon should be the odds-on favourite though (if the NFL decided to carve out a national package for digital players): While all of them would need to overcome the technology gap, Prime Video is the only digital streaming service with the reach that comes somewhere close to the traditional cable/satellite distribution system. More niche/premium services such as the NFL Sunday Ticket—catering to super-fans and without the need for max-reach/ mainstream audiences—have a much better chance to go streaming-only.

Nonetheless (and since this recent first-of-its-kind broadcast naturally lacks meaningful comparisons anyway), let's focus on what this event naturally triggered: The conversation about when, not if, Amazon would take over the NFL broadcasting packages in particular and the sports rights market in general—despite chances are that we will not see any meaningful NFL package exclusively on Prime Video for several more years and many challenges become blatantly obvious during this first-time broadcast:

• Live streaming at scale, which requires the combination of exclusivity ( ✅ , at least partially), top-tier sports ( ✅ , NFL with playoff implications), and significant market size ( ✅ , worldwide available), is still a fundamental challenge technologically in general and for environmental factors on the individual basis: In contrast to cable/satellite distribution, the viewing experience of IP-delivered video content is not unified and can greatly differ on the individual basis.

• User experience did not only differ due to the digital divide between demographics but suffered from the lackluster navigation and discovery of live sports programming within Prime Video—an inherent mismatch as a horizontal platform tries to accommodate individual verticals (think: gaming, sports) and inevitably tries to be everything to everybody.

Disregarding those challenges and that NFL probably will not rely on Amazon anytime soon to sustain their growth in media rights revenues, the single-biggest reason why I do not believe that Amazon will come to the rescue to a seemingly flattening-out sports rights market is: It does not need to. In contrast to pure-sports broadcasters/streamers, there is no need for Amazon to build up a critical mass of live sports programming. Instead, there is optionality for Amazon to opportunistically tap into the sports rights market and super-charge their already existing (video) value proposition. Unfortunately for sports rights owners, Amazon will do so on a selective basis (think: diminishing return on investment in live sports programming) and is much more likely to do so if there are bargains available compared to when right owners can still demand market rates.

In other words, the future monetization of sports rights will depend on the distribution models of those who have traditionally bought their rights (think: mastering the cable-to-streaming transition), new pure-content digital players (think: DAZN), and any complementary direct-to-consumers businesses of rights owners based on their unique IP.

That doesn't mean that there will not be the occasional bail-out for struggling rights owners by Amazon—I guess congrats to Six Nations Rugby (Autumn Nations Cup in the U.K.), UEFA (Champions League in Italy/Germany), and USTA (US Open in Great Britain).

💡 Let’s set the stage for who will instead be interested in sports broadcasting rights at large going forward and under which premises they must operate their content acquisition and monetization strategies!

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PLAYERS IN SPORTS BROADCASTING MARKET (MEDIA RIGHTS + PROGRAMMING MARKET)

Pure-Sports Streamers/Broadcasters: Content creators increasingly embrace a platform-agnostic approach to their distribution model—making the same portfolio of live sports programming available across several distribution and monetization channels: from traditional linear pay-TV subscription to monthly/weekly/daily passes untethered from the satellite/cable distribution system or even PPV on digital platforms. Established rights holders must master the cable-to-streaming transition, digital-only streamers must show the ability to address the cable/satellite distribution system to capture less digital-affine customers and generate positive returns on their content spending. Facing the deflationary pressure of digitization, they must establish a more diversified revenue model that comes close to the level of monetization of the traditional pay-TV model by untapping new sources of income: an ecosystem of revenue streams built around live sports programming.

TV-Distributors (e.g. Fire TV, Roku, Google TV, Apple TV): A platform's value proposition is driven by differentiated brands that are connected with the platform's built-in user base to the benefit of all three groups (i.e. content creators, platforms, end consumers). Based on the hypothesis that ownership of demand (i.e. end consumers) enables outsized returns, platforms that have successfully collected a critical mass of users often develop ambitions of becoming an aggregator: offering an integrated solution for consumers (think: "Channel Stores" with unified UX/UI, better cross-discovery) which modularizes and extracts value from the supply side (i.e. content creators). Whether platform or aggregators, distributors have replaced cable/satellite television as the industry's content gatekeepers of the digital age by controlling and dominating streaming eyeballs. Broadcasters/streamers must (strategically) pay for distribution—sign-ups via owned and operated services (e.g. website) and, thus, true direct-to-consumer relationships remain the exception.

Ecosystems: Those competing in the "ecosystem wars" instead of only "streaming wars" have established an uneven playing field by creating an ecosystem of revenue streams around content, IP, or other online and offline services, in which live sports programming is cross-subsidized and a mere feature instead of the core proposition of someone's business model: Amazon's 20-exclusive-matches-per-season schedule in the English Premier League (UK-only) or its 11-non-exclusive-plus-1-exclusive-games-per-season deal with the NFL (worldwide) are obvious examples for such featurization of sports. Such development is not necessarily bad for rights owners as it expands the set of interested parties in their IP but it is not a replicable approach for the majority of rights buyers and, therefore, has limited impact on what the average rights buyer will pay in the future.

Rights Owner's OTT Streaming Services: I have repeatedly covered the fundamental challenge for rights owners—who in contrast to their rights-holding licensees would have the benefit of building up long-term enterprise value with the self-exploitation of IP—of switching from a business-to-business to a business-to-consumer enterprise. Using rights ownership for such verticalization (think: cutting-out-the-middlemen, redefining distribution model) requires long-term thinking—something top-tier rights owners such as the Big-5 European football leagues, NBA, or NFL simply cannot afford. Short-term needs arising from the existing revenue and cost basis outweigh any desire for a closer relationship with the end consumers. Frameworks imposed on licensing broadcasters will remain tight and conservative to minimize risk. Prioritizing direct-to-consumer ambitions and/or younger demographics are not maximizing short-term revenues for established sports. While managing the potential concerns of licensees regarding a dilution of their value proposition/exclusivity, subtle strategic decisions such as the retention of more content rights for self-exploitation (think: reducing embargo for highlight content for leagues/teams) and developing/launching niche "direct-to-fan" subscription services on the league/team-level (think: NBA League Pass, Facebook's Fan Subscriptions) represent worthwhile short-term initiatives. Those will not be commercially relevant for the foreseeable future but should inform future decision-making, super-serve plus monetize die-hard fans, and ensure participation of younger demographics who are supposed to carry the league/team's business at some point.

💡 Since the pure-sports streamers/broadcasters, or at least pure-content plays, are the party who will drive future rights valuations, let’s have a look at how they approach the acquisition and commercialization of (live) sports programming and how that differs from Amazon!

PORTFOLIO APPROACH: STABLE, GRADUALLY GROWING SUBSCRIBERSHIP OVER TIME

When compiling a portfolio of rights and drafting a value proposition for end consumers, there multiple things to consider:

Qualitative objective: In the case of a (pure-sports) subscription-based streamers/broadcaster, any combination of live and on-demand content (= portfolio) should ensure a stable, gradually growing subscriber base accounting for sport's inherent seasonality and OTT's flexibility/ease of use: being able to selectively acquire and constantly engage and, thus, retain customers (think: 1x engagement per $2 monthly subscription cost).

Quantitative objective: Once the quality/health of the subscription base is ensured, the size and monetization of such subscription base must align with the size of financial investment in content and operations: creating a sustainable (subscription) business characterized by pricing power, stickiness, and (strategic) scale. OTTs coming anywhere close to the traditional pay-TV bundle in these categories is doubtful when looking at the involved metrics:

• ARPU 📉 = deflationary pressure of digitization in general and hyper-aggressive pricing as (video) subscription services are in full customer acquisition mode.

• CAC 📈 = fierce competition for the attention and wallet share of consumers leads to skyrocketing marketing costs and a shift of budgets from the linear to the digital market.

• Churn 📈 = increasing wallet share tensions will results in more active subscription management by consumers—enabled by enormous ease of use (think: frictionless, monthly cancellations) and compounded by COVID-induced tightened budgets.

• CLTV 📉 = surplus between deflated CLTV (= ARPU/Churn) and increased CAC, if any, only starts to repay the content acquisition and production costs.

While pricing power and stickiness are directly correlated with the composition of the portfolio, scale involves strategic decision-making and trade-offs. For a multi-sports value proposition targeted at the mainstream, in particular, the following holds: 📝 Blog #46: Content is King, Distribution is King-Kong—at least for top-tier sports that have to manage existing revenues and a significant (fixed) cost base. It lives and dies with the viewership of casual sports fans. However, distribution partners to supplement the owned and operated streaming service and achieve the required scale should be added strategically and selectively. The longer-term a rights owner or holder is able/willing to operate, the more selective the approach can be when negotiating splits of (subscription + advertising) revenues, customer ownership (ranging from contact to billing information), minimum guaranteed revenues, and brand representation (think: platform vs. aggregation) with players such as Amazon, Roku & Co. Any blueprint for online and offline direct-to-consumer business suggests to invest heavily in the owned and operated experience while keeping third-party distribution partners to a select few—while facing the pressure of needing sufficient scale.

Different sports content has different characteristics (think: acquisition/production costs, owning vs. renting/licensing content, seasonal/tour-driven/event-driven competitions, on-demand vs. live consumption) and serves different purposes (think: customer acquisition vs. retention). In short, the video-only chessboard can be categorized as follows:

• ⏯ On-Demand (Sports) Programming: The need for scripted and unscripted non-live content has been highlighted amidst the recent sports hiatus but should have been part of the strategic thinking from the beginning. It probably does not have sufficient drawing power to materially generate sign-ups but can support retention greatly. Given the fierce competition for the consumer's attention and wallet, retaining an existing subscriber will always be cheaper than acquiring a new subscriber. Non-live content can also overcome inherent problems of live sports programming such as limited shelf-life, limited scale resulting from the market-by-market logic of the sports rights market, and lack of building up long-term value as live sports programming is only rented over the course of any current rights cycle. The latter requires investments in original productions and builds up an owned library/back catalog. Based on risk tolerance, in-house capabilities, and investment time frame/objectives of the individual streamer/broadcaster, licensing content could still be the superior option. After all, the on-demand content library of a pure-sports streamer/broadcaster will probably still neither be competitive for the consumer's time and money compared to general entertainment streaming services nor make or break the investment case for sports rights holders whose value proposition has been defined by the live experience.

• 🎬 (Near-Live) Highlights: Consumption habits have changed and attention spans have shortened. Ultimately, engagement/consumption (= creating value) enables monetization (= capturing value). The highlight/industrial complex already creates significant value while capturing very little. Even though directly monetizing short-form live/highlight content seemed hard-to-imagine for a long time and a laissez-faire approach to free/maximized distribution (think: top-of-funnel marketing) often prevailed, it has pay value for consumers. Putting highlights on third-party platforms (e.g. social media, publisher websites) dilutes any rights holder's value proposition and should be done selectively and strategically. Retaining significant exclusivity for the rights holder's owned and operated streaming service, either in front of or even behind the paywall, would improve the rights holder’s ability to capture the created value. In the long-run, stand-alone subscription products for (near-live/in-game) short-form content such as mobile push-services for in-game clips do not seem far-fetched either.

• 🎥 Live Sports Programming: Even though consumption and, subsequently, monetization will shift towards short-form content, long-form live programming will remain the dominant acquisition and retention driver for pure-sports streamers. It is also not about substituting but supplementing the difficult OTT economics whose level of content monetization lags compared to the traditional pay-TV subscription model to close this monetization gap and maintain the current level of rights fees in the interest of rights owners. In fact, in addition to the technological challenges (think: live streaming at scale) and adoption issues (think: technology gap), the revenue model of most streamers is simply not able to support the content acquisition costs of top-shelf programming yet—especially when it comes event-driven sports such as MMA and boxing. Nonetheless, seasonal live sports programming is the core of any portfolio—complemented by tour- and event-driven sports for upstream customer acquisition and short/long-form on-demand content for downstream customer retention.

💡 Portfolio theory faces its limitation in practice though. OTT streamers, in particular, have come up with coping mechanisms to overcome imperfect portfolio compositions and the challenging OTT economics!

COPING MECHANISM TO OVERCOME IMPERFECT PORTFOLIO COMPOSITIONS AND PRACTICAL LIMITATIONS

The fundamental challenge of subscription businesses is that they require a constant exchange of value between two parties (think: content/services for disposable income) and a renewed commitment for such a value-for-money proposition on a periodical basis. The unprecedented ease of use and flexibility of monthly, frictionless cancellation puts immense pressure on pure-sports streaming services without, at least as of today, the ability to pass on this fluctuation on the revenue side to the cost side: Even though I expect more risk-sharing and innovation between rights-owning sellers and rights-renting buyers with regards to the underlying commercial models (think: revenue shares, rights packaging, joint ventures, non-exclusivities), it does change the here and now for rights holders.

The complete transfer of risk from licensors to licensees in form of (minimum) guaranteed rights fees will become less prevalent. Equally unlikely, rights owners will be willing to assume the full economic risk (+ marketing, production, operations) and go exclusively "direct-to-consumer," or rather "over-the-top (of traditional rights buyers)," anytime soon. Churn remains the single-biggest challenge for making the economics of OTT work. Investing in OTT streaming requires long-term thinking, which entirely contradicts the short-term rights cycles in professional sports. As a result, sports-streamers look for coping strategies to balance customer acquisition and monetization from the beginning—to improve the lackluster OTT economics:

—(Short-term) Coping Mechanisms I: Long-term lock-in at heavy discounts to counteract any susceptibility to seasonality, more active subscription management becoming prevalent and maximize ARPU per season—in face of ever-increasing competition for the consumer's disposable income and part of their wallet share. Initially, the growth of the OTT market had been driven by consumer "take-up"—especially from those who freed up a significant share of their disposable income by cutting/shaving the cord. More recently, the "stacking" of several streaming services has become the more relevant growth driver as market penetration flattens. As a result, increasing wallet share tensions will inevitably lead to more active subscription management by consumers—a trend that will only be compounded by COVID-induced tightened budget post-pandemic.

Until now, a discount of +/- 20% in exchange for an annual commitment has been the industry standard. However, that pricing implies a retention rate of 80% after 12 months—something even non-sports streamers such as Netflix and Disney+ are not able to achieve on average. Discounts for multi-month or annual passes should become even more aggressive in the foreseeable future—while still being the revenue-maximizing approach. Completely retiring or greatly hiding the monthly option could have a net-negative impact though as consumers like some-but-not-too-much choices (think: sufficient guidance to overcome information overload). That should be especially true for undifferentiated/non-exclusive services like fuboTV or any other virtual MVPD. (see: FuboTV drops Monthly Standard Plan, Introducing Quarterly Plan)

—(Short-term) Coping Mechanism II: Re-packaging and accessibility for the traditional distribution system to close the technology gap, creating and capturing value from incremental segments of the addressable market. Exclusivity implies the need to be able to address the entire market—not only the digital-affine segment of the addressable market. However, the digital subscription economy in general, and live (sports) streaming in particular, is only halfway through the technology adoption curve: Older, more affluent demographics (think: pragmatics > conservatives > skeptics) are lagging when it comes to adopting new technologies. In any case, there will be a natural inflection at which digital distribution serves no longer as a complementary but the primary distribution system. Exclusivity for digital-only players, though, certainly accelerates and forces that consumer adoption. Monetizing expensive sports right, especially those reliant on casual viewership, with a digital-only approach and, thus, only through a portion of the addressable market seems to be an uphill-battle. Driven by the cable-to-streaming transition on the one end (think: complementary, authentication-based or stand-alone streaming apps) and the need to address more than the digital-affine audience on the other end, distribution systems converge and a platform-agnostic approach becomes the go-to approach for proper content monetization.

Similar to agreeing to distribution deals with the digital gatekeepers (to reach strategic digital scale), streamers are forced to forego their idealistic ideas of the digital direct-to-consumer business (think: direct customer relationship, unified UX/UI, data insights) in exchange for the ability to address the lagging segment of the market. Penetrating the traditional distribution systems also means adjusting to the inherent limitation of limited shelf space: To this end, re-packaging an OTT's worth of programming into a very few linear channels seems to have become the go-to strategy to overcome the technology gap and monetize less digital-affine demographics. (see: DAZN 1 and DAZN 2 distributed via cable operator Vodafone in Germany)

By implication, mid-to-long-tail programming usually does not often make the cut for such linear best-of programming. In contrast to premium live sports programming, however, such content has neither enormous rights fees attached to them nor is reliant on capturing the casual sports fan to generate a positive return on the investment. Instead, its monetization is driven by the (few) die-hard fans—which are much more likely to jump through all the hoops necessary (think: digital adoption, discovery, friction) to access the desired content anyway. Financial risk and upside of mid-to-long-tail sports are limited given the overall investment that is required to establish a multi-sports streamer with mainstream appeal—that is heavily skewed towards the premium segment, both in content acquisition and production costs. Non-premium content, however, should not be ignored as part of the portfolio approach as (1) monetizing niches is an attractive business and (2) it supports reaching a critical mass of overall content for constant engagement and retention.

—(Long-term) Coping Mechanism: Re-bundling of digital entertainment to achieve the three necessary conditions of sustainable subscription businesses. Sports-only value propositions have limited mainstream appeal at scale since the willingness of the average sports fans is driven by, and to some extent limited to, fandom. Put differently, the limited use case of gaining access to their (one) favourite sports, or even more likely, their favourite (one) team creates the vast majority of the value for the casual sports fan. By implication, seasonality is an inherent, difficult-to-solve challenge when operating a multi-sports streaming service that faces pressure to constantly delivering sufficient value to receive the renewed commitment periodically by the consumers.

Economically, rights-holding streamers face the strategic/structural problem that their content licensing/production costs are multi-year commitments, often including built-in escalators, but revenues are realized monthly.

Aligning revenue realization with the fixed costs basis can work through the above-mentioned long-term contracts at discounts. Alternatively, being a super-valuable puzzle piece of a multi-pronged, more diversified value proposition in form of a subscription-bundle across the media, television, and internet ecosystem (think: music, video-on-demand, live sports, gaming, news) is another option to overcome a lack of stickiness/pricing power by pure-sports streamers on a stand-alone basis. Instead, sports streamers would become part of a bundle in which they do not have to realize the constant delivery of sufficient value on its own.

💡 Bundling and unbundling is an ever-changing, cyclical process and a-la-carte offerings dominate currently—the countermove is coming though!

CASE STUDY: PORTFOLIO VS. COLLECTION OF RIGHTS

In the United States, DAZN's attempt at disrupting the pay-per-view model for marquee event-driven sports events is one example of how the portfolio approach can be stuck in the middle and somewhat incomplete: Boxing events, as part of a ten-figure deal with Matchroom Boxing, served as a tremendous customer acquisition vehicle but without the underlying portfolio to support retention. In effect, it simply was a pay-per-view transaction at lower prices (and lesser accessibility by virtue of its streaming-only nature) compared to the traditional model from the consumer's point of view. It was an unsustainable collection (instead of portfolio) of rights without proper engagement/retention mechanisms after the initial sign-up. Retiring free-trials and a significant price hike from $9.99 to $19.99 were short-term coping mechanisms to lessen the negative impact of this value proposition being very susceptible to churn and piracy—assuming a low price sensitivity of consumers who were already accustomed to much higher prices for similar events.

Rolling up previous pay-per-view events into subscription-based propositions is an attractive customer acquisition vehicle and both major rights owners (think: PPV on WWE Network) and rights holders (think: Boxing on DAZN) have done it. But even if a pure-sports streamer has built up a solid portfolio that is able to engage and retain new sign-ups from tour- or event-driven sports, generating a positive return on investment seems difficult considering the current level of monetization and lack of scale when being a streaming-only player. Put differently, offering PPV-level events at subscription-level prices with or without the ability to retain customers is not sustainable. For this reason, I am a huge proponent of the secondary pay-wall for the biggest sporting events: UFC on ESPN+ and Premier Access on Disney+ are good examples that both (1) support subscription growth and (2) ensure proper monetization immediately without deviating from the hyper-aggressive pricing in pursuit of consumer affordability/accessibility/take-up for the standard subscription.

Prioritizing subscription growth in the short-term is also completely understandable: It seems to be everything that matters for public investors in the short-term and ARPU is certainly much easier to fix; ceteris paribus. No one is wrong to focus on customer acquisition first, not Wall Street nor the streaming services. But even though OTTs are only valued based on the number of subscribers and with complete disregard for short-term profitability, cashflow must at least be managed too.

Secondary paywalls for content with above-average pay-value (that is not properly exploited by current subscription-based revenue models) do the trick until pricing power and stickiness has been established (think: market consolidation): In the long-run, it is not about "affordable" but "fair" pricing. Monthly costs for consumers will inevitably and meaningfully increase soon as pricing will be revised to reflect the content on offer—hard choices have to be made!

Ultimately, there will also always be consumers who will never sign up for one of the new subscription services coming to the market. Then, implementing off-platform (pay-per-view) monetization has little downside if done intelligently/discriminately: In other words, making it a much less attractive value proposition objectively compared to signing up for the owned and operated streaming service. Consumer decision-making processes are subjective and in this case driven by other factors (think: technology gap) instead. Again, major rights owners (see: WWE Wrestlemania on FOX Sports App and Website for $59.99) and rights holders (see: DAZN selling Canelo vs. Smith on cable/satellite TV for $69.99) have experimented with exploiting established relationships of third-party distributors with end consumers for immediate monetization.

💡 Like re-packaging a streaming service into linear channels, it is another form of off-platform monetization that captures incremental value!

AMAZON: THE (VERY) OCCASIONAL BOON FOR SPORTS RIGHTS OWNERS

Looking at the strategic chessboard of content, it is not like Amazon will not be active across all segments. The e-commerce giant will simply not engage on a level that would have a material impact on the overall size of the sports rights market, currently standing at around USD50BN, at large.

Any featurization of live (and on-demand/non-live) sports programming implies that there is no need for critical mass. Instead, it is a tool to opportunistically super-charge customer acquisition (think: marketing vs. content budget) or explain/expose the value proposition to existing subscribers. (think: discovery of video offering, i.e. Prime Video, by existing prime customers)

Amazon does not need a portfolio of live sports programming; a collection of such is sufficient and fits the purpose. As of today, there is no Prime Sports as a stand-alone subscription product and it does not seem as if there is any interest in building up a sports-only value proposition anytime soon—which would make the company interested in sports at large and at least theoretically result in the boon for the global sports rights market that everyone is looking for.

Contrary to the portfolio theory outlined above, the e-commerce giant probably even welcomed the fact that their 30-days free-trial covered both EPL match days plus two of the industry's biggest days (Black Friday + Cyber Monday) in the U.K.: It maximized the perceived value for consumers in exchange for signing up for the free-trial—including the personal and billing information required. There are other retention mechanisms than sports rights acquisitions in place: The combination of a convincing non-sports value proposition of Prime Video (as stand-alone subscription) or Amazon Prime (as fully-fledged membership) and sophisticated algorithms are supposed to do the trick.

The traditional rights buyers, who collectively go through the cable-to-streaming transition (in case of incumbents) or must find ways to address the traditional distributions systems (in case of new digital-only/first players), will determine the future trajectory of sports rights fees in the long run—based on the level of monetization of such IP that can be achieved. Further, returns of investments in live sports programming as customer acquisition vehicles diminish much faster compared to live sports programming as the constant value proposition. Ecosystems such as Amazon have a much broader set of investment opportunities and investment opportunities with a much more game-changing impact on the company's bottom-line: Expected returns will drive investment decisions, not emotions. Live sports programming lacks both the profitability and scale as an opportunity in which Amazon is usually interested in beyond its core e-commerce business (e.g. cloud computing, health care, music, groceries).

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