#49 Subscription vs. Platform Revenues from Live Sports Programming
Making Sense of Apple’s Interest in Exclusive Live Sports Programming
SUMMARY
Recent rumours around Apple’s interest in live sports programming have been all over the place, ranging from:
🤷🏼 small- (picking-up MLB’s mid-week leftovers: Apple and MLB hold ‘Substantial Talks’ over Broadcast Deal), to
🧐 medium- (licensing NFL’s Sunday Ticket: Apple reportedly wants in on NFL Sunday Ticket), and
🚨 large-sized investment tickets (acquiring of Disney’s worldwide leader in sports: SBJ Predicts Apple Could Acquire ESPN in 2024).
Other “Big Tech” players have tipped their toes into sports rights acquisition since the middle of the 2010s: Most tested, failed, and redefined their proposition when talking to sports rights owners ever since:
Facebook (= enabler for self-monetization for long(er)-tail sports,
YouTube (= top-of-funnel, ad-supported monetization tool and awareness builder for sports rights holders),
Twitter (= real-time marketing / tune-in channel for sports rights holders).
Amazon has been one to double-down on their initial investment in live sports programming, in many cases as an acquisition tool for its broader Amazon Prime membership (think: 🌟 sports as a feature).
Overall, the technology giants’ long-awaited foray into live sports broadcasting has never materialised and, besides Amazon, only Apple and Netflix are left as dark horses — or at least some much-needed leverage for rights owners to stir-up competitions. While Netflix seems to focus on storytelling instead of live sports and thinks to have identified other new frontiers to drive to incremental growth (namely gaming), this blog investigates (on a very simplified basis) whether Apple would be the one that is positioned to drive outsized returns from live sports programming — either via subscription economics ( 💳 Apple TV+) or, alternatively, by shifting the basis of competition and generate platform economies ( 📺 Apple TV).
... with the 🏈 NFL Sunday Ticket, the league’s out-of-market premium product in the 🇺🇸 United States, taking center stage.
📝 Main takeaways include:
🔂 DTC subscription economics for OTT streaming services cannot compete with the outsized and stable returns of B2B (Enterprise) or B2C (Traditional Pay-TV) subscription businesses.
👎🏻 Subscription (Apple TV+) and platform (Apple TV) economics generate similar short-term revenues but neither would come close to generating an economic return on the acquisition of the NFL Sunday Ticket.
🔎 While depressed ARPUs and sky-high churn are insurmountable challenges for DTC subscription economics to extract sustainable value from new sign-ups, even the NFL’s premium product is unlikely to be able to materially drive the requisite market share gains of Apple TV to unlock platform revenues.
🏈 If live sports programming is a thing for Apple though, the company might run out of alternatives and NFL Sunday Ticket may still be the best option due to a multitude of reasons.
🎧 Spotify’s investment of exclusively licensing Joe Rogan’s podcast library and new episodes for a reported total of $100M over multiple years would compare to leveraging NFL Sunday Ticket to drive market share gains — and that even in a brand-safe manner.
📺 There is also some context and additional information on the connected TV industry, its main players, and how Apple’s tvOS missed the boat compared to the mobile OS market, in which Apple’s iOS effectively duopolized the market share of both active users and consumer spent on in-app purchases together with Google’s Android.
Why is Big Tech interested in getting into costly Live Sports Programming?
Carving out dedicated media rights packages tailored to their new constituency in the technology space (e.g. 🇬🇧 Premier League’s Domestic Two-Matchday Package F ➡️ Amazon | 🇺🇸 NFL’s 15-Game Thursday Night Package ➡️ Amazon | 🇪🇸 La Liga’s Domestic Three-Matchday Package B3 ➡️ Not awarded, see: 1️⃣ ), or at least, repeatedly mentioning “Big Tech” (i.e. Facebook, Google/YouTube, Apple, Netflix, Amazon) being among the interested parties or even current front-runners has become part of the standard playbook of first-tier rights owners in the lead-up to their respective domestic media rights auctions.
For such presumed interest to materialize, at least one of the two following investment rationales would need to apply: “Big Tech” (and their investors) are able and willing to swallow losses and maybe never expect financial payback on such content spending — something that Apple CEO Tim Cook literally confirmed when referring to content acquisitions for the company’s streaming service Apple TV+: “[We] don’t make purely financial decisions about the content.”
Alternatively, “Big Tech” (and their respective business models) is better positioned than any of the traditional and current license holders to commercialize live sports IP — enabling them to pay higher rights fees while still generating improved economic returns for their overall business.
This blog will investigate (on a very simplified basis) both of these hypotheses as it relates to Apple:
Subscription Economics: AppleTV+, which may be more of a vanity project than a return-driven business line for the world’s first tree-trillion-dollar company and, in its current state, operates on similar economics as most other stand-alone SVOD services.
Platform Economics: Apple TV, which is a laggard among operating systems (OS) in the booming (and already solidifying) connected TV ecosystem (a.k.a. “War For Your Living Room”, 🎩 h/t LightShed Partners) but might generate superior economics and outsized returns in the form of service/gatekeeper revenues.
The rumours around Apple’s interest in live sports programming range from 🤷🏼 small- (picking-up MLB’s mid-week leftovers: Apple and MLB hold ‘Substantial Talks’ over Broadcast Deal), to 🧐 medium- (licensing NFL’s Sunday Ticket: Apple reportedly wants in on NFL Sunday Ticket), and 🚨 large-sized investment tickets (acquiring of Disney’s worldwide leader in sports: SBJ Predicts Apple Could Acquire ESPN in 2024).
Evidently, all of “Big Tech” has ventured into video streaming in one way or another by launching at least one of the following services, primarily as an add-on to existing businesses lines: subscription (SVOD), advertising-based (AVOD), and/or transactional video on demand (TVOD). Apple and Netflix, however, are the noteworthy holdouts when it comes to tipping their toes into live sports programming. Among the others, Amazon has been one to double-down on their initial investment in live sports programming as an acquisition tool for its broader Amazon Prime membership (think: 🌟 sports as a feature) — even though Prime Video has also been made available as a stand-alone streaming service since 2016 (think: 📱sports as a product), see: 2️⃣ .
Overall though, FAANGs (Facebook, Apple, Amazon, Netflix, and Google) have not matched the hopeful expectations by sports rights owners over the last decade: Facebook (= enabler for self-monetization for long(er)-tail sports 👉🏼 Twitterpost), YouTube (= top-of-funnel, ad-supported monetization tool and awareness builder for sports rights holders), and Twitter (= real-time marketing / tune-in channel for sports rights holders) have tested and pivoted. That leaves Apple and Netflix as dark horses that still provide welcomed leverage for rights owners when it comes to stirring up competitions for their IP rights, regardless of whether either of them would ever seriously consider a difference-making investment.
Netflix’s Co-CEO Reed Hastings recently alluded to why the investment in sports media rights would always be limited (if any) by outlining the fundamental difference between live / unscripted (Sports + News) and on-demand / scripted (Entertainment) content:
Primarily, rights renting vs. ownership (think: no sustainable value creation) 🔂 ,
secondarily, local vs. global rights (consider though: local content has become a key component of any global OTT streaming service’s content portfolio) 🌎 ,
tertiarily, appointment viewing vs. extended content shelf life (think: lack of library/backlog value) ⏰ .
As it relates to the tertiary point, the accelerated decay and shorter life cycles of non-live content due to enormous content spend and shortened content release cycles limit its expected ROI in the form of building-up long-term (library) value or creation of sustainable IP — making it more comparable to live content in this regard. Following a recent miss on quarterly earnings and net subscriber additions that resulted, most critically, in a plus-twenty-percent nose dive of the stock price, even Netflix will need to realize untapped incremental and local growth catalysts at some point: Besides gaming and advertising, live (sports and/or news) content is probably mentioned most frequently in this regard — especially as an opportunity to take share from linear viewing. However, with Netflix seemingly sticking to sports story-telling (e.g. PGA/ATP documentaries) instead of live events and publicly dismissing the idea of becoming a serious buyer for (live) sports media rights anytime soon, let’s talk about Apple.
Why would Apple be interested in getting into costly Live Sports Programming?
The hypothesis of superior economics via platform revenues rests on owning the customer relationship across the main end devices (a.k.a. platform owners), especially across closed-platform environments such as mobile (Google’s Android, Apple’s iOS) and connected TV platforms — instead of the open web (even though the “web browser wars” are already on its way as Big Tech’s next frontier battlefield). The competitive landscape of CTV platforms is more fragmented and, in contrast to its mobile operating system, Apple pursues a modular (software-only) instead of integrated (hardware + software) strategy:
Streaming Devices (= modular): 🇺🇸 Roku’s Roku OS, 🇺🇸 Apple’s tvOS, 🇺🇸 Google’s Google TV, 🇺🇸 Amazon’s Fire TV
Consoles (= modular): 🇯🇵 Playstation’s PS Vita, 🇺🇸 Microsoft’s Xbox Software System
TV Manufacturers / OEMs (= integrated): 🇰🇷 LG’s WebOS, 🇰🇷 Samsung’s Tizen, 🇺🇸 Vizio’s SmartCast OS, 🇩🇪 Foxxum’s Foxxum OS
Being the gateway to end consumer’s living room results in commission-based “service/gatekeeper/platform” revenues that are risk-free, high-margin, and scalable at zero incremental costs — exactly the revenue profile that “Big Tech” companies have become accustomed to across their established business lines, and against which any new-frontier business opportunities (including healthcare, autonomous driving) will be benchmarked when allocating incremental investment budgets and human resources.
While it is up for debate whether content or distribution/technology is the bigger success factor for OTT streamers, the superior unit economics of content distributors (Apple TV) compared to rights-holding content programmers (Apple TV+) should be evident, see: 1️⃣ . With that being said, let’s look at Apple's options for its rumoured interest in live sports programming, ranging from low to high risk/reward profiles:
In short, any low-risk/reward investment (think: MLB's Mid-Week Leftovers) will not move the needle (🤷🏼). Any high risk/reward investment (think: Acquisition of ESPN/Disney) does not fit Apple's M&A track record, currently highlighted by the three-billion acquisition of Beats in 2014, and has implications far beyond Apple TV+ or even Apple TV (☝🏼). The medium risk/reward investment (think: NFL Sunday Ticket) exhibits challenging economics as a subscription-only play but Apple could be uniquely positioned to leverage such premium content to drive platform economics (🤔).
Apple TV+ (Streaming Service): Recent media coverage/commentary has focused on the company’s streaming service Apple TV+ when discussing the investment case for live sports programming. Even though Apple TV+ is widely available via all relevant streaming devices, gaming consoles, and smart TVs — which implies that Apple’s current priority is put on horizontal scale (think: subscription revenues) instead of vertical integration into the Apple ecosystem — consumer interest has been tepid. A small-sized investment (e.g. “MLB’s Mid-Week Leftovers”) which lacks content volume and mainstream relevance — let alone moving the needle for a three-trillion-dollar business — would presumably become part of the standard Apple TV+ subscription to lift the value-for-money proposition in its pursuit of incremental subscriber growth. A medium-sized investment (e.g. NFL’s Sunday Ticket), however, could not be offered as a free throw-in as part of the standard Apple TV+ subscription: “Big Tech” in general, and Amazon in particular, has cross-subsidized some top-tier live sports programming through other business lines — but the financial outlay required to obtain exclusive (streaming) rights to NFL’s out-of-market product would cost-prohibit adding it to Apple TV+ at its current price of $4.99 per month. Instead, offering NFL Sunday Ticket as a “sold-through” premium add-on via Apple TV+ would greatly improve the economics (see: 📊 Subscription Economics). Generating a positive return on investment still seems unreasonable, regardless of any price hike to the base subscriptions and when compared to its main competitors for the NFL Sunday Ticket (e.g. ESPN+, Peacock, Prime Video) across some key operating metrics:
Built-in Base: AppleTV+ would be disadvantaged compared to other SVOD services by building upon the smallest existing subscriber base (think: more friction/costs to acquire NFL Sunday Ticket subscribers).
Churn: The industry’s highest churn (with 10.8% in monthly churn as of October 2021, or put into (annual) perspective, AppleTV needs to replace on average two-thirds of its customer base to sustain today’s artificially high numbers (+/- 20M).
Engagement: Its lowest share of time spent among mainstream US streaming services (with 0.7% market share) is on a level with niche (AVOD) offerings such as Philo, Tubi, and Locast; and makes short-term growth also rather unlikely when considering engagement as a leading indicator for subscriber acquisition and churn.
On the other hand, Apple’s and its investors' willingness to swallow losses to report continued/accelerating subscriber growth for Apple TV+ and the lack of need to earn an economic return on their streaming service alone should not be dismissed entirely.
Apple TV (CTV Operating System): There is an option with alternative economics to commercialize NFL Sunday Ticket: tethering it to the Apple ecosystem by bundling it as an exclusive add-on with the company’s underlying TV operating system tvOS. Suddenly, the basis of competition shifts and subscription revenues (Apple TV+) evolve into platform economics (Apple TV) — potentially putting Apple in the position to generate outsized, above-industry-average returns from live sports programming (think: Apple is a distributor looking for content and traditional rights holders such as ESPN are mostly programmers looking for distribution).
📲 Uneven playing field? Subscription vs. platform economics:
Apple TV (CTV Operating System): There is an option with alternative economics to commercialize NFL Sunday Ticket: tethering it to the Apple ecosystem by bundling it as an exclusive add-on with the company’s underlying TV operating system tvOS. Suddenly, the basis of competition shifts and subscription revenues (Apple TV+) evolve into platform economics (Apple TV) — potentially putting Apple in the position to generate outsized, above-industry-average returns from live sports programming (think: Apple is a distributor looking for content and traditional rights holders such as ESPN are mostly programmers looking for distribution).
As you know, “there’s only two ways I know of to make money: bundling and unbundling” (attributed to former NetScape CEO Jim Barksdale), along different:
Dimensions ( ↔️ horizontally, content x content; ↕️ vertically, content x distribution),
Points in the value chain (🎞️ IP / 🎬 Content / 🔀 Distribution), and
likely enabled by Technology.
As of the start of 2022, we have probably hit the peak of "unbundling" and there is an increased urgency to re-establish previous levels of profitability — and even in the case of Apple, ↔️ horizontal rebundling has already been re-introduced to improve unit economics (think: Apple One, i.e. revenue expansion at no marginal cost; diluted ARPUs mitigated by lower churn, recovered by future price hike for broader/stickier user base 👉🏼 Twitterpost ). The big question: Does top-notch content such as the NFL Sunday Ticket warrant to re-introduce ↕️ vertical bundling in the digital space? Vertical integration is what has allowed satellite TV operator DirecTV to exclusively carry NFL’s out-of-market package since 1994 and, most recently, to spend $1.5BN per season while acquiring +/- 2M subscribers for such premium product.
No Full-Reach Distribution System: Co-Existence of Linear and Digital
As the cable-to-streaming transition is ongoing and even accelerated due to the global COVID-pandemic, there is currently no full-reach distribution system that is adopted by 100% of the addressable market — due to lack of broadband infrastructure, significant consumer inertia, or remaining streaming latency/stability. Put differently, linear (cable/satellite) and streaming (OTT) will co-exist for the foreseeable future. Combined with a seemingly reinvigorated DirecTV under new management in wake of the minority investment by private equity firm TPG (which valued the struggling but cashflow-rich legacy business at 16BN+), I expect the NFL to grant co-exclusive rights to its out-of-market package: DirectTV for linear and Apple/ESPN/Amazon for digital distribution.
📲 NFL would compromise on accessibility with any exclusive, platform-neutral rights:
📲 NFL Sunday Ticket serving complementary needs for linear and digital players:
In contrast to 2014, when DirecTV extended the NFL Sunday Ticket the last time, any singular rights holder would not be able to fully reach (let alone successfully address) the market anymore and makes an economic return nowadays even more unlikely than in the past. Thus, any of the following math is done based on the assumption of co-exclusivity between a legacy and new media player — and a slightly reduced price tag.
Subscription Economics: Depressed ARPUs and Churn challenge Monetization
Generally speaking, subscription-based revenue models (instead of one-time licensing payments) have caught the interest of investors thanks to their recurring, predictable nature. However, several factors have eroded the profitability of OTT subscriptions economics (DTC) compared to both enterprise businesses models (B2B) and the traditional pay-TV model (B2C):
📆 Monthly, frictionless cancellations (think: even above-industry-average monthly retention rate of 90% results in a mere 28% subscriber retention rate after only one year),
🧲 no stickiness (think: no long-term / vendor lock-in or switching costs), and
🌐 no scale (think: from one-to-many to one-to-one customer relationships/management).
While customer acquisition can be managed to some extent via pricing and distribution strategies, subscriber churn (a.k.a. ease of use) has become the biggest challenge, without a real fix, for digital (video) subscription services in the end consumer market — tremendously lessening the model’s profitability. As a result, DTC subscription revenues have become surprisingly unpredictable and depressed compared to B2B/B2C models. On the positive side and as a big difference to traditional pay-TV, costly resurrecting previously churned subscribers (think: churn and return) remains an option for OTT streaming services. This compares positively to the largely irreversible one-way door decision by consumers when ditching the traditional pay-TV subscription once and for all — which is currently happening at a slower monthly rate (1.5-2.5%) in the United States than even Netflix is losing customers (2.5%).
📲 NFL would compromise on accessibility with any exclusive, platform-neutral rights:
📲 Putting the churn rates of "declining" pay-TV business into perspective:
Some back-of-the-envelop, over-simplified math confirms the bleak DTC subscription economics that AppleTV+ would generate, based on somewhat reasonable assumptions (e.g. exclusive digital rights, whereby DirecTV retains linear rights; season-long NFL Sunday Ticket subscription) and when considering NFL Sunday Ticket’s current ($1.5BN) or expected ($2.0BN) price tag:
💳 New Apple TV+ Subscribers: 375,000 (paying $4.99 for at least six months)
🏈 NFL Sunday Ticket Subscribers: 500,000 (paying $299 for season-long out-of-market product)
💰 First-Year Value Creation: $179M (or 359€ per NFL Sunday Ticket subscriber, with limited downstream economics)
Re-establishing the level of subscription-based monetization known from the traditional (B2C) triple- (🌐📺📱) or quadruple-plays ( 🌐📺📱☎️ ) that enabled DirecTV to digest NFL’s out-of-market product as reasonable loss-leader would be an uphill-battle for any OTT streamer: Expanding avg. revenue per users (= ARPU 👉🏼 price hikes, see: 4️⃣ ; additive revenue streams, see: 5️⃣ ) and increasing customer lifetime (= 1/Churn 👉🏼 quarterly/annual plans, multi-service bundles) will inevitably happen when/if the market increasingly saturates and consolidates. Whether the monetization gap between DTC (📱OTT Streaming) and B2C (📺 Traditional Pay-TV) will ever be closed, even in the market’s (re-bundled) end-stage, is up for discussion. The problem: The OTT industry is still early in its lifecycle, characterised by promotional pricing, and churn/fragmentation.
Platform Economics: Can Content drive Market Share for underlying Systems?
To create platform economics, any live sports programming migration onto digital platforms would need to drive adoption and market share gains for such platform in the first place — in this case: Apple’s tvOS.
Interestingly, content was not what drove Apple’s market-dominating position among mobile operating systems (OS) — which has evolved into a consolidated/concentrated market over time, dominated by Google’s Android (65%) and Apple’s iOS (35%, or 1BN+ active devices). Thereby, Apple captures disproportionately much in-app commissions (70%) compared to Google (30%) thanks to its more affluent user base. Based on $60BN in payouts to iOS developers in 2021, Apple’s worldwide mobile platform revenues have probably amounted to anywhere between $25BN (assuming 30% take rate of single in-app transactions) and $10BN (assuming 15% take rate of single in-app transactions) last year.
In contrast to the duopoly in mobile OS, in which Apple and Google duopolized app distribution and in-app payment solutions, amassing outsized profits in the billions, Apple is lagging behind Roku, Fire TV, Google TV, and some of the proprietary operating systems from TV manufacturers (or OEMs) when it comes to the market of TV operating systems (OS): Despite built-in advantages (e.g. broad availability CTV apps for tvOS despite limited relevance, see: 6️⃣ ), the company largely missed out on the TV OS market — both in its domestic market ( 🇺🇸 market share < 5%) and worldwide ( 🌎 market share < 1%).
The reasons are manifold but probably a combination of poor product development (think: unhandy remote control), a cost-prohibitive price point of Apple TV streaming box for many (think: Roku/Amazon's entry-level streaming devices start as low as $29.99), and, unlike its competitors Roku/Google, a lack of urgency to engage with hardware manufacturers to get its respective OS built-in or embedded into third-party end devices — let alone getting into own TV hardware such as the Amazon Fire TV, see: 7️⃣ .
The fact that even OEMs such as LG (webOS) and Samsung (Tizen) share their proprietary (and capable) operating systems with other TV manufacturers further intensifies the competition for market share. This begs the question if Apple's competitors have already locked-up the CTV OS market before Apple ever seriously engages and an NFL Sunday Ticket could not change things anymore anyway — as the CTV ecosystem in the United States is both solidifying and booming at the same time.
Similar to Google and Apple on mobile devices, CTV operating systems operators (a.k.a. platform owners) take a haircut from third-party subscription revenues and, occasionally, from advertising inventory/revenues — something on which California-based Roku has built a software/hardware business valued with a market capitalization of $70BN+ at its heights in July 2021, see: 8️⃣ .
Assuming Apple TV can indeed increase its customer base (driven by an NFL Sunday Ticket exclusively available on Apple TV), high-margin platform/gatekeeper/service revenues would compound on the backend/downstream with each incremental market share gain at no marginal costs long after a rights deal with the NFL might have expired and come in addition to the direct, one-time revenues from hardware and NFL Sunday Ticket sales. Considering NFL Sunday Ticket’s current ($1.5BN) or expected ($2.0BN) price tag, the math still does not work out but unit economics are slightly superior when compared to pure subscription economics:
💳 New Apple TV Users: 500,000 (paying $39.99 for Apple TV)
🏈 NFL Sunday Ticket Subscribers: 500,000 (paying $299 for season-long out-of-market product)
💰 First-Year Value Creation: $185M (or 365€ per NFL Sunday Ticket subscriber, with significant downstream economics)
To date, Apple has never been willing to leverage its streaming device as a loss-leader to drive market share in the TV OS market. However, to overcome the premium price point of Apple’s hardware and with the high-margin, scalable platform revenues on the backend in mind, subscribing to NFL Sunday Ticket should make non-Apple TV users eligible for a significant discount for an Apple TV streaming box to be competitively priced against entry-level streaming devices. Implicitly and based on the made assumptions, tethering the NFL Sunday Ticket to Apple TV instead of selling the subscription through Apple TV+ would have slightly superior (one-year) returns as long as getting an Apple TV device for $39.99 and the attached non-financial switching costs are subjectively considered to be close to the same (= fewer subscribers than sold-through Apple TV across all platforms), the same (= same subscribers than sold-through Apple TV across all platforms), or a better value-for-money proposition (= more subscribers than sold-through Apple TV across all platforms) by consumers as spending $4.99 per month on Apple TV+ for at least the course of the NFL season.
📲 Is an Apple TV streaming box for $39.99 or paying six-times $4.99 per month the lesser headache?
Thus, platform unit economics ($371) do not outperform subscription unit economics ($359) significantly, at least on a short-term horizon basis and mainly because the CTV market (+/- 80M OTT households) has already reached a size that makes new user acquisition for Apple TV driven by the NFL Sunday Ticket (+/- 500,000) non-material in the grand scheme of things: In other words, even the NFL is niche in this context — unless the limited accessibility via DirecTV has enormously limited its subscriber growth over the past decades. A comparison for leveraging NFL Sunday Ticket to drive CTV market share gains and augment platforms revenues might be Spotify’s investment of exclusively licensing Joe Rogan’s podcast library and new episodes for a reported total of $100M over multiple years.
Conclusion: Is there a better fit for Apple than NFL Sunday Ticket?
Economics aside, Apple executives seem to consider all financial and non-financial arguments for and against putting annually a tiny amount of its current cash balance ($195.6M as of Q1/2022) into the NFL’s out-of-market product. Putting the NFL Sunday Ticket into the context of Apple TV+ and its annual content budget, which is expected to grow significantly but will remain in the single-digits billions for the foreseeable future (+/- $6BN in 2021), would still mean a lot of eggs in one basket.
Assuming that the technology giant's long-awaited foray into live sports broadcasting is a matter of “when” and not “if” (regardless of commercialisation via subscription or platform economics), both sides of the argument have plenty of ammunition; the plus side for the NFL Sunday Ticket would include but is not limited to the following:
⭐️ Premium/prestige nature of NFL Sunday Ticket fits with Apple’s ethos.
💡 Halo effect for Apple TV+ which plans significant investment in content regardless of any live sports programming and would benefit from mainstream attention.
🎥 Little production operations/overhead required for a whip-around show, remaining an asset-light “technology” instead of becoming an asset-heavy “media” company that might build up production expertise.
💵 Must-have content with low price-elasticity by consumers
🔒 Limited number of rights opportunities as legacy media players have boxed out new market entrants and locked-up most needle-moving properties on a long-term basis in the United States.
The minus side for the NFL Sunday Ticket includes but is not limited to the following:
👎🏻 Non-material impact of NFL Sunday Ticket on CTV market shares even if it is not a zero-sum game between linear and digital rights and Apple can expand beyond DirecTV’s current customer base.
🔂 Connected TV as consumption instead of transaction device and sport’s built-in advertising breaks make an advertising business an even more important factor to drive platform economics on the big-screen device, something Apple has been reluctant to do (outside of the App Store).
🤷♂️ No needle-mover for a three-trillion-dollar company compared to other investment opportunities (e.g. addressable market of autonomous driving, healthcare), even though multi-decade long-term thinking might make starting small a viable option.
📼 Lack of library titles to increase engagement and minimize churn from newly acquired subscribers diminish customer lifetime values and makes retention very costly.
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1️⃣ Rights owners' go-to-market media rights strategy for tender processes has recently tended to provide unprecedented flexibility in first-round request for proposals (RFPs): Such structure of vast options and partially mutually exclusive packages is supposed to allow potential bidders to choose the option, or options, which best suit their respective preferences or capabilities without being bound to a single option. From the perspective of right owners, it allows them to assess the market demand, mix and match competing bids to maximize reach and/or revenues, or (alternatively) streamline the available packages and prospects for a potential second-round bid — even though LaLiga, in this particular case, went a rather conservative route (i.e. 2x rights packages with one exclusive rights holder each) while sustaining the current value of domestic media rights revenues 👉🏼 Twitterpost: 🇪🇸 Flat is the new Up as Movistar and DAZN split LaLiga Rights ⚽. [ ↩️ ]
2️⃣ Stand-alone subscription for Prime Video ($8.99 per month) cannot and is not supposed to compare with the full-fledged Amazon Prime membership ($12.99 per month) in terms of value-for-money — but bundling and tethering Prime Video exclusively to Prime would limit the achievable horizontal scale/ubiquity of Prime Video: Hence, if the consumer is willing to pay a premium, the a-la-carte, video-only option is on the table. Broadly speaking, any vertical bundling (think: tying content access exclusively to a base subscription such as UFC Pay-per-Views via ESPN+ in the United States 🇺🇸 or Le Pass Ligue 1 via Prime Video in France 🇫🇷) limits horizontal scale of the “sold-trough” add-on compared to the stand-alone offering. It might create enormous leverage for the overall economics as well as strategic value though 👉🏼 Twitterpost: Add-on (Product) vs. Free Throw-In (Feature). [ ↩️ ]
3️⃣ Previous blog on OFFTHEFIELDBUSINESS unpicked the interplay between content and distribution in the sports media value chain (think: Success = Content x Distribution, wherein any marketing investment serves as the multiplying/compensating variable x) 👉🏼 #46 Content is 👑 King, Distribution is 🦍 King-Kong?. [ ↩️ ]
4️⃣ Looking at the industry’s life cycle, most OTT streamers are still in the customer acquisition phase, characterized by a fragmented competitive landscape and aggressive pricing/promotion. As the market saturates (think: OTT reaching the heights of pay-TV penetration in any given market) and the incremental customer becomes cost-prohibitive to acquire, market consolidation will follow, pricing power established, and a focus on consumer monetization to generate an economic return for a select few players will dominate. In the pursuit of re-establishing (first) profitable unit economics and (at some point) an economic return on the overall investment, recent price increases in their respective core, most advanced markets by Netflix (🇺🇸) and pure-sports streamer DAZN (🇩🇪) exhibit different approaches to price-hiking strategies and provide a glimpse into the respective company’s fundamentals (e.g. entertainment vs. sports) and future growth expectations (e.g. gradual/iterative vs. one-off/sugar-shock price increase): While Netflix seems to expect further incremental subscriber growth in its most developed market, subscriber retention seems to be the absolute priority for DAZN in a market that is considered fully penetrated and where growth has plateaued despite recent additions of top-notch sports programming (e.g. German Bundesliga, UEFA Champions League) 👉🏼 Twitterpost: Iterative vs. One-off Price Increase. [ ↩️ ]
5️⃣ Due to limited scale (think: opt-in, direct pricing of OTT Streamers vs. opt-out, indirect pricing of Pay-TV Bundle) and depressed ARPUs, the profitability of the dual-revenue stream model (= subscription + advertising) has been eroded and will need to be supplemented by a multi-dimensional monetization of the direct customer relationships/access through additive revenue streams — to extract additional value and justify aggressive spending in the short term and current market environment. In this context, any platform or service/product with a built-in user/subscriber base will have to answer the following fundamental question for each of the available new business lines adjacent to sports or entertainment (e.g. NFTs, Daily Fantasy Sports, Betting, E-Commerce, Gaming): Do I want to leverage the direct customer access to vertically integrate into any of those verticals and assume part of the value chain via backward integration (e.g. FuboTV, becoming a sports betting operator) or do I monetize the direct customer access to set up an attractive affiliate business, referring my pre-qualified customers to third-party services (e.g. ESPN, having DraftKings as its exclusive DFS advertiser)? Risk/reward profiles certainly differ between both approaches (Vertical Integration vs. Affiliate Business) and business lines (e.g. NFT, DFS, Betting, E-Commerce, Gaming) 👉🏼 Twitterpost: FuboTV’s Vertical Integration as Reason for Rights Acquisitions. [ ↩️ ]
6️⃣ Despite trailing its streaming device competitors Roku, Amazon Fire, and Google TV by a significant margin, there is almost no streaming service without a native app for Apple TV as Apple's tvOS is a low-effort/cost development by being built on top of the must-have iOS mobile app — giving Apple strong availability in a fragmented market of TV operating systems despite its limited consumer adoption and business impact. [ ↩️ ]
7️⃣ Launching own TV hardware protects companies such as Amazon against the gradual phase-out of streaming devices/dongles. In the past, those add-ons accelerated product upgrades in an industry with comparatively long replacement cycles (5-7 years): making a TV “connected” without the need to buy new, smart TV hardware. However, operating systems readily embedded in the hardware offer better ease of use (think: one remote control). Thus, smart TVs should gain market share over streaming devices/dongles and gaming consoles which, therefore, probably only served as a temporary solution to upgrade TV devices mid-cycle. Putting Apple’s lack of urgency into perspective, Google TV has +/- 250 device partners (TV OEMs or TV Operators such as set-top-boxes from telecommunication services providers) worldwide; including seven of the Top 10 TV OEMs who are making TVs at least non-exclusively based on Google’s platform. To date, Apple has neither its proprietary TV model (with built-in tvOS) or partnerships with OEMs. On the other hand, not all streaming device-makers could be equally affected by the surge of smart TV viewing: Apple TV seems an obvious candidate to show above-average resilience given the usually high loyalty by consumers to Apple end devices. [ ↩️ ]
8️⃣ The increased scope of negotiating carriage agreements for CTV between content programmers (e.g. Disney’s Disney+, Hulu, or ESPN+) and content distributors (e.g. Roku) reflect the multi-dimensional revenue model for TV OS owners: Anything from subscription revenue sharing, 🎞 content sharing, 👶🏼 customer ownership, and 🤝 ad revenue/inventory sharing is up for discussion/fight 👉🏼 #48 Tackling Audience Fragmentation: Cross-Platform Distribution or Non-Exclusive Licensees?. [ ↩️ ]
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