#50 MLS x Apple - Decoding Apple’s and Amazon's Sports Video Strategy

🤝 Content Distributor rather 💰 Rights Buyer:

Apple is seeking exclusive distribution partnerships rather than rights buyouts.

Editor's Note: Informed by Apple’s recent rights acquisition of distribution partnership with the North American top-flight soccer league and as further elaboration on my recent thoughts shared with John Wall Street (”Apple’s MLS Deal Shows It Wants To Distribute Rights, Not Buy Them”), this is a deep-dive into Apple’s (and Amazon’s) sports video strategy. Not into a ✍️ 12,000-word, 📊 three-chart exploration of the nitty-gritty details of the digital sports media ecosystem and how trillion-dollar tech giants approach sports though? 👉🏼 Here 👈🏼 is a summary/appetizer instead — to get those directly in your inbox, sign-up for the 🔔 Blog Alert 🔔.

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Apple picked up 1️⃣ the rights to stream (or rather to exclusively distribute) every MLS match via a yet-to-be-launched streaming service as a premium add-on within the Apple TV App (let’s say “MLS Pass”) beginning next season, and 2️⃣ remains the odds-on favourite to secure the rights to stream (or rather exclusively distribute) the NFL Sunday Ticket.

Whereas there has not been definitive news on the NFL Sunday Ticket since my first shot at making sense of Apple’s sports video strategy ( 👉🏽 Blog #49: Subscription vs. Platform Revenues from Live Sports Programming), the MLS retailing its regional, national, and international media rights to via the Cupertino-based company brought new information that should further educate the industry’s thinking about whether Apple might or might not become the big boon for sports rights owners and their most important revenue source: media rights.

To assess the change that might be ahead, let’s remember what sports media rights are in the first place: IP owned by sports event organizers who are either single entities (MLS, UFC) or individual teams who more often than not centralize their respective media rights to their respective (home) matches on the level of the league which then manages and tenders the pooled IP on behalf of its teams. Traditionally, media rights have been licensed on a temporary to media companies (for 3-4 years on the 🇪🇺 short and 8-12 years on the 🇺🇸 long end). Ultimately, media rights grant permission for rights-holding broadcasters to produce, distribute, and commercialize a media product end-to-end to earn a return on such investment: from host/post-production, distribution, marketing/promotion, advertising/sponsorship sales, and a lot more. For top-tier rights owners, this represented a pure B2B licensing model with contractually fixed revenues — while remaining largely hands-off until the next rights renewal was due.

However, the sports broadcasting value chain (rights owners 🔄 rights holders 🔄 end consumers ➕ many 🤝 middle-men) has experienced fundamental change for some years now: an increased interest by rights owners in establishing direct customer relationships on the frontend of the chain (without any compromises on media rights revenues), the empowerment of the end consumer on the backend, and a changing distribution environment in-between. ( 👉🏽 Blog #48: Tackling Audience Fragmentation: Cross-Platform Distribution or Non-Exclusive Licensees)

Outside of sports, consumer eyeballs are moving to OTT streaming, driven by unprecedented ease of use, an abundance of content, and promotional pricing. The all-out mind- and wallet-share war has already reset value-for-money expectations from consumers. Sports content, the last bastion of the wholesale linear pay-TV bundle, will gradually migrate to over-the-top (of linear pay-TV) offerings as well to stay competitive and accessible in a crowded media landscape — negatively impacting the overall profitability of sports rights licensees for the foreseeable future.

In the medium term, only new bundle strategies will allow the industry to recover from the fundamentally less attractive streaming economics. Without a bundled strategy and in pursuit of positive returns, a-la-carte offerings would inevitably be priced at a huge premium that only a small number of die-hard fans would be able and willing to pay for — limiting the overall accessibility of sports as the cultural mainstream gets priced out. 🔎 1️⃣

🤨 The question: How does Apple intend to leverage exclusive sports video programming to bundle or cross-pollinate between existing business lines (📱hardware, ⚙️ software, 🎵 services) in its ecosystem to warrant the current financial outlay necessary to acquire top-notch sports IP — and how does Apple’s strategy differ from similar ecosystems such as Amazon?

MLS ✖️ Apple: Innovative Hybrid-Model or Stuck-in-the-Middle?

Going forward and for the following reasons, I expect such exclusive distribution partnerships for ready-made streaming products rather than rights acquisitions to be Apple’s go-to sports strategy and as the company’s preferred option to become a player in live sports programming over doubling down on recent rights acquisitions such as MLB’s “Friday Night Baseball” — which Apple for whatever (technical? low viewership?) reason is keeping on the free (Apple TV App) instead of paid tier (Apple TV+) for the entire first season:

• 🚀 Infinitely scalable service revenues that fit the company’s margin profile and asset-light platform business (think: 💳 in-app purchases from third-party developers).

• 🤷‍♂️ No traditional broadcaster obligations such as sports production teams (incl. distinct brand, tone, and voice), talent management, marketing/promotion, and ad sales — functions that can be served on a free-lance basis selectively (think: ⚾ “Friday Night Baseball” on AppleTV+) but require dedicated in-house staff and resources when content output scales.

• 📺 Limited (unbundled) economics from Apple TV+ to support rights acquisitions at scale as just another sub-scale streaming service with promotional pricing and above-industry-average churn rates.

🤨 The challenge: To generate positive returns (at least on aggregate across a portfolio of exclusive distribution partnerships) even Apple (or Amazon) needs to bundle the exclusive live sports programming with other business lines in its ecosystem. Neither one will be able to afford free-throwing a meaningful number of high-priced sports rights into their respective low-priced SVOD service. Occasional low-inventory rights acquisitions such as the approx. 50 exclusive Friday Night Baseball (MLB) games or 10 exclusive Thursday Night Football (TNF) games do have some gravitational pull, serve as a powerful acquisition tool in the pursuit of the incremental subscriber for Apple TV+ (or Prime Video), and come with limited financial commitments, and simply do not warrant a stand-alone premium subscription via Apple TV (or Prime Video). However, consumers should not expect most of the bigger-ticket sports properties that Apple and Amazon are reportedly chasing (e.g. NFL Sunday Ticket) to come for free as part of an Apple TV+ or Prime Video subscription.

That’s not to say that Apple (or Amazon) won’t do more ⚾️ FNB- (or 🏈 TNF-) like deals for select, preferably premium match inventory to support new subscriber sign-ups for their SVOD streaming services. In those cases, the limitations of unbundled streaming economics being able to support high-cost sports rights and the need to outsource production responsibilities create financial and operational challenges that will always limit premium sports output as part of Apple TV+ ($4.99/month in the United States 🇺🇸) and Prime Video ($8.99/month in the United States 🇺🇸), respectively. Before looking into how Apple intends to create sustainable streaming economics based on what is known from the ten-year global distribution rights deal with the MLS worth $2.5B and beginning in 2023, let’s (1) review what still holds true or not from my first attempt to make sense of Apple’s sports video strategy and (2) what is the up- and downside for the MLS from this first-of-its-kind agreement. ( 👉🏼 Blog #49: Subscription vs. Platform Revenues from Live Sports Programming)

✅ Bundled Strategy: The fundamental thesis was that platforms such as Amazon (think: 🛒 e-commerce platform with proprietary and third-party products) and Apple (think: 📱 hard- and software platform with proprietary and third-party app developers) extract outsized value from exclusive live sports programming when compared to pure-play subscription services (think: 💳 🔄 subscription vs. platform revenues). How such live sports programming is utilized and bundled into the broader ecosystem is what I got wrong: Apple does not seem to intend to sell premium add-ons through Apple TV+ nor to bundle premium add-ons with the Apple TV Box:

❌ Content ✖️ Content: Offering high-priced sports rights (MLS Pass) as a “buy through” another paid subscription service (Apple TV+), effectively double-dipping on subscription revenues and an opportunity to attract and then retain the Apple TV+ subscribers even when the sports package expires or if the subscriber churns from the premium add-on service.

❌ ( Hardware ✖️ Software ) ✖️ Content: Offering high-priced sports rights (MLS Pass) as an exclusive, discounted add-on to Apple devices (which comes with pre-installed iOS or tvOS software) to drive device and, more importantly, operating system market share, marginally increasing hardware sales, and unlock a long-lasting service revenue stream.

Instead of those bundling strategies that focus on vertical integration between the hardware, software, and services (including content), Apple does not seem to want to compromise on the horizontal scale of its service business: horizontal scale (i.e. content being as broadly and widely available as possible) and vertical integration of content (i.e. owning multiple layers in the value chain of hardware, software, and distribution layer) is an inherent trade-off.

Any bundling will probably be geared towards benefitting Apple’s OTT video aggregation service Apple TV which is available on and off Apple’s platform: Practically, Apple “sells through” the MLS Pass via the Apple TV (mobile / connected TV) application that is free and available on all devices/operating systems. This is also in stark contrast to Amazon’s sports strategy that hard-bundles high-cost sports rights — in the form of premium add-on subscriptions (e.g. Le Pass Ligue 1) — with Prime Video as a buy-through. 🔎 2️⃣ In any case, though, making all high-priced live sports rights available via Apple TV+ remains not a commercially viable model — so what is Apple’s plan?

MLS Pass: Good PR Headlines mean Good Business?

Announcing the media rights agreement with Apple in the middle of June 2022, the league neither held its self-imposed March deadline nor secured its target of $300M per season (at least not upfront and guaranteed). MLS faced significant pressure to deliver on a bold approach that resulted in short-term financial hits due to a series of stop-gap media rights deals (especially by teams and IMG as the league’s international sales agent in select regional and international markets, respectively) to align the timelines of any regional, national, and international rights. Ultimately though, MLS Commissioner Don Garber got the big press headline that was years in the making, brought them into business with “Big Tech,” and delivered on one of the few true innovations that were promised by OTT delivery — whose watch experience has remained rather non-personalized and -interactive and continues to mostly resemble traditional TV while being inferior in latency, stability, reliability, and quality (and far less profitable): Every Game, One Single Place, All Around the World.

Commercially speaking, a global distribution footprint and a quote-on-quote partnership with a minimum guaranteed revenue share (think: 🚀 low floor, high ceiling or shared upside), is nothing unprecedented in the broader sports media landscape. However, it was rather the lack of other options for mid-to-long-tail sports properties to secure any significant traditional media rights buyouts (instead of being ahead of the curve when it comes to the future of distribution and direct-to-consumer strategies) that forced them into such agreements. At the investment level of the MLS and above, licensees have historically preferred straightforward buyouts against a fixed, significant licence fee — providing maximum security and certainty for both parties.

The trend towards rights-holding licensees not being willing to assume the entire economic risk and right owners not being capable of going exclusively and independently “direct-to-consumer” just yet has been covered extensively and repeatedly on OFFTHEFIELDBUSINESS.de — most recently in 👉🏼 Blog #47: Portfolio vs. Featurization of Sports Programming, when unpicking “portfolio theory” and why Amazon, and also Apple for this matter, do not need a full-fledged live sports programming offering to drive business objectives:

The complete transfer of risk from licensors to licensees in form of (minimum) guaranteed rights fees (a.k.a. rights buyouts) will become less prevalent. Equally unlikely, rights owners will be able to assume the full economic risk (+ marketing, production, operations duties) and go exclusively "direct-to-consumer," or rather "over-the-top (of traditional rights buyers)," anytime soon.

Inevitably, this will result in more cooperation and joint-venture type setups between rights owner(s) and holder(s) with more variable compensation schemes. The Apple ✖️ MLS deal is structured accordingly: Apple has committed to pay the league a minimum of $2.5BN over the course of ten seasons (2023 - 2032; $250M per season, +178% cycle-over-cycle or a mere 6% CAGR from 2015 through 2032 — not accounting for incremental revenue sharing, the exclusion of USSF’s Men’s and Women’s National Team, or additional revenues from yet-to-be-announced linear broadcast licensees), whereas the league reportedly expects to earn more overall, especially on the backend of the deal and after significant start-up phase/costs, based on certain KPIs such as subscriptions. Crucially, Apple is underwriting said multi-season ramp-up period that very likely will underdeliver compared to the guaranteed $250M in top-line subscription revenues on average. On a less positive note, Apple does not seem to subsidize, let alone assume, many of the traditional broadcaster duties that MLS will have to take care of in order to deliver the ready-to-be-distributed media product (or, alternatively, offloading some duties to the individual franchises on the local level). In total, approx. 50M per season in new production costs, previously borne by the league’s regional and national broadcasting licensees, will significantly reduce the net revenues made from the number that made it into the PR headlines.

The unique pros and cons from the perspective of the MLS have been covered ubiquitously, including me as part of my regular co-hosting of Unofficial Partner’s The Bundle in Episode #18. Instead of repeating this, the following focuses on the most interesting unknowns that will materially impact the assessment of the unprecedented deal for MLS: rights retention (for incremental B2B revenues) and packaging (for its unprecedented direct-to-consumer streaming offering).

Rights Retentions: MLS going exclusively to Apple or is there some wiggle room to smooth the linear-to-streaming transition?

As the direct-to-consumer subscriber base ramps up and the industry’s transition from linear to streaming continues, the extent of any short-term content available outside of the Apple ecosystem could make or break this deal for MLS, especially domestically and, to a smaller degree, also internationally:

If, as it is widely reported, the partnership with Apple is supplemented by continued linear broadcast coverage in the foreseeable future serving the cultural mainstream, it could turn out to be a tremendous deal in the long run. Exclusivity has been key for streamers to force consumer pick-up and any broader linear coverage on national over-the-air or cable/satellite networks obviously undermines Apple’s value proposition. As far as consumption habits go, there will be a co-existence of linear television and over-the-top (of linear over-the-air and cable/satellite television) streaming services for the foreseeable future — a distribution mix that is betting exclusively on one or the other has been and will be sub-optimal for reaching the total addressable market until further notice: New waves (think: 📻 radio > 📺 over-the-air television > 📡 cable/satellite television) have traditionally been an evolution of the media distribution ecosystem — absorbing the new wave's characteristics (think: 📱 connected media) rather than fully supplanting legacy systems. In that sense, disruption is additive rather than an extinction event and consumers will self-select among complementary channels/distribution systems until further notice. Further, any incomplete distribution set-up is like disproportionally impact less-established, still-growing properties (compared to top-rated live sports programming) and could seriously hurt the long-term growth of the MLS.

Domestically, a lack of meaningful linear TV distribution and media amplification provided by traditional broadcasting partners (think: 📣 media multipliers) could mean ”out of sight, out of mind.” The MLS obviously bets on the upside of 📲 unprecedented ease, 📆 more consistent schedule with matches on Wednesday and Saturday nights instead of filling the holes in linear programming grids of traditional broadcasters without any rhyme or reason, and 💡 familiarity for fans thanks to a simple, caveat-less marketing story of “Every Game, One Single Place, All Around the World.”

Especially in a fractured North American media marketplace (characterised by an increased slicing and dicing of rights packages), avoiding the risk of spreading its content too thin across an ever-growing number of outlets, could have outsized benefits for an up-and-coming, not fully established property such as the MLS — potential market share gains from more established leagues that have taken the opposite approach included. [ see: Twitterpost 👇🏼 ]

The opaque situation and lack of concrete information on the extent of any retained domestic rights remaining available for sale to linear broadcasters, combined with reports on standing bids by the league’s current rights holders ESPN, FOX, and Univision, indicate that there is indeed some wiggle room in the agreement with Apple for the MLS to keep a presence for its media product on linear pay-TV and/or over-the-air networks — at least on a non-exclusive basis and the frontend of the ten-year agreement: Those ancillary agreements would not be game-changing from a revenue perspective (think: 🤑 $20-30M per season) but the continued visibility and availability on established platforms (think: ⚽ one or two MLS matches per round, potentially the free matches available on Apple TV) — arguably much more important for leagues with less cultural mainstream relevancy than the NFL (think: 🏈 👑 NFL Thursday Night Football on Prime Video) — might be.

From Apple’s perspective, full exclusivity is key for streamers to force consumer pick-up and even though any potential agreements with the league’s current rights holder for at least the first years of the ten-year period are unlikely to include streaming (simulcast) rights outside of traditional or virtual multi-channel video programming distributors (a.k.a. bundled pay-TV operators, such as 📡 DirecTV and Dish, 🔌 Verizon and Comcast, as well as 💻 Hulu with Live TV and YouTube TV), the non-exclusive (MLS) content migration (from traditional cable/satellite TV subscriptions to OTT streaming) would inevitably result in a partial audience migration only.

As said, having at least one single licensee with access to all of the right owner’s content (even if it is only partially on an exclusive basis) can be a distinct competitive advantage amidst ever-changing streaming dynamics. However, spreading a sports property too thin does not necessarily seem to require multiple exclusive rights buyers. When looking at the announced utilization plan for MLS content, Apple alone might be enough: Apple intends to slice and dice the available match inventory to an n-th degree and across multiple layers of its video ecosystem (think: 📱Apple TV ➡️ 📱💰 Apple TV+ ➡️ ⚽💰 MLS Pass). To which extent Apple’s on-/intra-platform fragmentation (aimed at supporting multiple business lines) could drive consumers’ chagrin and might offset the benefit of the single-buyer framework warrants a separate discussion as part of the company’s utilization plan for live sports programming and follows later in this blog. Before, let’s shortly touch on the league’s prospects in international markets with Apple as their exclusive distribution partner for the next ten years.

Internationally, there has been limited consumer and, therefore, broadcaster demand for the MLS property — reflected in the small-sized buyout deal with IMG (approx. $7.0M per season; despite also including men’s and women’s USA national team rights and a significant premium for the long-term nature of the eight-year deal running through 2022) as the league’s international sales agent. It has mostly been nothing more than filler content for international broadcasters due to challenging time zone (Europe) and/or its non-competitiveness when compared to domestic football leagues (South America). International audiences should benefit from launching the Apple-exclusive MLS Pass globally: Accessibility (think: 🌍 active subscription offering in all markets regardless of IMG closing a local output deal) and availability (think: ⚽ all matches in all markets instead of a few select matches per round provided by local broadcasters) of Major League Soccer content should improve significantly. Considering that even some rights have been retained domestically and the much lower opportunity costs for Apple (think: 🙌🏼 overseas die-hard fans preferring MLS Pass’ wall-to-wall coverage over select match output of local broadcasters), MLS, or a yet-to-be-named agency on behalf of them, should be contractually allowed to close supplemental output deals with local broadcasters in international markets. All the aforementioned challenges for less-established sports properties of cutting through the abundance of content when going direct-to-consumer and without the marketing and promotion support of third-party broadcasters are only compounded in international territories.

Further and in contrast to more mature, other top-tier sports properties, the MLS has not announced international markets as the next frontier for short-term growth since it does not consider itself anywhere close to a saturation point in its domestic market. From the perspective of MLS owners, on a ten-year horizon, and despite being non-material to the current revenue mix, international markets have been part of the investment thesis for any individual investing in an MLS team. The domestic market will make or break their investment but making Apple the exclusive home of the MLS outside of the United States, starting immediately and for the next decade, would still negatively impact investors’ overall prospects of generating a positive return on the lofty valuations that have backed-in significant future (domestic and international) growth:

MLS revenue multiples ( ⚽ 🇺🇸 approx. 12-13x revenues) have been much higher than those in the other US leagues ( 🏈 🏀 🇺🇸 approx. 7-9x revenues) and even higher when compared to European football clubs (⚽ 🇺🇸 approx. 5-6x revenues; also due to the premium paid for the closed-league system). Since a multi-fold, disproportionate uplift in domestic media rights revenue was backed into those valuations, expect MLS revenue multiples to converge towards other US sports leagues going forward — and international growth becoming more relevant when seeking incremental revenue opportunities in the future. Thus, at least select sublicensing agreements with local overseas broadcasters should be expected — to be determined, whether it warrants mandating international sales agents such as IMG who managed international MLS rights from 2015 to 2022. As said, the impact on MLS Pass subscriptions should be minimal since the overseas target market is predominately die-hard fans who are unlikely to be sufficiently served by any local broadcaster’s MLS coverage.

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, making 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.

Content Packaging: Are single-entity offerings with monthly plans viable OTT businesses?

Post-bundle subscription economics — without having an alternative bundle in place yet — reflect a difficult business, due to a combination of: (1) Hyper-competitive pricing 🌟 to capture wallet share, most recently amidst increasing wallet share tensions due to less favorable macro-economic conditions (”stagflation”), (2) limited customer lock-in 🔒 , amidst unprecedented ease of use (”churn”), and (3) sub-scale customer base 📉 amidst an ever-growing number of outlets in fractured media marketplace (”fragmentation”). Current streaming economics are nowhere close to the monetization level of the traditional pay-TV bundle and its superior (1) pricing power (ARPU), (2) stickiness (Churn), and (3) scale (Subscribers). How could the Apple-exclusive MLS Pass, as a single-league sports subscription video business, approach packaging to optimize for revenue and reach?

Pricing: Monetizing niches or going after the mainstream? Single-league OTT sports offerings have had the tendency to overprice (especially compared to multi-genre SVOD offerings targeting the mainstream consumer) to exploit the low price sensitivity of its passionate but very limited die-hard fan bases. “Direct-to-Fan” instead of “Direct-to-Consumer” and a rather complementary proposition super-serving a niche are common points made when discussing such league-operated video services. The value and exclusivity of the MLS Pass will be materially diluted by the extensive “windowing” strategy of MLS content across the Apple ecosystem and, reportedly, an extensive but yet-to-be-determined linear cable/satellite (ESPN, Fox Sports, TUDN) or even over-the-air broadcast coverage (ABC, FOX, Univision). Since many mainstream football fans will likely be sufficiently served by such regular free-to-view content windowing, targeting the most die-hard fans (with a correspondingly hefty price tag) would have been the obvious pricing strategy for the MLS Pass — except for the fact that the premium add-on subscription to Apple TV will be a free give-away for season ticket holders. Thus, the league’s most-ardent supporters might already be super-served. Bundling the MLS Pass with season tickets must have been done with the league’s two main constituencies in mind: its owners and Apple as its licensee. From the perspective of the MLS owners, it might have been a concession given to them to mitigate the fears for cannibalization of season ticket sales and other local matchday revenue sources as local black-outs were removed — no need for subscribing to the local regional sports network anymore. For Apple, it at least positively impacts the initial subscriber count (which can be given a positive PR spin in early 2023). Increasing profitability, initially diluted by the free subscriptions from season ticket holders, and any season-over-season growth on top of that built-in subscriber base, will be crucial in the years ahead and primarily driven by incremental non-local subscribers. In fact, I cannot imagine making MLS Pass available for free to season-ticket holders is economically sustainable in the long run.

In the short term though, MLS — which remains a local, tribal rather than a mainstream sports in the United States, needs to capture the out-of-market (non-)football mainstream while monetizing its local die-hard fans remains limited to the local ticket, matchday, and merchandise revenues.

🤔 Prediction: Contrary to other super-fan sports streaming offerings owned and operated by rights owners, a rather aggressive price point might be in the cards for consumers — at least on the frontend of the ten-year period, which would be a major win for Major League Soccer: Prioritizing reach (with a lower price point) while exceeding the min. guaranteed revenue share would remain out of reach with or without revenue maximization (and thus a higher price point).

Plans: Monthly churn as the holy grail of streaming economics? An aggressive pricing strategy does not necessarily result in an accessible price point. Monthly subscriptions have become synonymous with OTT streaming but should not be taken for granted by consumers, especially in the context of single-league sports offerings. Conceptually, a subscription is a constant value exchange between a (video) service provider and the end consumer — requiring renewed commitment (usually by not opting out instead of opting in) on a periodical basis. While the delivery of said “constant value” is straightforward on the side of the end user/consumer by way of a constant, recurring fee, streaming services usually compile a diversified content portfolio (think: 🎬 multiple genres, ⚽ 🏀 🏈 ⚾ multiple sports, or, at least, 🔢 multiple competitions within one sport) that, on aggregate, delivers similar value period-over-period — something that is further complicated by value/utility being subjectively, not objectively, defined by each customer. When such delivered (subjective) utility increases permanently, the value delivered by the end consumers will inevitably need to increase in the form of price hikes. For single-sports/competition streaming offerings, seasonality is an inherent challenge and makes any constant value delivery, measured objectively or subjectively, more difficult the shorter the time period (think: 📆 monthly vs. 🔒 annual pass). Thus, managing churn for a monthly, single-competition MLS Pass would be a significant challenge for the MLS Pass — further compounded by the ease of pausing or canceling subscriptions and the lack of any other obvious lock-in or retention mechanism into the broader Apple ecosystem that come along with subscribing to MLS Pass. Only offering longer subscription plans with a few (to maximize relevance/utility for customers) but not too many (to avoid decision fatigue amidst too much consumer choice) options (think: 🎫 Team/League Season Pass, 🏟️ Team Pass for Away Matches, 🎖️ Post-Season Pass) might be a well-suited, effective mitigation strategy — customer lock-in and upfront cashflow included. While such transactional content packaging would establish a clear, more predictable value exchange, longer-term plans heighten the cost entry barriers significantly and might prohibit any casual pick-up — only to be compounded by the current market environment of recessionary macroeconomic conditions, sub-shifting instead of sub-stacking (think: 💳 more active subscription management to optimize disposable income each month), and an SVOD market approaching a maturation plateau (think: 🤜🏼 🤛🏼 zero-sum subscription marketplace). Thus, bookending the annual option, which would probably come with more than the 20-25% standard discount offered on annual passes for streaming services with a more diversified content portfolio, with a single-game pay-per-view option makes sense. Not offering a monthly plan also prevents any unfavourable price comparisons that shed light on the inevitable lack of price differentiation between pay-per-view and monthly plans when offered both (think: 🤷🏼 €4.99 for pay-per-view vs. €7.99 for monthly plans) and would better allow Apple/MLS to charge a significant premium for such low-commitment, flexible offering. Anecdotally, Prime Video in France, the exclusive rights holder of eight out of ten matches per round in the domestic top-flight football league, has recently righted this (conceptual) wrong by discontinuing its monthly “Le Pass” for €12.99 (on top of the Amazon Prime membership fee) and is only offering season-long passes for €99 (on top of the Amazon Prime membership fee) starting with the 2022-23 season. [ see: Twitterpost 👇🏼 ]

For illustration purposes and much simplified, let’s assume the following to break even on €250M in top-line revenues:

• an aggressively priced annual pass (💰 $59.99 ),

• single-game pay-per-view access charged at a premium (💰 $4.99 ),

• a reasonable split between subscription (SVOD) and transaction (TVOD) revenues ( 🧮 70:30 ), and

• modest advertising (AVOD) revenue contribution (🤝 20%), as well as

• disregarding any customer acquisition (think: 📢 performance/brand marketing) and distribution costs (think: 💵 payment fees, sales taxes, delivery costs).

Approximately 2.3M monetized annual subscribers and 350K pay-per-view sales per regular season round would be needed — which compares to an average of approx. 560,000 viewers per game across English- (ESPN/Fox) and Spanish-speaking (Univision) rights-holding linear channels in 2021. Please note: This calculation makes zero revenue attribution to the “free throw-ins” in AppleTV+ (which is more art than science anyway).

To sum it up, growing mainstream relevance domestically will be paramount. Apple’s on-platform windowing strategy across Apple TV and Apple TV+ complemented by an extensive coverage on linear over-the-air and/or cable/satellite networks could provide reach and access to a broader universe of sports fans in the lead-up to the World Cup 2026. Successfully establishing an add-on subscription video business at the same time would be difficult though. Increasing the accessibility by further lowering the cost entry barriers for casual fans has not been the go-to pricing strategy for niche propositions to date since such “Direct-to-Fan” streaming services like MLS Pass are unlikely to reach the scale required to not over-monetize the lack of price sensitivity of the few die-hard fans. Season-ticket holders having free access to MLS Pass, at least for the first season, adds an interesting variable to the equation though. Compared to the MLS, Apple might have much less at stake than its foreseeable future: Why bother with a mid-tier domestic sports property in the first place?

Distribution Partnerships: Non-Starter or Catalyst for Apple’s Service Revenues?

Apple’s utilization plan for MLS content obviously goes against the recent trend of roll-ups of proprietary DTC streaming services operated by early-moving sports rights owners in the United States into broader multi-genre third-party OTT subscription offerings (WWE Network ➡️ Peacock, NBC Sports Gold EPL Pass ➡️ Peacock) or at least multi-sports (MLS Live ➡️ ESPN+, PGA Tour ➡️ ESPN+, NHL TV ➡️ ESPN+). It is fair to question how locally relevant the MLS is within the crowded U.S. sports landscape and whether its drawing power warrants its utilization as a premium subscription add-on rather than as a free throw-in into Apple TV+. However, it is easy to understand why Apple took a flyer on the league’s streaming rights — the rights on offer checked three critical boxes for the company: ✅ MLS as the rights owner was prepared to deliver a ready-made product seeking distribution. ✅ Apple prefers to own content instead of renting it and ten years is as close as licensees can get to owning any intellectual property in sports without buying the entity. ✅ Tech-first companies operate on a global scale and the MLS was willing to pool and align the timeline of its local, national, and international streaming rights, as opposed to keeping selling them on a market-by-market basis to maximize short-term revenues. [ see: Twitterpost👇🏼 ]

Leveraging this, unprecedented among top-tier sports properties, all-in-one proposition and betting on the distribution muscle of its ecosystem gives Apple an opportunity to prove its thesis that the MLS Pass blueprint might represent the distribution model of the future:

• Apple’s role: an enabling distributor rather than a buyer in the global sports media market. 🔀 👨‍👨‍👦‍👦

• Apple’s value: partially underwriting distribution partnerships to advance rights owners’ direct-to-consumer ambitions. 💰🔒

• Apple’s plan: live sports programming as Apple-exclusive services, owned and operated by rights owners and sold on Apple TV, generating scalable service/platform revenues and differentiating its video distribution platform (an inherently non-exclusive business) 🚀🚀

Unpicking Apple’s plan requires a deep dive into how the company intends to exploit the exclusive right to distribute the readily-produced league games. First things first: It will be anything but a free throw-in into Apple TV+ which is what most consumers assume whenever Apple (Apple TV+) or Amazon (Prime Video) are buying sports rights nowadays. The reason: Even for those digital, non-traditional businesses, unbundled streaming economics do not work for high-priced sports rights, and limits even those trillion-dollar companies are limited in what they can throw in for free into their low-priced SVODs that simply cannot support tier-one rights acquisitions at scale.

Apple TV+ Economics: Can Apple's subscription video service support high-priced sports rights?

Apple’s hard-/software and service ecosystem as well as Amazon’s Prime subscription are often referred to as an uneven playing field compared to traditional sports rights buyers. However, Apple TV+ ($4.99 per month) and, to a lesser degree, also Prime Video ($7.99 per month), are underpinned by unbundled streaming economics as well:

Apple TV+ is untethered from any Apple hardware (Apple TV Box, iPhone, or iPad), software (tvOS or iOS), and only loosely bundled with its service business (Apple One). However, and like the MLS Pass, it is sold as a premium a-la-carte add-on within the Apple TV app. (Should we rename “MLS Pass” to “Apple TV+ Sports” instead?)

Not vertically integrating MLS Pass with Apple’s operating system for connected TVs (tvOS, currently at 6% market share in 🇺🇸 ) is probably a wise decision since it will never demand anywhere close to the dominant market share that its mobile operating system does (iOS, currently 54% in 🇺🇸 ) and would limit accessibility (i.e. horizontal scale) significantly. 🔎 3️⃣ Instead, exclusive premium subscription video add-ons such as MLS Pass seem to be geared towards accelerating pick-up from Apple and non-Apple device users for Apple TV, the company’s video aggregation app that is available across all devices and operating systems, and might provide a path towards an ecosystem play similar to its mobile platform without being the dominant device operating system. Any increased market share for Apple TV, by means of exclusive sell-through add-ons, and, therefore, bargaining power against any content owner, should also bring Apple closer to solving connected TV’s holy grail of re-bundling the multitude of streaming subscriptions and curating all their content in one universal EPG (a.k.a. the great re-bundling).

Apple recently disabling in-app purchases via Apple TV on non-iOS/tvOS (mobile and connected TV) devices, which have utilized third-party payment methods and, thus, did not generate any service revenues for Apple, provides further evidence for such an approach. Even if successful, it would never replicate the economics and service revenues provided by the vertical integration of software and hardware as seen on mobile for many reasons, including that connected TVs will unlikely become a major transaction (in addition to consumption) device and Apple’s past reluctance to embrace advertising, at least outside of its App Store. 🔎 4️⃣

📊 CHART: Vertical Integration, Horizontal Scale, and Bundling across Apple/Amazon’s Businesses

ℹ️ Web (browser) as an open platform, compared to the closed systems (think: 🔒 walled gardens) on mobile and connected TV devices, lessens the relevance of Apple’s MacOS and Amazon’s complete lack of a proprietary computer operating system as it relates to leveraging hard- and software into service revenues (e.g. in-app payment fees, advertising revenues, media subscription services).

Looking at Apple’s distribution and bundling strategy, its utilization plan for MLS content feels somewhat “stuck in the middle”: It does not go all-in on driving Apple TV+ subscriptions (due to the above-mentioned limitations of unbundled economics for pure-play streaming services when it comes to high-priced sports IP) while diluting the drawing power, exclusivity, and value proposition of the MLS Pass as a premium add-on for Apple TV by spreading MLS content (too thin) across multiple video services within its ecosystem — and that is before accounting for the additional dilution originating from the expected off-platform coverage by linear national networks.

The Bigger Plan: iTunes of Sports as Apple’s (alternative) end game?

Apple, just like any other owner and operator of closed mobile (Google) and connected TV (Amazon, Roku, Google, Samsung, LG, Vizio) platforms, is an indispensable distributor for content owners. Regularly, those mobile and connected TV platform owners leverage their direct customer access (think: 🧲 gateway to end consumers, owning customer demand), to capture economic benefits whenever they enable consumers to engage with services from third-party content owners: payment fees (15-30%), sharing advertising inventory (0-30%), and personally identifiable customer data being completely withheld are examples for concessions that the average content owner must regularly make when playing by the rules of those wall-gardened mobile or connected TV platforms. Point being, even if Apple would not have secured the exclusive distribution rights for the MLS Pass owned and operated by the MLS, Apple would have still distributed the league’s mobile (iOS) and connected TV (tvOS) application via its App Store and, potentially, directly integrated into its channel store (a.k.a. storefront) on Apple TV. The latter does not even require the consumer to directly engage with the MLS Pass application to access the content.

Thus, what Apple is buying by underwriting Major League Soccer’s direct-to-consumer ambitions with $250M annually over the next ten years is: First, the league not wholesaling its media rights and instead operating a stand-alone, single-league, all-in-one streaming service. Second, the league distributes said streaming service exclusively in its video aggregation service Apple TV and, therefore, is not available in channel stores from competitors such as Amazon (Prime Video Channels) and Roku (Roku Channel Store) as well as Google's reportedly soon-to-be-launched own CTV storefront and FAST service within its YouTube App. More, disabling in-app purchases in Apple TV’s channel store on any competitor’s mobile and connected TV operating system as mentioned above means that Apple will exclusively own the customer relationship when the end user signed up via the mobile or connected TV device. On the open web, subscribers will have to create an Apple ID to sign up. In any and all cases, Apple will have established a direct customer relationship and new prospects to be pushed down the Apple ecosystem and the higher-margin parts of their business from there. The company is shifting the basis of competition away from the streaming wars (Apple TV+), and even the operating system wars (iOS, tvOS), to whatever the last-mile consumer interface used to access video entertainment content is — an application interface that is not tethered to the operating system and/or device (think: 📲 Apple TV App available on established competitors such as Roku OS, Google’s Android TV, Amazon’s Fire TV, Playstation OS, Samsung’s Tizen, as well as challenger brands such as TiVo Stream and Vizio Smartcast; ❌ no in-app purchases available though) and tries to bundle standalone streaming applications.

📊 CHART: Apple TV as Channel Store and Exclusive Gateway to Apple TV+ (and soon MLS Pass)

The question will be to what extent “channel store exclusives” can move the market share needle. To start, distribution platforms are by definition non-exclusive propositions on the content supply side (for both SVOD/AVOD streaming services and stand-alone TVOD movie/series purchases and rentals). Any content integration with native platform functionalities is limited due to both the lack of content ownership by distributors and the content owner’s preference to own the consumption data and user experience/interface. Besides both horizontal bundling (think: ↔️ The Disney Bundle with Hulu, Disney+, and ESPN+: Content ✖️ Content ✖️ Content) and vertical bundling (think: ↕️ T-Mobile’s “Netflix on Us”: Service ✖️ Content ), content exclusivity (think: 🌟 original content that can’t be found on cable/satellite or network television) might be the most powerful tool to drive user acquisition (and also retention) for streaming subscription services — theoretically, if said streaming subscription service is tethered to one single distribution platforms (think: ⚽ MLS Pass ✖️ 📱Apple TV), it should force incremental customer pick-up of the distribution platform ( 📱 Apple TV) while also limiting the maximum possible horizontal scale possible for the subscription streaming service ( ⚽ MLS Pass). Fundamentally, the value of distribution platforms (think: 👨‍👩‍👧‍👧 audience aggregation) is in creating the connection between content owners and end consumers. Exclusively retailing the MLS Pass, or any other audio/video streaming offering from content owners (think: 🎧 Joe Rogan Experience on Spotify), ensures differentiation in a fiercely competitive digital marketplace and might lower customer acquisition costs, or more efficient marketing budget allocation, for the content distribution platforms. MLS, Joe Rogan, or any other content owners exclusively tied to a distribution platform, inevitably limit their addressable audience though — to the benefit of the greater plan of Apple, Spotify, or any other distribution platform vying to become the customer interface.

On the positive side for MLS, a long-term and, more importantly, exclusive partnership with MLS gives Apple an opportunity to create a user experience tightly integrated with the Apple ecosystem that makes full use of the native iOS and tvOS functionalities (think: ⏯️ Apple News’ scores and news enriched with video content) — proofing that this is the distribution model of the future that solves an existential problem for rights-owner-controlled OTT streaming services: transitioning from the traditional B2B whole-selling model (and its financial guarantees) to direct-to-consumer streaming with the inevitable revenue gap and learning curve on the frontend and great outcome uncertainty on the backend when going all in on cutting out the traditional middlemen.

Other rights owners are undoubtedly watching and if Apple can prove its concept and others are following this DTC blueprint, the financial outlay for this unprecedented set of media rights of an above-average, domestic sports property will have been well-spent business development expense chump change for Apple. The end game is not only having an MLS Pass, but an a-la-carte subscription offering of the Premier League, Formula 1, UFC, NFL, NBA, and German Bundesliga, owned and operated by the rights owner and sold exclusively via Apple TV — like an iTunes of sports housing third-party OTT streaming services.

Expect Apple to follow a rather hands-off approach, instead of the more hands-on approach in case of select rights acquisitions for Apple TV+. Apple will focus on distribution, that is creating the connection between content owners and end consumers, and the on-platform user experience/interface framework that could be scaled across other rights owners’ subscription offerings down the line. MLS will have to work for its money over and above the minimum guarantees and will need to quickly learn about the direct-to-consumer world (think: 📈 gross subscriber addition - 📉 gross subscriber churn = 📊 subscriber growth/decline) and embrace a cultural re-set from a B2B rights-licensing to B2C consumer-centric mindset.

As far as Apple goes, it is effectively content-licensing the MLS and sticks to one of its core competencies: building a fan-friendly user experience and interface. Apple offers backend economics for the league if it outperforms the initial expectations — similar to what subscription streaming services have traditionally been when licensing entertainment content from third parties. [ see: Twitterpost 👇🏼 ]

In a nutshell, MLS becomes a media company, Apple remains a technology company with an asset-light, scalable service business model.

Comparing Apple and Amazon: Similar Blueprints, with Differences in the Details

Both Apple and Amazon face similarly challenged economics for their respective subscription streaming services Apple TV+ and Prime Video, when operating them on stand-alone, monthly subscription plans. Thus, recent high-priced and big-volume sports rights, like Apple’s MLS Pass (💰 $250M per season, available worldwide 🌎 ) and Amazon’s Le Pass Ligue 1 (💰 €250M per season, available in France 🇫🇷 ), required multi-tiered monetization models tied into the broader ecosystem to paint a path towards positive returns. Remember: Big Tech’s market cap (Apple, Microsoft, Google, Amazon, Facebook) is dwarfing its next closest TMT competition (Disney, Netflix, Comcast, Verizon, AT&T, T-Mobile), let alone other sports-rights-buying legacy media companies (ViacomCBS, Fox, Warner Bros. Discovery), and could easily outspend them. However, Apple, Amazon & Co. are for-profit, stock-listed companies and optimize for return on any investment instead of blindly going after vanity plays — capitalism still reigns.

To this end, both companies have remained financially prudent, limiting the upward pressure on rights fees (which are rather driven by fierce competition among market incumbents instead), and chosen similar approaches to sports content exploitation but differ slightly in the details and the power of incremental revenues streams.

📊 CHART: Exclusive Premium Add-on Video Subscriptions via Apple TV App or Prime Video App/Subscription

In short, Apple leverages exclusively sold streaming subscription services such as Apple TV+ and MLS Pass (a.k.a. Apple TV+ Sports) to attract new users to the Apple TV App (think: 🆓 free pass-through entity, always owning customer relationship). Amazon, instead, leverages exclusively sold subscription streaming services such as Le Pass Ligue 1 to gain new subscribers to the Prime Video App + Subscription (think: 💰 paid pass-through entity, not necessarily owning customer relationship). For the end consumer, Apple exclusives come with an Apple ID. Amazon exclusives come with a Prime Video Subscription.

Hard Bundling (Paid): 📲💰 Prime Video ➡️💰 Le Pass Ligue 1 ⚽

For new sign-ups, Le Pass Ligue 1 ($99 per season) comes not only with more than 300 exclusive matches from the domestic top-flight football league but also with a paid Amazon Prime subscription (available for €6.99 per month or €69.90 per year in 🇫🇷, no stand-alone Prime Video subscription available in 🇫🇷 ) as a required prerequisite — significantly improving the short-term (think: 💰💰 double-dipping on subscription fees) and downstream (think: 🛒 increased e-commerce spending compared to customers without Prime membership) unit economics. 🔎 5️⃣

For existing subscribers, the season-long lock-in has a significant impact: Merely improving retention rates by a couple of percentage points and, as a result, increasing customer lifetime values have an exponential bottom-line impact given the scale of the Amazon Prime subscription and advertising base — blatantly exposing the superior economics compared to pure-play, sub-scale streaming services.

Overall, Amazon’s ecosystem play is straight-forward and focused: Each (sports) content acquisition is made with incrementing the Amazon Prime membership base in mind, either by throwing select rights acquisitions for no additional costs into Prime Video (think: 🎾 French Open in 🇫🇷, ⚽️ UEFA Champions League in 🇩🇪 🇮🇹, 🤼 One Championship in 🇺🇸 ) or by making the higher-priced and -volume sports rights available as a premium add-on (think: ⚽ Ligue 1 in 🇫🇷 ) to the base content package (i.e. Prime Video). Unlike Apple, any free-to-air windowing, despite its booming advertising business and a well-suited free ad-supported television (FAST) offering with Freevee, has not been considered by Amazon as part of its distribution and utilization mix for any live sports programming. Apple’s utilization mix for sports content, instead, is multi-layered, spread across different free and paid offerings, and supposed to do many jobs — Amazon’s sports strategy seems more focused and single-purpose as a result.

Hard Bundling (Free): 📲 Apple TV App ➡️💰 MLS Pass ⚽

In any case, even Apple is not free-throwing a two-point-five-billion dollar content investment into Apple TV+. However, while many consumers interested in a premium add-on to Prime Video are already Amazon Prime, or at least Prime Video,

subscribers, making Apple TV+ (40M subscribers, including approx. 50% on free trials; as of 2021) mandatory paid pass-through service to access Apple exclusives would constitute a significant costs barrier for attracting sign-ups. As a result, Apple is limited to “solely” utilizing it as a user acquisition (think: 📲 app install) and data collection (think: 🔢 Apple ID account) tool for Apple TV — which has attractive downstream potential as another Apple gateway. (think: 📱 any Apple hardware device also results in an Apple ID) into its multi-tiered super funnel with cross-selling, up-selling, and bundling between free/paid subscription services in accordance with consumer tastes (think: 🎧 📺 🎮 🏋🏽‍♂️ ☁️ Apple One)

In contrast, Amazon does not materially compromise consumer take-up of premium add-ons when utilizing Prime Video as a mandatory buy-through platform. The Seattle-based company can piggy-back on its vast subscriber and advertising base (200M Prime subscribers and 175M Prime Video users, including stand-alone Prime Video subscribers; as of 2020) to marginally improve retention and incrementally drive subscription growth from consumers who had not bought into the main product (Amazon Prime) yet.

🤔 Prediction: Apple will be the bigger 🤝 rights distributor, Amazon the bigger 💰 rights buyer. Regardless of whether Amazon invests in sports rights to add another membership benefit to its Prime Video subscription at no additional costs or to utilize such programming as a premium add-on to the base content package, simple rights buyouts instead of distribution partnerships underpinned by a revenue sharing agreement will be the modus operandi. Compared to Apple, the additional friction in the sales funnel for premium video subscriptions through the two-tiered paywall complicates attributing subscribers (or any other metric used to compensate the content owner) to the add-on. Any risk and revenue sharing under such a model might be non-straightforward. Also, expect Amazon to be more hands-on as it relates to traditional broadcaster obligations. Amazon, rather than Apple, will be the incremental buyer of sports programming in the short term that all rights owners were seeking. Apple has historically moved at its own pace and does not seem to be willing to adopt the fast-pacing sports rights environment yet. Its blueprint for a new distribution model might only be ahead of its time, MLS has been a trailblazing first-mover, and other rights owners will follow in the mid-term. Short-term though, the Cupertino-based company is running out of options to add more cases to prove its concept — including the fact that top-of-the-pyramid sports properties have been willing to forego maximum revenues for maximum reach and/or local governments' review of anti-siphoning laws (e.g. 🇫🇷 France, 🇦🇺 Australia) that are specifically targeted at global streaming platforms' ability to bid for the biggest sports events.

Conclusion: What’s next for Apple and its MLS Pass (a.k.a. Apple TV+ Sports)?

⏱️ Right now, there is a limited set of properties that is available on the sports media rights market right now and fit the bill for what Apple is seeking, both in the United States (NFL Sunday Ticket, NBA League Pass 🔎 6️⃣ ) and beyond (F1TV Pro):

• 🏈 NFL Sunday Ticket (or NFL+ 🤔 ): Out-of-market, not nationally televised games; readily produced by local affiliates from FOX and CBS; available in the United States 🇺🇸 and with local blackouts.

• 🏀 NBA League Pass: Out-of-market, not nationally televised games; readily produced by NBC, YES Network, MSG Network, Bally Sports, Altitude, Root Sports, or AT&T/Spectrum; available in the United States 🇺🇸 and with local blackouts.

• 🏎️ Formula 1 TV Pro: All grand-prix races; readily produced in-house; 🌍 available in select countries, including the United States 🇺🇸 — even in wake of the recent record-setting contract extension with ESPN through 2025, the racing circuit’s owned and operated streaming service reportedly remains available in the United States and would be available for an exclusive distribution partnership. 🔎 7️⃣

These are the best-available candidates to replicate the strategic blueprint established with MLS, exclusive distribution partnerships: (1) ready-made products seeking distribution, (2) direct-to-consumer ambitions by the rights owners, (3) critical mass of mainstream consumer interest in the United States and/or in overseas markets, and, most importantly, (4) would be available right now.

🤔 Prediction: Apple acquires distribution rights to NFL’s out-of-market game subscription package and a rebranding of “NFL Sunday Ticket”, a legacy product name with a strong brand association with DirecTV, is in the making: NFL wants to be a consumer-facing brand and collapsing “NFL Sunday Ticket” into “NFL+” might be the obvious move. The new mobile-first streaming service in its current form (offering live, out-of-market preseason games across all devices, live local and primetime regular season and playoff games on mobile devices, live game audio of every game, NFL Network programming on-demand, and archival content from NFL Films) is not the league’s end-game or what consumers would want or pay for) — it is simply what the NFL has currently access to and had not sold to third-party licensees yet. Let’s consider it a placeholder for the time being as the pre-season games approached and have forced the NFL to make a move. The NFL calendar simply did not match the timeline of the awarding the out-of-market game subscription package — nothing that cannot be corrected shortly.

⏱️ ⏱️ In the mid-term, 🤼 UFC’s Fight Pass and Pay-per-View Events, currently rolled-up into (UFC Fight Pass) or sold through (PPV Events) ESPN+, might be another picture-perfect candidate for Apple:

• 🎥 self-contained, self-produced league,

• 🌍 with a global, rather 🤷🏼 less price-focused audience used to the pay-per-view model,

• 🇺🇸 United States, by far the most attractive market for advertising- and subscription-based streaming services (Apple TV+) and, thus, audience/video aggregation (Apple TV), as the right owner’s core market, and

• 📱direct-to-consumer streaming service that could be plugged-and-played into the Apple or Amazon ecosystem on an exclusive basis

… immediately adding meaningful platform differentiation and synergies with other service business lines. 👀

⏱️ ⏱️ ⏱️ In the long run, and if proven successful, Apple would have developed a framework that could be adopted by more and more sports properties and any such streaming service that is owned and operated by rights owners could be exclusively distributed via Apple TV in exchange for underwriting the financial downside of transitioning from wholesaling to retailing directly to consumers and its significant financial upside in the long term if the minimum guaranteed revenue share can be outgrown as the one-to-one fan relationship is monetized further. Rights owners with meaningful in-house production expertise, who already produce their events internally, could be considered as “low-hanging fruit” and primed to take a look at Apple’s proposition as it might solve the two biggest blockers for transitioning from B2B licensing to B2C retail business:

• 💰📉 Economic risk (a.k.a. variabilizing the revenue side through direct economic exposure to fans/consumers while keep running league operations with a significant fixed-cost base, including but not limited to player salaries)

• 📲 Lack of built-in distribution and install base (a.k.a. struggling to access a broader universe of sports fans and overcome the glass ceiling presented by the limited number of die-hard fans when going on their own)

… a shift to a consumer-focused mindset, a fan base made up of a comparatively younger demographic more suited to adopt a digital-first distribution model, long-term thinking (starting with strategically pooling and aligning all media rights), and many more things make up the remaining success factors for rights owners considering the same path of the MLS. And even though self-contained, self-produced leagues such as the UFC (via affiliate company IMG) and German Bundesliga (via league-owned subsidiary Sportcast) seem obvious fits, the first-moving MLS has proven that none of this is required — but will now need to be fully delivered and borne by the rights owners, amounting to approx. 50M per season in new production costs (previously born by the regional and national broadcasters).

Further down the sports rights market ladder, the number of (low-potential) candidates is already vast: According to Mediakind, 70% of 40 analyzed sports rights owners are already operating an (ancillary) subscription-based streaming service of some kind, with varying degrees of content offerings, rights retentions, and monetisation approaches — commonly varying between territories. (see: Sports D2C Forecast, 2021) Understandably (part I), and as cost barriers for self-production and -distribution decrease due to technological advancements, tier-two and -three sports properties have obviously more to gain commercially (think: ◼️ no opportunity costs in form of guaranteed checks or any significant exposure from existing media rights agreements with traditional broadcasters) and are the ones adopting more complete DTC offerings to ensure access to their respective media product in the first place. Understandably (part II), top-drawer sports properties will have a much higher financial threshold to start such conversations and are in the privileged position to not always have to trade reach for revenues — the MLS might have been as high as it gets on the ladder of sports rights for the foreseeable future.

For Apple, spending $250M per season over ten years will not make or break any of its business lines or stock price, inasmuch as the sum committed represents about 0.1% of the tech giant’s two-point-five trillion market cap or approximately 11.5 hours of iPhone sales. Exclusive distribution partnerships, however, would present an infinitely scalable service revenue line — without the need to assume any of the traditional broadcaster obligations such as host production, talent management, marketing/promotion, or sales. Service revenues, at least to some extent, will make the company‘s stock price and must be scalable — and there are few things less scalable than content production (a.k.a. becoming a media instead of remaining a technology company) … something necessary when buying rights.

☝🏼 Exclusive distribution partnerships vs. non-exclusive distribution agreements: With or without bought or acquired sports rights, Apple (on mobile and connected TVs) and Amazon (on connected TVs) will participate in the streaming economics due to their respective app store’s status as must-have distribution portal. (think: 🤌🏼 15-30% commission on in-app purchases and subscriptions) Those non-exclusive distribution partnership agreements will not allow for tightly integrating the content into the Apple (or Amazon) ecosystem with all the platform’s functionalities (think: 〽️ Amazon’s proprietary X-Ray stats) and do not let them benefit from the downstream effects of exclusive distribution partnerships and the full integration into the respective ecosystem, such as making full use of iOS/tvOS functionalities (or supercharging the Amazon advertising and e-commerce businesses).

💡 Dual-pronged approach: Apple’s preference will be to distribute rights, doubling down on scalable service revenues extracted from its hard-and software install base. (think: ⚽ 🍏 MLS Pass as an “Apple Exclusive”) Nonetheless, the Cupertino-based company will also keep buying select and, importantly, exclusive sports rights to solve any current or future subscriber growth problems of Apple TV+. Ultimately, there are few things considered to be less substitutable or price-elastic and more bankable than watching your favourite sports team — sports content can literally buy customer loyalty.

P.S. Two observations that made me already appreciate Apple getting into all things sports rights: First, 🤫 reporters will have to work much harder to get the scoop ahead of time. Second, 👨🏻‍🏫 Apple has already the sports media terminology down, despite being new to the game [ see: Twitterpost 👇🏼 ]

As far as what is ahead as it relates to “Big Tech” acquiring (not distributing) rights in the United States, the world’s biggest sports broadcasting market, and with most key sports properties already locked up for years to come, keep an eye on select games from the following two properties that both have a comparatively young core audience and will significantly determine whether the migration of top-rated sports programming to streaming may or may not be imminent:

• 🏀 NBA (available starting season 2025/26; even with extra game inventory available with only 259 regular season games being televised nationally (21%) across ESPN/ABC, TNT, and NBA TV during the current rights cycle); and

• ⚽ UEFA Champions League (available starting season 2023/24) which Relevent Sports is currently shopping in the United States and UEFA (or TEAM Marketing, their sales agent outside of North America) has been successful in nurturing incremental rights buyers in Europe with dedicated packages tailored to streamers (namely Amazon) — offering the low-inventory, high-value package that can be supported by streamers’ SVOD business model and serve as a high-profile user acquisition tool. [ see: Twitterpost 👇🏼 ]

Absent a mind-blowing bid by an established legacy media company such as ESPN/ABC, NBC, or incumbent rights holder CBS to future-proof their respective tri-cast distribution model (think: 📺 over-the-air network TV, 📡 cable/satellite pay-TV, and 📱 over-the-top streaming service), start splitting rights in the United States not only between English- and Spanish-language rights but also within those language-based packages seems the logical next step — providing an entry point for Prime Video or Apple TV+ into soccer in the lead-up to the FIFA World Cup 2026. Carving out such entry-level (junior) packages tailor-made for OTT streamers might be right owners’ best bet to create inflationary pressure for rights fees in the short-to-medium-term: Big Tech’s involvement to date has mainly remained limited to taking positions left empty/over by incumbents rather than challenging them in inflationary bids — being able to leave the negotiation table (think: 🤷🏼 no need for comprehensive sports rights portfolio, in contrast to pure-play sports programmers) might be Big Tech’s biggest bargaining chip. Another implication of Big Tech’s limited need for exclusive sports programming (think: 🌟 sports programming as a select feature instead of a full-fledged portfolio with critical content) is that Amazon, Apple & Co. could pivot and course-correct without much impact on their respective core businesses if they concluded that they were overspending on content and were not extracting the expected value from sports — leaving sports properties who had gotten used to them as serious players in the sports rights market (and attached uplift in media revenues) hang out to dry and the pursuit for the incremental rights buyers might start all over again. Luckily and against all odds, fierce competition between market incumbents, whose reason to exist is highly correlated with the size and quality of their respective rights portfolio, has created the inflationary pressure to sustain sky-high rights fee levels across North America and, to a lesser extent, Western Europe and in spite of macro-economic headwinds.

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🔎 🔢 FOOTNOTES

1️⃣ Alternatively, pure-sports streaming products require revenue diversification and amplification (think: 🤑 new business lines around other digital goods such as betting and daily fantasy or even physical goods such as merchandise) to evolve from streaming to more encompassing/multi-faceted DTC economics to level up ARPU. In the short-term, subscription fees are the only activated revenue stream, and unbundled sports TV services, such as NESN 360 ($30 per month or $330 per year) or Bally Sports ($20 per month or $190 per year), are priced accordingly at a huge premium for ditching the traditional pay-TV bundle. [ ↩️ ]

2️⃣ Besides Apple TV (i.e. Apple’s OTT video aggregation service) and Apple TV+ (i.e. Apple’s SVOD service), Apple has made very few native applications or services (namely Apple Music) available on other mobile and connected TV. Other services such as Apple Arcade, iMessage, Apple News+, Apple Fitness+, and Apple Podcasts remain Apple exclusives. Those services untethered from the Apple devices and operating systems are obviously more business-critical as far as top-line service revenues are concerned and even Apple does not seem able to compromise on the horizontal scale (i.e. making them as widely and broadly available as possible) amidst fierce competition across all three categories. Less business-critical services, on the other hand, seem to be utilized as exclusive value-adds of the Apple ecosystem, and any incremental revenues from offering them as stand-alone, untethered services would probably be non-material to Apple’s top- and bottom-line. [ ↩️ ]

3️⃣ The reasons for Apple’s tvOS lagging behind Roku, Fire TV, Google TV, and some of the proprietary operating systems from TV manufacturers (or OEMs) are manifold but probably a combination of poor product development (think: 🕹️ unhandy remote control), a cost-prohibitive price point of Apple TV Boxes (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 (think: 📺 licensing tvOS to be built-in or embedded into third-party end devices) — let alone getting into own TV hardware such as the Amazon Fire TV or Sky Glass TV. The limited incremental software development effort needed to build a tvOS application based on the must-have iOS application benefits Apple enormously. As a result, almost all streamers offer their big-screen experience via Apple TV Boxes — with the number of tvOS applications (approx. 18,000) certainly punching above its weight compared to its consumer relevance or market share: LG’s webOS (approx. 2,000), Google’s Android TV (approx. 10,000), Roku’s Roku OS (approx. 30,000; driven by its dominant market share in the United State and in spite of a non-traditional programming language), and Amazon's FireTV (approx. 15,500). Overall, it is unlikely that the hard- and software market for connected TVs will ever become as concentrated as the duopolized mobile software and, to a lesser extent, hardware market. In fact, the current device and operating system fragmentation of connected TVs have made product development and maintenance almost prohibitively expensive for smaller content distributors — there is no unified standard in television anymore, as there had been with linear cable and satellite television. [ ↩️ ]

4️⃣ In pursuit of new growth catalysts and buttons to push to drive incremental service revenues, Apple is reportedly preparing a push into the advertising market to challenge the market oligopoly of Google, Facebook, and Amazon: The company already shows display ads on its App Store as well as News and Stocks apps/pages. Other native Apple apps, which in addition to Apple TV+ also include Apple Music, Podcasts, Maps, and Books, have remained ad-free to date. The inherently built-in breaks of sports programming are a natural fit for advertisers and have been at the core of the powerful dual-revenue stream model of traditional pay-TV: subscription fees and advertising revenues. As far as Apple TV+ is concerned, its sub-scale subscriber base (approx. 40M subscribers) currently limits the immediate upside for any material revenue impact on a two-trillion dollar company but the major shift by consumers from ad-free premium subscription tiers to the increasingly popular, discounted hybrid ad-supported subscription tier will even apply to price-insensitive Apple customers at some point. Apple’s significant share of subscribers on free trials (approx. 50% of total subscriber base) and ramp-up time for any advertising business (think: 🧑🏼‍💻 building/buying ad-serving technology stack, establishing brand relationships, and human advertising expertise) should create major urgency in Apple’s headquarters though. Further, consumers’ preference for any discounted ad-supported tier when seeking incremental subscriptions should also uplift Apple TV+ sign-ups and free-trial conversions. For less price-sensitive (or privacy-first) Apple users, introducing an ad-free subscription tier once first-party data advertising has been wildly introduced to more native apps seems another opportunity to leverage the company’s currently four-billion-dollar advertising business. In any case, Apple’s overall service business, currently standing at an annual revenue run-rate of approx. $20BN or 25% of its total revenue, will be a combination of recurring revenues from subscriptions and targeted advertising across its pre-installed apps and functions (e.g. Apple Pay). [ ↩️ ]

5️⃣ The existence of stand-alone Prime Video subscriptions in select markets, effectively soft-bundling Amazon’s SVOD service with the broader, more expensive Amazon Prime subscription including also Prime Delivery, Prime Gaming, Amazon Music, and Prime Reading, introduces another tier into the company’s subscription funnel — lowering the entry barrier to any exclusive premium add-on subscription video package. The far superior value-for-money propositions offered by Amazon Prime (e.g. available for £8.99 per month or £95.00 per year in the 🇬🇧 ) compared to Prime Video (e.g. available for £5.99 per month in the 🇬🇧 , not impacted by the recent price hike) reflects Amazon’s obvious preference for full-fledged over video-only subscribers. Such a stand-alone option mainly exists in markets with significant video content investments (including 🇺🇸 and 🇬🇧) and above-average drawing power compared to other markets in which Prime Video is rather considered as an expendable nice-to-have (as part of Amazon Prime). Point being, when Amazon considers its Prime Video subscription to be a competitive streaming service for mind and wallet share in the local digital marketplace with or without the other Prime membership benefits, it offers an a-la-carte option for Amazon Prime holdouts. [ ↩️ ]

6️⃣ Neither the NFL nor the NBA have planned for fully aligning regional, national, and international rights any time soon. Local broadcasting rights are not a thing in the NFL and, instead, tight to the recently renewed national media rights agreement (i.e. CBS and FOX) running through 2032. In the NBA, some media rights agreements with regional sports networks go also on for another decade or more and are a significant local revenue source for NBA franchises. Internationally, existing rights retentions that are underpinning the NFL Game Pass and NBA Game Pass in international markets would suffice to establish exclusive distribution partnerships with a select partner. The current sales strategy, however, tends to go the exact opposite route of doubling down on establishing any direct-to-consumer relationships overseas: NBA Commissioner Adam Silver and his team are fully aware that international broadcasting partners are paramount to growing the game internationally. To this end, the even started to exclusively license its owned and operated super-fan product to said local media rights licensees (e.g. NBA with Rakuten in Japan, NBA with DirecTV in Latin America, and NBA with Movistar in Spain) and thus chose to keep its international super-fans at arm’s length to boost short-term B2B licensing revenues and mainstream visibility in key international markets. Such league-operated streaming services outside of the domestic market might not move the needle and are not worth the effort for trillion-dollar tech giants anyway. For now, the NBA, just like the NFL, is expected to continue its mixed model of separate local, national, and international media deals — making local blackouts domestically and a patchwork proposition internationally an inevitable outcome when trying to replicate the MLS framework anytime soon. [ ↩️ ]

7️⃣ The stratospheric rights fee increase paid by ESPN to Formula One reportedly did not suffice to buy ESPN full market exclusivity and the Liberty-owned racing circuit retained rights to operate F1TV Pro in the United States. Targeting super-fans with such a live and on-demand content proposition, including additional live video and data feeds for all races, and at a rather uncompetitive retail price of $9.99 per month, the single-sports streaming service should not eat materially into ESPN’s reach and viewership — unless Formula 1 remains fully tethered to the traditional cable/satellite TV ecosystem on ESPN or ESPN2 while the decay of the linear pay-TV market continuous over the course of the new media rights agreement through 2025. Instead, it is expected that F1 races will be simulcasted and even be made exclusively available on ESPN+ on a select basis, currently available for $8.99/month — I would not count on any simulcast nor exclusive output on ESPN+ for at least the first season of the new media rights agreement in 2023 though. [ ↩️ ]

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