SBJ/20101115/SBJ In-Depth

Live local streaming dries up

Upon announcing a historic deal for live, in-market online streaming involving MLB Advanced Media, YES Network, the New York Yankees and Cablevision, then-league President Bob DuPuy confidently declared that the longtime industry albatross would quickly take flight in baseball.

“We’ll be up to a majority of [the 30 MLB] clubs” in 2010, DuPuy said in June 2009.

Other media and league executives echoed the bullish sentiment, believing that in-market streaming presented a new, exciting and potentially lucrative source of sports media revenue.

The 2010 MLB season is now in the books, and just two clubs offered in-market streaming during the year: the Yankees and the San Diego Padres, the same two clubs that debuted the service in 2009.

In the other major U.S. pro sports leagues, the situation is much the same. Only one NBA team, the Portland Trail Blazers, plans to stream games locally this year, after the Philadelphia 76ers and Chicago Bulls discontinued test efforts from the 2009-10 season. No NHL team plans to stream games this year, other than a few preseason games.

And the NFL’s national TV policies, protected by local blackout rules that require stadium sellouts, act as a sort of antithesis to live in-market streaming, and none exists in football.

In short, streaming live games locally is virtually nonexistent, and certainly nowhere near the fervent promise and heavy industry buzz that existed not long ago. Tests to date have generally drawn embarrassingly low subscriber numbers, and a feeling of ennui now largely envelops the once-hopeful space.

Amid those virtual tumbleweeds, however, mobile is being seen as a potential answer to jump-start in-market streaming.

“Two-and-a-half years ago, I would have told you that streaming is the way to go,” said Clark Pierce, Fox Sports Net senior vice president of emerging technology. “Now, it’s clear to me that the only upsell possibility is mobile.”

What went wrong?

The very concept of in-market streaming — taking a local game already available on TV and showing it online — is fraught with difficulty. Professional sports leagues have spent decades creating and then fervently defending local market territories designed to protect local TV rights, a revenue source that is the single largest individual piece for most MLB, NBA and NHL teams.

As a result, leagues, teams and RSNs that have dabbled with in-market streaming have painstakingly negotiated agreements designed to prevent cannibalization of TV viewership, through measures such as the direct involvement of cable distributors, user authentication systems and additional subscriber fees.

MLB Commissioner Bud Selig, in a memo sent to clubs last year, said he spent several years “agonizing” over this issue. He moved to break a self-professed logjam by setting up a structure in which baseball in-market streaming deals provide 50 percent of the revenue to MLBAM and the other half for the individual team, RSN and distributor to split, net of operating costs to participating broadband and wireless service providers.

After all that work and consideration, the response from consumers thus far has been entirely underwhelming. And those low subscriber numbers are scaring away many RSN executives from pursuing further efforts.

Actual numbers are hard to come by, but it appears that the YES Network’s in-market streaming of Yankees games represents an industry high-water mark. The service, costing $49.95 for that first partial season, attracted about 6,000 subscribers in the country’s biggest media market. Bob Bowman, MLBAM chief executive, and Tracy Dolgin, YES Network president and CEO, each said “Yankees on YES” showed user growth in 2010, even with a price increase to $69.95 for the full year. Time Warner Cable joined Cablevision, Verizon and Blue Ridge Communications as a distributor partner. But Bowman acknowledged subscribers were “not entirely what we hoped for.”


GETTY IMAGES

YES Network attracted about 6,000 subscribers
the first year it offered in-market streaming of
New York Yankees games, a tiny fraction of the
nearly 14 million TV homes YES reaches.

In any event, the number remains a tiny fraction of the nearly 14 million TV homes YES reaches.

The Padres are estimated to have drawn an even smaller audience for their in-market streaming, fewer than 1,000 subscribers in 2009, with roughly the same number signing up in 2010.

“There hasn’t been a lot of activity around this,” said Tom Garfinkel, Padres president and chief operating officer, of Padres.TV, the club’s in-market product offered in partnership with Cox Communications.

Other leagues posted similarly small numbers. Comcast conducted two NBA tests with the 76ers, backed by subscriber fees, and another with the Bulls that was offered for free, thanks to a sponsorship with Samsung Mobile.

“Both of our tests were underwhelming,” said Eric Grilly, Comcast Sports Group executive vice president and chief digital officer. “At this time, it has created pause for us in terms of moving forward in the new season. We don’t see the opportunity yet in terms of live streaming a product when there’s TV available. Our expectations were low, and those expectations were met.”

Several NHL teams streamed preseason games in-market earlier this fall with similar results. Distributing a free “dirty” feed from arena videoboards with no graphics, music or announcers, the results were predictably weak, with online audiences numbering in the hundreds.

“There’s a level of quality the consumer assumes will be there when you go from a television production to a Web production,” Pierce said.

The issue to date has not been the technology, which executives involved generally agree has worked well. Authentication, a big issue in this debate, has been able to ensure that people watching in-market games online are subscribing to a partnering cable or satellite service. Online streaming quality has taken giant leaps forward in recent years because of improving bandwidth and caching technologies.

“It worked. We were able to authenticate it. We had an advertiser in Chicago who sponsored it. We had thousands of users in the market who utilized the service,” Grilly said. “But when you start looking at the fees associated with it, and the costs, there’s just not an economic model there yet.”

Therein lies another problem: figuring out how much the rights are worth. Everyone agrees that in-market streaming should not disrupt established TV productions. But what the number should be to help ensure that, remains somewhat elusive. The NBA, for one, charges RSNs $3,300 a game to stream broadband games in-market.

“At some point, you have to figure out how to pay for all of this,” Grilly said. “If the rights are expensive, the technology to make this work is expensive, the bandwidth is expensive.”

Others see a timing problem. “Prime time” for online sports is typically in the middle of the work day. “March Madness On Demand,” the highly successful online streaming of the NCAA men’s basketball tournament, has removed local blackout restrictions and usually posts its peak audiences in the mid- to late afternoon.

“MLB and March Madness have an advantage with afternoon schedules,” Pierce said. “When people are at work in the afternoon, there’s a perfect opportunity with massive broadband and bandwidth available to watch the game.”

And there is a notion of confusion and misunderstanding that some executives believe exists among many consumers. MLBAM’s existing out-of-market game product, MLB.TV, has grown into a big success, in part because it essentially offers an online replica of the Extra Innings out-of-market TV package, but with a major component of portability lacking from TV. The same can be said conceptually for NBA League Pass Online, NHL GameCenter Live and the online version of NFL Sunday Ticket — each of which have linear counterparts that are in some cases bundled with the online product.

“But there is no comparable form of buying a la carte content in-market for TV,” Bowman said. “For MLB.TV, we certainly benefited from the basic notion of what out-of-market content is. That hasn’t really happened for in-market streaming.”

Means to a bigger end

Dolgin carries a much different view on the entire subject. While many in the business are after incremental dollars here and now from in-market streaming, he has the luxury, backed by a phenomenally successful business showing Yankees games on TV, to take a longer-range perspective.

“We’ve seen new media destroy the music business and destroy the print [media] business, and we saw the effects of doing nothing and having a new business model imposed upon you,” Dolgin said. “So when it comes to the video business, our view is that instead of trying to get out in front of the curve, we want to be involved in actually making the curve.”

As a result, he sees “Yankees on YES” as an incremental step toward “TV Everywhere,” the much-discussed industry notion of technology convergence where TV-like video services are delivered across a wide range of digital platforms.

“The number of subscribers for this is basically irrelevant to us. It’s fractional compared to the ultimate endgame,” Dolgin said. “This, for us, is the best way to learn in this space, by doing. And we’ve learned a ton about streaming, about authentication, about ad-serving, about all the things you have to do to make this work. So the idea is ‘Learn all you can. You can’t do nothing. But don’t destroy your [existing] business model in the process.’”

Dolgin added that “Yankees on YES” is still a revenue generator for the network, even at its low subscriber numbers. “We’re making money and learning along the way. How many companies can say that?”

Garfinkel agreed that the current in-market streaming tests are ultimately serving a broader goal.

“Fans now expect to get content anywhere, any time on any device, and our long-term aim is to bring that to them any way we can,” he said. “I really believe in the efficiency of markets, and if you look at how people now buy music, buy books, and so forth, it’s a lot different than 10 years ago. But it still took time to get there. Ultimately, if you give people what they want, the way they want it, they’ll pay for it.”

So why haven’t other teams and other RSNs taken this same, wider view? For many, it remains a broad, and unresolved, philosophical debate as to who really controls in-market digital rights: the team, league or regional sports network. In some cases, the answer is all of the above, much to the chagrin of some individual stakeholders. And for teams that own and control their own RSNs, the issue is even more complex.

“There’s still sort of a stalemate out there,” an industry executive said on the condition of anonymity. “RSNs in a lot of cases still believe these are their rights, and that streaming is going to cut into the golden goose.”


GETTY IMAGES, NBAE / GETTY IMAGES

Individual rights and valuations are the sticking
points for in-market mobile streaming.

Mobile future

Having failed to find a wide audience for in-market streaming, eyes are now pointed firmly at mobile versions of the product.

YES and MLBAM are developing a mobile version of “Yankees on YES.” The NHL is pursuing local mobile rights as its key to entering the space meaningfully. And the NBA and individual RSNs are also keenly watching this sector of the debate.

“For us, our willingness to jump ahead and talk about wireless rights was a big motivator,” said John Collins, NHL chief operating officer. “A lot of the RSNs and clubs are planning some work around that this year. Some will be broadband. Probably more will be in wireless. We’re still working through this.”

But much like before, individual rights and valuations remain the sticky details where in-market mobile streaming becomes a more difficult prospect. FSN and the NHL recently neared a deal that would have created local, live streaming to mobile devices, but talks hit a snag over numerous points, and both sides are now skeptical that anything will get done this year.

“This is something we’ve been knocking on the door for 2 1/2 years,” Pierce said. “We had hoped that we would have at least tried it at this point.”

Bowman agreed that a mobile version of in-market streaming presents a still potentially large opportunity.

“We may not have realized this initially, but it’s definitely more likely to be a wireless product in the future, something utilized on mobile,” he said. “Reaching that consumer on the go, on the train, with their local game, we believe, could be a powerful proposition. But the question of how we sell it, how we monetize it, whether we even think about selling this by the day, is something not yet fully determined. But I do think we’ll get more teams in the future. And I still think that MLB.TV, which really didn’t begin to take off until its third and fourth years and is now exceeding expectations, is an instructive lesson here.”

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