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Leagues and conferences can thank competing television networks for making the current sports media rights marketplace so vibrant. Now, rights holders are keeping an eye on digital media companies to see if they will help push sports rights increases even higher.
With CBS, ESPN, Fox, NBC and Turner — among others — looking to program all of their channels, the cost of sports rights has doubled or tripled over the past five years. Many industry executives don’t believe the television industry can sustain those increases.
“The amount of money that the cable industry is paying for rights right now doesn’t make any economic sense for anyone else,” said Brian Bedol, a media industry veteran who now runs Bedrocket Media Ventures.
Much of Google's involvement in sports has been through several sports-specific YouTube channels.
That’s where digital media companies could come into play. Sports leagues and college conferences are keeping a close eye on companies like Apple, Google and Microsoft, gauging their potential interest in sports rights and how any moves could keep that bubble from blowing up.
At an industry conference in March, four longtime media executives pointed to these companies’ interest in sports rights as one of the industry’s most important story lines over the next 12 months.
If the companies get aggressive about picking up premier sports rights, the current level of sports rights fees will continue to increase, leagues believe.
But that’s a big “if.” Those companies have showed little inclination to bid on live sports rights so far, even though they have stayed on the periphery of these conversations.
Companies like Apple, Google and Microsoft kicked the tires on a digital package from the Pac-12 Conference last year that mainly would include live non-marquee sports. But even though the conference carved out a digital rights package, it hasn’t yet agreed to a deal.
Digital media companies also weren’t close to nabbing the other big rights deals signed last year, from the NFL and NHL to the Olympics and World Cup.
Even the most optimistic executives believe these companies still are many years away from really competing for rights.
Networks tying up rights
First, networks are tying up rights for at least a decade, meaning that rights simply aren’t available, and digital rights are big components of those deals. Olympic rights are tied up through 2020; the NHL’s media deal runs through 2021; and the NFL and World Cup’s deals run through 2022.
Secondly, distributors and networks are adopting a TV Everywhere approach that makes digital rights even more
Cable and satellite operators pay sports channels a lot of money in license fees; in turn, channels pay leagues and conferences a lot of money for those rights. For the most part, rights holders are conscious about not upsetting that system, making digital rights fees prohibitively expensive.
“Rights fees drive the engine of a lot of sports leagues,” said Gary Stevenson, president of Pac-12 Enterprises. “Will sports leagues forgo rights fees because of a promise down the road? I don’t think that’s going to happen.”
Thirdly, digital media companies have said that they aren’t interested in getting into bidding wars for digital rights. For example, the head of YouTube’s sports content, Claude Ruibal, told SportsBusiness Journal that Google is not likely to bid on expensive live sports rights any time soon, opting to concentrate on smaller, niche sports, like action sports.
Late last year, YouTube launched seven sports channels focused mainly on niche sports.
Bedrocket’s Bedol operates several of those channels, including one in partnership with MLS, Kick TV. The channel is designed to supplement live game programming, not replace it.
“Because of the cost of rights, we’re not right now with Kick TV looking to be in the rights space, live-game business,” Bedol said. “I don’t want to say that we’ll never be in the rights business. But if we can build a regular user base of people around the world who love soccer, whether we control the rights ourselves or not, we can probably be a pretty good point of entry for those who do.”
That describes how most leagues view the digital media space these days. They view deals with companies like Apple and Google more as marketing partnerships than anything else. The NFL, for example, distributes highlights and NFL Films programming via Apple’s iTunes. It syndicates content to sites like Yahoo.
But the league is a long way from cutting a digital media deal for live games.
“I don’t think they’ve matured enough as a platform or a business model to do that yet,” said Brian Rolapp, COO of NFL Media. “We can’t take the NFC package, like we did in the early 1990s, and give it to Google if they’re going to use Internet distribution because we’re not convinced that the medium can hold off the concurrent usage necessary for everybody to watch a Packers-Bears game.”
Spotting some openings
Regardless, the NFL’s rights are tied up for a decade anyway. On the other hand, a league that will be negotiating its media rights in the next two years — MLS — is taking a closer look at how these platforms will develop in the next few years.
MLS will be negotiating its media rights in the next two years and is taking a close look at the various media platforms in play.
Photo by:Getty Images
“It’s too early to know,” Abbott said. “There have been statements in the market that they are very interested. Clearly it is a possibility.”
MLS currently makes its out-of-market package, MLS Live, available via Apple, Roku and Panasonic. It’s among the only leagues that does not authenticate users to ensure that they are cable or satellite subscribers.
“Mobile is an increasingly impactful part of the market for us,” Abbott said.
The NBA has a different strategy. Its media deals with ESPN and Turner end in 2016, and its executive vice president of business affairs and general counsel, Bill Koenig, said he is monitoring the marketplace.
The NBA has deals with Apple TV, Xbox, Roku and Google for non-live game content. Subscribers can get the NBA’s out-of-market League Pass package through these platforms, but they have to be authenticated as cable or satellite subscribers.
“There may be some kind of traditional over-the-top opportunities, but I think they’re realizing that to get some of the premium content and television programming, they’re going to have to work within a TV Everywhere construct,”
Koenig said. “We’re very happy with a TV Everywhere-type of model where authentication through the distributors will determine who gets our games. I anticipate the current approach being in place for many, many years.”
That’s the same view held by Bedol, who believes the digital media companies will make inroads with sports rights eventually.
“Today, because of the dual-revenue streams of cable, you’ve got a huge competitive advantage because effectively you’ve got subscribers who are subsidizing rights fees,” Bedol said. “I think it’s going to be a long time before you see someone come along in an entrepreneurial way who has the bankroll to take on that establishment.”
Like a Fox?
Why are so many people counting on big digital media companies to make a play for sports rights? Call it the Fox effect. Rights holders believe that Fox’s success comes from its decision to pick up the NFL’s NFC package in 1994.
“What Fox did from a business strategy standpoint was to invest a lot of money in buying rights that they knew could drive a platform,” Rolapp said. “I know our content can drive platforms.”
While Fox Sports Chairman David Hill said the NFL is powerful enough programming to drive platforms, he said digital media companies would be foolish if they used the Fox model.
“A number of people say it’s what Fox did. That’s totally incorrect,” he said. “When Fox started, 100 percent of the television channels in this country could switch on with a pair of rabbit ears and watch the National Football League. It is a totally different playing field now with Apple or Google or YouTube. If a sport was silly enough to succumb to the lure of major dollars, they would immediately be trivialized because where would the bulk of their audience find it? There is no comparison between a network and a Google or an Apple.”
Still, most believe it’s inevitable that big digital media companies will start to invest in sports rights.
“In my view, at some point in the not-too-distant future, one or more of these digital distribution platforms is going to make a significant bet on live sports,” said Chris Bevilacqua, co-founder of Bevilacqua Helfant Ventures, a New York-based sports and media advisory and investment firm.
Bedol agreed, though he said it would take a while before a digital media company is willing to risk a lot on sports media rights.
“I don’t see anyone who — at least right now — has indicated that they’re about to place that big bet,” he said. “But I do think that, historically, sports have been used to gain big competitive advantages when new technologies enter the marketplace. I expect that eventually you’ll see someone on the Internet try to take that chance.”
For now, leagues and conferences seem content to use the digital media companies as marketing vehicles. And the digital media companies seem content to use highlights and other sports content as an inexpensive way to program their various platforms.
All eyes in the sports media industry are studying signs for when that position starts to change.
To date, none of the big digital players have been close to cutting a deal for live sports rights, but leagues continue to watch them closely. These are the five players most frequently discussed as potential bidders.