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Volume 21 No. 31
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Over the top brings promise and concern

How will alternative platform affect sports?

It’s the platform that most frightens today’s major distributors and programmers of prime-time television, but also excites executives from most of the major sports leagues.

New offerings from Netflix, Hulu, Apple TV, Roku and a slew of others offer top entertainment programming directly to consumers. It’s easy, on demand, and threatens to shake up the traditional marketplace for the major distributors.

It even fits into industry jargon: OTT — or “over-the-top” — programming that is digitally delivered and does not require a companion cable or satellite TV subscription. A cable industry already terrified about cord cutters is now seeing more OTT services appealing directly to the consumer.

Over the last five months, OTT has crossed over in a major way into sports, first with the ambitious launch of WWE Network and followed by the debut of 120 Sports in June. Later this week, the NFL is expected to roll out NFL Now, a customizable offering that will mix news-oriented material with game highlights and archival material; next month, ESPN and ESPN2 will be part of an OTT service from Dish Network that will be sold to 8 million broadband-only customers; and next year the International Olympic Committee could launch its version of an OTT service internationally (see related story).

Many of the major U.S. sports leagues, notably MLB, the NBA and NHL, also offer their out-of-market game packages to digital-only subscribers, and ESPN is planning to sell MLS’s out-of-market package in a similar fashion.

The advent of the new digital services are each designed to allow leagues to extend their brands, bypass the middleman and take their content directly to fans.

While Netflix and Hulu have been effective at disrupting the status quo of entertainment programming, questions persist about whether sports offerings will have a similar effect on the business, particularly since these initial entries do not include live, in-market game rights.

Previous ventures — think ESPN3 — were viewed as complementary to the established TV business. So, too, is WatchESPN, FoxSportsGo and NBC Sports Live Extra, each of which requires users to prove that they subscribe to a pay-TV service before allowing access to live digital streams.

But the OTT offerings are fundamentally different, and the digital landscape has become powerful enough that large-scale OTT efforts now present potentially more troubling questions. Will OTT take away viewers from established networks? Will it cut into networks’ ad revenue? Will the rise of OTT present the beginning of the end of the golden age of cable TV?

Not surprisingly, most sports programmers don’t believe so, but the industry remains years away from knowing for sure.

“Over-the-top is not a threat,” said ESPN President John Skipper. “Ultimately, it will be an opportunity for us.”

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Later this week, just before the first slate of NFL preseason games, NFL Now will launch directly to fans with plenty of on-demand content, highlights, news segments and features, delivered to a wide array of online, mobile and streaming platforms — including Xbox and PlayStation video gaming devices, Roku and Amazon’s new Fire TV.

NFL Now gives the league a presence on emerging platforms while also being positioned as an extension of the league’s media reach during the week.

The NFL is positioning NFL Now as a complement to

the league’s NFL Network TV channel and as a way for the advertising community to increase its connection to the game. The league has signed presenting sponsorships for NFL Now to McDonald’s, Verizon, Gillette and Nationwide. In each case, these deals will create new pieces of inventory for top-tier brands to connect with the league. Each of their deals are in the seven-figure range and include
commitments for the brands to use their own media spends to promote the service.

How the service will play out remains unknown.

“Because this has never really been done, you don’t know exactly how it’s going to turn out,” said Perkins Miller, the NFL’s new chief digital officer. “But there’s a great foundation of content from the teams and the league, and the fans obviously have a voracious appetite for NFL content.”

Miller particularly refutes the notion that it could be disruptive to current league partners. “Looking at what we’ve already done in mobile and social media, it’s been a situation of a rising tide lifting all boats in terms of overall consumption,” he said. “Our data supports this, and we would expect the same here.”

The league’s existing media partners, however, were unaware of the service until it was announced during Super Bowl week; in fact, none of them were at the announcement at New York’s Marriott Marquis. NFL Media COO Brian Rolapp has tried to ease concern, saying recently, “It is designed to be complementary to NFL Network, and our other assets. A rundown of the top television programs each year proves there is no substitute for live NFL football, and NFL Network and the league broadcast partners are the only sources for that coveted programming.”

The NFL’s Perkins Miller said NFL Now will help satisfy fans’ “voracious appetite” for content. He refutes the notion that it could be disruptive to current league television partners.
Since its introduction, NFL Now has generated buzz in the corporate sponsorship community and among the league’s media partners, while creating some angst among individual clubs. The league has given clubs two options for selling its NFL Now inventory. Teams can have the league sell it and split the revenue 50-50. Or teams can sell it all themselves and keep all the revenue.

So far, big-market clubs have opted to sell advertising around the digital programming service on their own, even though some clubs have opted to sit on the rights rather than actively market them.

“It’s pretty tough for me to sell a new asset if I don’t know how many eyeballs it will get or exactly what it will look like,” said a senior marketer at a team in a top-10 market. “But we’d rather have control of it, even if it means we are taking more of a wait-and-see attitude.”

Smaller-market NFL teams have veered more toward the shared-revenue option, with league executives pricing the NFL Now inventory at between $30 to $40 per thousand ad views (CPM), a level that is between a typical YouTube video ($25) and a Hulu video ($35), industry sources said.

Other pre-launch issues between the leagues and teams for NFL Now required sorting out over the offseason. After initial questions from many clubs, the league supplemented its weekly content submission requirements to allow particularly long segments to count more against baseline obligations, and is allowing teams to post any content it creates for NFL Now on their own websites as well.

“This platform has incredible potential to further engage NFL and Falcons fans and also creates a platform to reach a younger demographic on their schedules and their devices,” said Jim Smith, Atlanta Falcons executive vice president and chief marketing and revenue officer.

The desire to engage younger consumers and react to a fast-changing media marketplace and audience also lies at the root of the birth of 120 Sports, the new service involving Silver Chalice New Media, MLB Advanced Media, Sports Illustrated and the NHL, among other sports entities. An unusual marriage between multiple sports leagues, a brand best known for its print publication and a side venture of the Chicago White Sox, 120 Sports is specifically designed for the short attention span of young viewers. Each segment is designed to be 120 seconds or less, hence the name, and the digital video is supplemented with adjoining “data cards” that provide statistics, headlines, advertising and other material.

120 Sports, backed by multiple sports entities, is specifically designed for the short attention span of young viewers.
Working out of a custom-built Chicago studio that once housed the “Oprah” show and that its executives describe as the “ultimate man cave,” 120 Sports in many ways resembles a sort of built-for-digital version of ESPN “SportsCenter” with its fast-paced news and commentary programming.

It’s had strong initial sponsor support, launching with Geico, Verizon Wireless, Nissan and Transamerica. In addition, like many of the other major sports OTT launches, 120 Sports has been backed with a multimillion-dollar marketing launch campaign, driven by the venture’s equity partners. Initial activation has included print and digital ads across the broad portfolio of Sports Illustrated parent Time Inc., a billboard near Madison Square Garden and widespread subway ads in New York, and an outfield sign at the White Sox’s U.S. Cellular Field, among other activities. Nightly live programming was soon supplemented by a regular live morning show that adds to the available on-demand content.

“We’re not looking to displace or disrupt anyone,” said Jason Coyle, Silver Chalice co-founder and vice chairman and 120 Sports president. “We need to find our own niche.”

Because the venture has direct involvement of multiple leagues, Coyle said 120 Sports will fundamentally differ from many other OTT ventures and actively promote the availability of live sports programming on regular TV. For example, an in-game highlight segment will include directory information on where fans can find that game being televised, and outside online content will be directly linked from 120 Sports.

“We need to take great care to not interfere with the core business of our partners and find a complementary place,” Coyle said.

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If they truly are going to be successful, OTT services will have to siphon viewers from the established networks that are paying hundreds of millions in rights fees.

It’s clear that some competitive positioning already is occurring.

When the owner of the Capitals, Mystics and Wizards held a sponsor summit in Washington, D.C., several weeks ago, most of the conversations revolved around its OTT service, Monumental Network. There was talk of programming, advertising opportunities and technology.

The teams’ main local TV rights holder, Comcast SportsNet, was barely mentioned.

“Now, especially for young people, it’s important that you create, craft and think digitally and socially,” Monumental Sports Chairman and CEO Ted Leonsis said at the event. “The other media are important, but a part of that mix.”

A similar scene played out during Super Bowl week at the NFL’s press conference to announce its NFL Now service. The league’s TV partners — the ones that pay the NFL more than $5 billion per year — were not mentioned, underscoring the belief that these services already are built to compete with established players.

ESPN’s Skipper said that he already has had several discussions with the NFL, NBA and MLB to outline where he thinks their OTT services are competitive and where they are complementary.

“We have coexisted nicely to date with the leagues who have wanted to have some of their own media properties,” he said. “It’s always a little bit of a dance where the appropriate complementary nature is and where it becomes competitive.”

As an example, he pointed to the NFL draft, which has set viewership records on ESPN in recent years, even as NFL Network has ramped up its coverage of it.

“To the extent that the leagues create more interest, we tend to benefit more than anybody because we have the most content,” Skipper said.

So far, the general view among TV executives is that OTT services based on highlights and interviews do not

pose much of a threat. The point when these services start adding live game rights is when the competitive line could be crossed.

“With what the over-the-top services are currently offering, they are not going to drive much viewership,” Skipper said. “My concern is where people become invested in their success and they decide they have to keep putting more and more compelling content on until it gets to where it is potentially a problem.”

Distribution executives hold a similar view, and several such executives largely seemed to be ignoring the launches of 120 Sports and NFL Now. Distributors are never shy about railing against programmers that give their content away online. But they have not noticed a lot of activity around 120 Sports, and they are not expecting NFL Now to threaten their video business, at least not yet.

“Distributors never talk about them,” one cable executive said. “It has never once come up with me.”

The lack of interest among cable and satellite operators is surprising given the long history of tough negotiations they have had with sports networks. It’s also a surprise given how much time and effort they are spending on trying to figure out how to counter entertainment-based OTT services such as Netflix and Hulu.

Former NFL media executive and current industry consultant Chris Russo understands the distributors’ viewpoint. He does not believe OTT services will encourage consumers to drop their pay-TV subscriptions.

“Sports is providing a valuable proposition to cable and satellite because it is keeping its core live product there and preventing a lot of cord cutting,” Russo said. “For right now they are going to be able to have their cake and eat it, too.”

The current OTT programming is basic and no in-market live games are planned yet. The offerings clearly seek to take advantage of the shifting media consumption patterns and follow the lead paved by the success of Netflix and Hulu — that is, to engage younger consumers that are using digital platforms.

Jimmy Lynn, a co-founder and vice president of Kiswe Mobile, said mobile and OTT services are the most direct strategy to reach younger fans.

“One situation facing the major leagues is the youth market,” he said. “They are losing the youth market because there are so many mobile devices, social networking and gaming.”

The question remains if this heavy pursuit of new digital viewers also means losing — or upsetting — the traditional business models.

Staff writers Terry Lefton and John Lombardo contributed to this report.