Concrete decay has been detected: cord-cutting undermined the revenue model, and alternative programming from streamers did the rest.
123 million Americans watched the Super Bowl live on February 12th. This unbelievable number once again marks the power of live sports broadcasts on television, a dream marriage for every advertiser. Those who want to reach a broad mass audience gladly choose the Sports-TV combination. This year will be a fantastic year for broadcasters who are (partly) dependent on advertising for financing. The European Football Championship, the Olympic Games, and a series of other great events; TV advertising will break records this year. The old medium is not doing so bad after all.
It's no wonder that the value of sports rights keeps increasing. The English Premier League remains the unrivaled frontrunner in this regard. In December, the new deal for domestic rights was sealed for the unbelievable amount of nearly 8 billion euros, an increase of 30% compared to the previous 3-year deal. Several pay TV channels have become entirely dependent on top football, know that the streamers will enter the battle and have no option but to engage. Of course, this will lead to accidents if policies remain unchanged. An intelligent solution has been found in the Netherlands, where long-term, joint exploitation of football rights leads to a win-win situation.
At the beginning of this year, two notable new initiatives emerged elsewhere. First off, a very remarkable deal in the United States came about between players who were fierce competitors until recently. In the United States, sports on TV belonged to ESPN. In its heyday, as many as 100 million Americans subscribed to ESPN 1 and 2, and sports rights were long-term deals, ensuring no surprises on the cost side would emerge. Shareholder Disney was, of course, delighted with this simple but highly effective business model for years. However, in recent years, concrete decay has been detected: cord-cutting undermined the revenue model, and alternative programming from streamers did the rest. Disney's own streaming service ESPN+ couldn't fill the gap.
Under pressure, everything becomes fluid, as became evident again at the beginning of the year. The three sworn archenemies Fox, Disney, and Warner Bros. Discovery are joining forces to launch a sports streaming platform. This is not just a deal where a common front door is created, behind which all services are separately served. It seems to become truly one platform where all content is available at one common price. The name for the new platform has not yet been announced, but it is possible that old brands like ESPN will make way for a new one.
A more modest initiative emerges in Europe. The EBU (European Broadcasting Union) starts Eurovision Sport, making intelligent use of a well-known brand. Here too, it's about one platform, on which all swimming, athletics, and gymnastics should be visible. Of course, this initiative pales in comparison to what's happening in the US, but it's innovative nonetheless. The 'old media' are renewing themselves under pressure from consumer demand and the undoubtedly impending attack from the major streamers.
Sports rights holders are rubbing their hands in anticipation, because the value of sports rights is rising sharply. After the huge price hikes of the previous decade, there had been somewhat of a stagnation in recent years. The French Ligue 1 even saw the value of its new multi-year deal drop. But now, a new group of deep-pocketed interested parties has emerged: the streamers are about to make major investments in sports. Specialized sports streamers like DAZN have been active for several years. Market leader Netflix, after broadcasting the Paul/Tyson match, has also discovered the power of live sports. YouTube (more on that in my next column) invested in American football earlier. According to figures from Ampère Analysis, streamers will spend over 12 billion dollars on sports rights this year.
The investments that British-Ukrainian entrepreneur Sir Lech Blavatnik has been making for years are starting to bear some fruit. His company DAZN is growing rapidly and attracting one investor after another. The company is running at a significant loss and has a massive need for financing. This month, according to insiders, the Saudi Arabian Public Investment Fund paid a billion dollars for less than 10% of the company. With the promise that he’s building the Netflix of sports, Blavatnik has managed to convince investors. As a result, the company has become a tough competitor to pay-TV channels like Sky and is squeezing many public and commercial TV broadcasters even further.
Entertainment streamers, meanwhile, also see the value of sports—and not just for attracting new subscribers. Keeping churn (the cancellation of subscriptions) under control is at least as important from a strategic standpoint. Therefore, Netflix is going to invest in American football. Less dominant players like Peacock and Paramount+ are also heading in that direction—a development that has the National Football League (NFL) rubbing its hands in anticipation. We also know that trends in the U.S. sooner or later make their way to Europe, which will undoubtedly mean that here, too, the value of sports rights will shoot through the roof.
It’s clear, however, that this hasn’t been all smooth sailing. DAZN incurred the wrath of German consumer organizations by hiking its prices for the Bundesliga and the Champions League a little too enthusiastically. Technical problems in Italy plagued the sports streamer, and even Netflix underestimated the impact of a mega-event like the Paul/Tyson match. Those are temporary problems, though—ones that will disappear as streaming technology advances and industry expertise continues to evolve.
Private equity firms see these developments as well and are becoming more and more interested in sports organizations. And here again, the NFL is at the center of attention. After an extensive study, the league concluded that private equity firms (at least to a limited extent, for now) can invest in NFL clubs. Sports are increasingly being valued for what they’re truly worth, because there’s still so much potential in them—due in no small part to streamers taking an interest in the rights. In other words: sports are streaming ahead!
Oege Boonstra begon in de media als commercieel directeur bij facilitair bedrijf NOB en werd later onder andere directeur van de internationale operaties bij Endemol. In 2008 was hij een van de twee oprichters van 3Rivers, waar hij recent is teruggetreden uit de dagelijkse bedrijfsvoering om 3Rivers met raad en daad te blijven bijstaan als non-executive chairman.
Ronald Goes studeerde eerst economie en accountancy. Daarna was hij onder andere CEO bij RTL Productions, betrokken bij de opzet van SBS en meer dan vijf andere tv-zenders in Nederland en bestuurder bij Endemol en Talpa Media. Momenteel leidt hij al meer dan vijftien jaar, vanuit Londen, de wereldwijde productietak van Warner Bros.
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In recent years, money seemed to be endless in the media world. The advertising markets were booming after the COVID crisis, funding for public broadcasting remained largely untouched, and the marketing machines of new video streaming platforms worked overtime. Investments in content were skyrocketing, there was insufficient staff to complete all productions, and the sky seemed to be the limit.
How different things are now. Market leader Netflix, for example, has reduced content investments by a third. Advertising markets have also come under pressure, particularly in Germany. Finally, politics has again started to interfere with broadcasting contributions: in the Netherlands, the budget for public broadcasting was cut by €150 million, and other countries are also pausing to reassess.
It is therefore unsurprising that all media organizations have started to watch their spending. Some have even implemented drastic budget cuts. A good example is Warner Bros. Discovery, where one initiative after another has been announced to achieve billions in savings. The cause is the enormous debt burden the company carries. It must be said that this policy is paying off: the debt has been reduced by a third in three years. A remarkable achievement. It’s hardly surprising that financial engineering played a key role in this process. However, the fact that it is done so openly is. One example: a film like Batgirl, which was already in post-production, was completely written off. The costs were booked "below the line," meaning they did not appear in the profit figures. The reason: the series was considered "non-core business." This kind of accounting trick is being adopted by more media companies.
Another interesting aspect is the funding of public broadcasters. In the Netherlands, under the leadership of the then-almighty Harry Kramer, the broadcasting fee was incorporated into general taxation around the turn of the millennium. It was deemed that the fee was outdated, so it was abolished, and public broadcasting was then funded from general government funds. This had significant disadvantages for public broadcasting: politics could now directly interfere with its financing. The result is well-known: public broadcasting has been facing significant cuts in recent years.
In the United Kingdom, they still use the old system of a television and radio license fee. Everyone who owns a TV must pay £169,50 annually. Many Brits are questioning why this mandatory fee still exists in an era of video services paid for directly. Interestingly, it is considered a legal offence to not pay the license fee. It’s no surprise that it’s now up to creative financial minds. It will be interesting to see what emerges from this: even a tax on broadband connectivity is being considered. A system that Spain recently dismantled. Financial engineering of hand has become the norm in both the public and commercial media domains...