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28 November 2019

UEFA spooks pay TV with D2C overture

The specter of D2C is turning into reality for some major sports leagues as UEFA, Europe’s association football governing body, plans to ramp up its own OTT service with some live Champions League matches in lesser territories in the next rights cycle commencing almost two years from now in late 2021. We have been charting the groundswell welling up for D2C in major sports for some time now, stressing the likelihood that the big leagues would test the waters with highlights packages, or streaming live matches in their smaller country markets.

One thing not quite right in media reports of UEFA’s plans is the suggestion that it is motivated by concern that major pay TV operators are falling out of love with premium sports and are therefore becoming lukewarm in their bidding. Such suggestions were motivated by recent leveling off in rights inflation among major sports, or even a slight fall as was the case in the latest round of English Premier League (EPL) bidding in 2018, when Sky and BT Sport got away with paying around 10% less per game than in the previous round.

This was no more than a natural slight correction as rights values reached their level, reflecting the economic reality that consumers could not be squeezed for any more money in subs while operators could not continue distributing premium sports at a loss. This led to a sort of rapprochement between the main UK protagonists, Sky and BT Sport, involving mutual distribution of sports they had rights to and a relaxation in bidding intensity. Indeed, there was almost an unspoken agreement that BT would leave Sky to mop up most of the EPL rights and in return face less competitive bidding for the Champions League (CL) which had become a cornerstone of its whole strategy.

In the event, BT Sport might have been slightly disappointed not to shave a similar 10% off the amount it had to pay for the latest package of UK CL rights it has just secured for the three seasons 2021/2022 to 2023/2024 for £1.2 billion ($1.6 billion), or £400 million ($516 million) a season. This was in fact a shade up on the £394 million ($508 million) per season of the current deal, although BT has succeeded in spicing up the package with an extra 77 games per year, bringing the total to 420. This includes matches from the CL’s understudy, the Europa League, featuring teams that finished a little lower in their domestic leagues, around 5th to 7th, or that qualified through winning a national cup competition. It will also include some matches from the new third tier, the Europa Conference League, featuring lower ranked clubs still, starting in 2021, so whether BT’s new package is actually more appealing than the current one is debatable.

What is true is that the price paid reflected slightly stronger bidding than expected from Sky as well as UK commercial FTA broadcaster ITV, indicating they were unwilling to let BT Sport have it too cheap. It also suggests that while premium sports media rights values may have levelled off, they have not declined.

Indeed, the recent Globalization lifts TV sports rights past $85 billion future – Sports Rights Forecast to 2025, from our research arm Rethink TV, predicts that across Europe as a whole the value of soccer rights will continue to rise strongly over the next five years and only then really tail off as saturation is approached across the whole content, reaching a combined $21.4 billion by 2025. But the strongest growth in value of European league soccer rights will occur outside the continent, albeit from a lower base, driven particularly by major Asia Pacific countries including China. Total global media rights value for the sport will rise from $12.8 billion in 2018 to $31.9 billion in 2025.

One reason given for the sports bubble bursting is a swing away from the genre among Millennials towards streaming consumption of scripted and social content including comedy, sci-fi, romance, action and adventure. It is certainly true that on-demand consumption of such content is increasing but what we are actually witnessing is a change in patterns of viewing more than underlying content. It is also true that esports is substituting some physical sports viewing but if we add those two together, then total viewing is slightly greater than before.

Above all, Millennials want greater immersivity and interactivity, having been stimulated in these regards by esports where audience engagement and participation are far greater, as witnessed by the phenomenon of tipping as a significant reward payment for feats performed during events. This has all been confirmed in a recently published study from Imagen, a video management platform for Major League Baseball (MLB) among others, indicating that a strong generational gradient has emerged among fans of the major US leagues. Millennials (born 1981 – 1996) and also younger Generation Z (born 1996 onwards) reported a strong desire to interact with sports content beyond live games and for more personalized engagement. This is already reflected in viewing with Millennial and Gen Z fans watching over three hours more of non-game sports content each week than Baby Boomers (born 1946 to 1964).

The study found that far from being a lost cause, this younger demographic was the most underserved audience and a huge opportunity not just for sports leagues but also teams and even individual players to engage with them by delivering the content they want, echoing esports. Such content could include archived video, behind-the-scenes footage, amusing clips, documentaries, stats and player interviews.

Some leagues have acted faster than others on such findings, with the US National Basketball Association (NBA) in the vanguard in cooperation with Turner, the network that holds current US rights. The two will soon launch an OTT version of NBA TV, one of the first D2C platforms to feature live games from a major league. A main differentiator will be incorporation of new viewing technology, allowing not just multiple camera angles shot by professional crew but also footage captured by fans on smartphones, as well as live onscreen group chats with celebrity influencers, statistical graphics and social media content.

Although D2C, NBA TV is still a collaboration with a traditional broadcaster, available on an authenticated basis for fans who get the NBA TV channel, which has been going 20 years and is the oldest subscription network in North America owned or controlled by a major sports league, available on several cable TV services.

UEFA on the other hand is planning to go it alone, with the help of course of a streaming technology partner but not a platform shared with other sports. It will only show content relating to UEFA, with a motivation being as much to have direct control over development of content and ability to experiment, as to increase revenues directly.

UEFA will kick D2C off at the start of the next rights cycle, but has not yet specified where. It will not be in its major European markets, nor most likely the big ones outside such as the US, China or Brazil. It will continue conducting rights auctions as before in those major revenue-generating territories, but will instead provide at least some matches via its new streaming service in smaller markets. This will provide a laboratory for experimenting with extended content and immersivity as well as assessing impact on revenues.

That last point will be crucial in determining whether UEFA will extend D2C to major territories in the following rights cycle starting in almost five years’ time in 2024. We have pointed out before that one or two leagues, or more often individual teams within them, have failed to acknowledge the value pay TV platforms have added to sports coverage in the past. There is a sense with UEFA’s revelations that it is also deliberately putting pressure on the operators to raise their game for the next round, not so much in how much they bid but the underlying quality of their offering.

Revenue protection and anti-piracy measures will also loom large and UEFA will be taking no chances over that in its D2C experiments, for although the territories will be smaller the same matches will be shown so there is still the threat of content redistribution to other geographies. Geoblocking technology and combating illicit VPN access will be important and UEFA is considering options on those fronts.

We should remember that UEFA has already launched its streaming platform in June 2019 called UEFA.tv and is conducting trials, notably with Germany’s top league Bundesliga. This is a dedicated channel on the streaming platform featuring Monday highlights of weekend matches, as well as the “Bundesliga Special” show aligned with interests of international fans.

This is also evaluating some of the innovations that may eventually become part of the live service. To prepare for this, UEFA launched its Innovation Hub in 2018 with a challenge for start-ups to integrate their technology into its competitions and digital channels. Seven were shortlisted covering areas such as optical tracking, analytics, application of AI algorithms to capture “fan” moments, interactive chat and automated ball tracking on mobiles. In the end three of these start-ups were selected to participate in UEFA.tv.

UEFA’s expansive strategy led Rethink TV to upgrade its valuation of future media rights values for the CL and that has been born out in the first results of auctions for the next cycle, as in the UK. The forecast did not specify who would acquire those rights but speculated that a major advance for D2C would come in later rounds after 2025. In the case of UEFA, it could be a year sooner than that, but there is still the question of how big a role the major big players take. Amazon may not have covered itself in glory with its early sorties into premium live sports but with its resources and global infrastructure is well placed to address those early teething troubles and will play a major part, quite likely with D2C offerings carried via its platform.