Exciting Time For Streaming Sports, But Broadcast + Pay TV Aren’t Dead


Excited soccer fans celebrating the winning goal of their favorite team while watching match on smart phone.

Drazen Zigic

Listen above or on the go via Apple Podcasts or Spotify.

Dan Rayburn says it’s an exciting time for streaming sports, but streaming won’t replace broadcast or pay TV (0:45) Dearth of data from sports leagues (11:40) Netflix’s ‘useless’ release (21:25) Upcoming NBA and Formula 1 deals (26:00) Disney, ESPN, Apple, Google and Amazon (33:00).


Rena Sherbill: Dan Rayburn, welcome back to Investing Experts. Welcome back to Seeking Alpha. Great to have you back on the show.

Dan Rayburn: Thank you for having me back again. I’m excited today to talk about sports because there’s just so much going on in the sports arena, whether it comes to streaming, broadcast rights, viewership. We have a lot of data out there too, which I think is great for investors because numbers do matter. Your listeners care about numbers. So there’s so much to talk about when it comes to sports.

RS: What do you think is the most important thing that investors should know vis-à-vis how sports intersects with streaming?

DR: I would say the first thing they have to understand is, and some definitely understand this, I would say, some members of the media don’t, in my industry this idea that pay TV is dead, broadcast is a bit dead, everything is going to go streaming, everything is going to go online.

Look at how much money Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), and Apple Inc. (NASDAQ:AAPL) are paying for things like NFL, football, MLSSoccer. That’s true. But you also have these broadcast rights on pay TV services locked up for, in some cases, the next nine years. And the largest viewership is still on pay TV, it’s not streaming and we have those numbers.

We have them from NBC Sports. Fox Corporation (NASDAQ:FOX) puts those numbers out. So it’s an exciting time for sports to be going to additional platforms, but streaming is not a replacement for broadcast, it’s more of a complement to it.

RS: How does that fit into the major players? How would you break it down per player, what they’re looking at in terms of sports, maybe just to give a layout of things?

DR: Sure. So everyone’s doing something a little bit different. If we think about what used to be called HBO Max and is now Max, they’ve added sports content to it, but you’re going to have to pay for that in the New Year at an additional cost per month.

Apple is including sports for free, in most cases, as part of Apple TV+, but it depends what content it is because they obviously have the Friday night Major League Baseball games.

So it depends what the service is doing. YouTube with YouTube TV is doing NFL Sunday Ticket. The Walt Disney Company (NYSE:DIS) with ESPN+ has a lot of sports content, but it’s not yet the same content that’s on ESPN, right? They’re talking about what they’re going to do with that and potentially what they do with ABC and some of the broadcast outlets.

Then you have Peacock and NBC Sports. They have a lot of sports content as well, but they have a total of 30 million paying subs as of November when it was announced in an investors conference, they put out a number.

So you have to look at also the numbers and the viewership and everyone just really has a different approach of why are they doing that. And then you have the big deal that was recently announced with Sky. And that was a really big deal because Sky won the broadcast rights over Amazon and DAZN who were bidding on them for Premier League matches.

So Sky Sports has retained the rights for four out of five packages. Another one is retained by TNT Sports, but Sky is now going to increase their coverage of games by 70% on pay TV.

So you’re talking over 200 Premier League matches. And they spent – it was reported, they spent €6.7 billion across a four-year period. So we’re talking a lot of money to retain sports rights. And they – after they announced that, they also came out and said, we’ve now locked up so much sports on our pay TV platform for the next 10 years, that we now think we have enough runway to really figure out the best way that the pay TV business is going to shake out for us and help us make money over time.

And so we know that a lot of reasons why people still have pay TV is because of sports. That’s the reality of it, and that’s not going away anytime soon.

RS: What do you think about the Sky deal? How do you think the companies that lost out to it, how do you think they’re thinking about it? And do you think that that’s a wise spend for Sky?

DR: I think Sky can make money from it – from a profitability standpoint because of the user base they already have and on the advertising on the pay TV side. For Amazon, DAZN, and some of the others that were bidding on it it’s hard to say if they could make money on it. That’s really unknown.

But at the same time, they’re not at a loss for content because they didn’t get that. Because if you think about just what Amazon has announced, Amazon announced a new deal with NASCAR seven-year rights, so five NASCAR Cup Series.

Then Amazon also announced exclusive rights to the International Cricket Council, the ICC. Amazon and Premier Boxing Championships – Champions announced a multi-year rights deal where they’re going to do pay-per-view events.

So there’s still sports content out there. Premier League is obviously some of the largest out there from a viewership standpoint. But it’s also interesting and not surprising, but investors may not realize that it’s not a arms race in the sense that you have to buy every sports – piece of sports content out there.

So DAZN’s Chief Executive really said that they want to acquire more sports content, but he cautioned and said that they would, “Not bid at any cost. The timing is also important because we want to build a sustainable business.” So in other words, profitability really matters.

So when you’re thinking about sports content and the licensing to get it, it’s so expensive that it has to make sense. That’s the bottom line. It has to be a good return for investors.

And the fact that Disney came out last year and said they were no longer going to bid on the cricket rights in India that went to – that are now on Jio and went to Viacom18, they said, “It’s just not a good return for shareholders.” So that tells you what they’re deciding on is, is this going to be good for the balance sheet?

RS: And what does it mean for kind of just in the landscape, how do you think sports looks in let’s say the next two years and then in the next five years?

DR: I don’t think it changes in the next few years. A lot of these rights deals are seven years, nine years, 10 years. So we know where the content is going to be.

What we’re not sure on is how some of it’s going to be packaged. Some of that is still up for debate. We never, I think as consumers, ever thought of Max as a place, a platform you want for live content, let alone live sports content. Now they’re getting into it, and they’re giving it away for free for the first couple of months, and then you have to pay for it.

So how many consumers are willing to pay an extra $10 a month to be able to get that content? It’s unknown right now. So I don’t think sports changes as far as the packaging deals and the rights deals because there’s really only two rights deals left and that’s the big one is the NBA. It’s the big, big one that we’re all waiting on.

And then the second one is Formula 1. Those are really the only two. And after that, pretty much every major sports, league, series, conference, whatever you want to call it, they’re tied up for many years to come. So we know where they’re all going to be.

Now the real question is for you and I as consumers and everyone listening, what is that experience? What does it look like? What are these platforms going to do to deliver a better experience to us, whether it’s higher quality? Is it going to be in 4K? Almost nothing is in 4K today. Does it matter? In some cases, it does. Other cases, it doesn’t, depending on who is watching it, it depends on the device.

The big thing that the industry is going to have to work on, on the streaming side, is just creating a better experience, so that there’s fewer issues with players and devices, and that the experience is a uniform one across all viewers no matter where they are.

And that’s something on the technology side that we as an industry are always going to really have to work hard on because when you turn on sports on pay TV, no matter where you are in the country, no matter which provider you have, Verizon Communications Inc. (VZ), Charter Communications, Inc. (CHTR), Comcast Corporation (CMCSA), we all get this exact – nearly the exact same experience. That’s the exact opposite with streaming.

So with streaming, it’s got to get to the point of where it’s scalable with a good, what we call, QoE, quality of experience for everybody. That’s the biggest hurdle we have as an industry. And it’s also the biggest thing that these companies are working on. So they’re already aware of this and they’re working really hard to make it an even better experience, but it’s challenging.

RS: Who do you think or do you think that there’s basically parity in terms of companies investing in the technology to make them as good as possible? Would you say that there are companies that stand out to you or everybody is kind of investing in that?

DR: Oh, that’s a hard question. Everybody is investing, but to what degree we don’t know. How much are they investing in the infrastructure and in the video stack as we call it? We don’t really know that. That’s a hard one to say.

I think there are some services that are approaching it a little bit differently. Some services want to have more interactivity in it, some don’t. Some want to support sort of more platforms and viewership, others are not. You also have to look at it from a regional versus global standpoint.

So, for instance, Apple with the MLS, Major League Soccer deal, they have the rights to that content globally, worldwide. But they don’t have the rights to Major League Baseball Friday night games anywhere except the U.S.

So we also have rights issues that keeps content in most cases geo-locked into one location, which means it’s a different level of investment if you’re delivering content and producing it in one region of the world versus multiple.

You also have content, for instance, recently you had Cricket Game that did the largest number of concurrent viewers ever at 50 million in India, but the bit rate was less than 1 meg, because a lot of that was on mobile.

But then if you look at what’s going on with NFL, either across Fox Sports, NBC Sports, Peacock, then you have NFL Sunday Ticket on YouTube. The average bit rate there is around seven megs. So it’s seven times the video quality of what you’re seeing in India, but the viewership is so much smaller.

So you always have this trade-off of cost, quality, viewership, device. And that’s something that we always have to look at as an industry because there is a limit in terms of what we can produce based on, to your point, the investment that these companies are making.

RS: Do you also see or do you also track the sports that invest or how the leagues invest in their media like NBA.com versus NFL.com and versus et cetera, et cetera?

DR: We don’t have much information there. There’s not a lot. Also it’s a very different approach. The NBA has always had a direct-to-consumer service and the NBA has partnered with Microsoft Corporation (MSFT) and some other big tech companies to produce that.

They recently, I’d say recently in the last six or seven months rolled out a new app. But they won’t tell us how many subs they have. So we don’t know the size of it. They’ll only say, like here’s how many total hours were streamed over the last year. That doesn’t really tell us much from an engagement standpoint.

So the approach is different, too, because they’re going D2C, direct-to-consumer. But NFL, other than NFL+, has never been direct-to-consumer because they’ve then licensed the content to Paramount, NBC Sports, Fox. They’re licensing out to other places, Amazon.

So it’s just a different approach, but none of the sports leagues that I’ve ever seen have ever publicly broken out what they’re investing specifically to something streaming-related. They might just talk about their total digital initiatives, but then that also includes things like social media and other non-video streaming platforms. So it’s really hard to know.

RS: And would you say that that those numbers become more transparent as time goes on, or do you see that that always is going to be a black box because they don’t have to?

DR: I don’t see any reason why the sports leagues will put out exactly what they’re investing in this because nobody is forcing them to. There’s really no incentive for them to do that. I do like the fact that many of them put out viewership numbers, which gives us a good indication of just the viewership.

And we also know that in many cases, a lot of the sports leagues are working on, they want to bring a younger audience in. That’s what they’re working towards, sort of the future of their viewership. So they will give out a lot of things tied to social, which I think is interesting, but we don’t have any correlating data to show that, okay, just because you’ve got a younger audience on social, that that means they’re now signing up and paying for streaming services on video platforms.

We haven’t seen that data confirmed in the market. They love to say that they’re reaching a younger audience. Well, reaching doesn’t mean paying. Those are two different things because social media is free.

So the sports leagues don’t give out too much information, very few of them. Let’s see, NFL, Major League Baseball, NBA, all three of them have not said how many subscribers they have to their streaming services, either direct or with their partners.

Years ago, Major League Baseball gave out a number, but we haven’t seen anything from NFL ever. Amazon doesn’t give it out for Thursday Night Football. Now it’s part of Prime, but no information there. YouTube doesn’t give out anything for NFL Sunday Ticket as of yet, so we’ve seen nothing for that.

Peacock, we know how many subs they have as I mentioned, but you get live football as part of the overall package. It’s not just – it’s not a standalone package. Same with Max. So the way it’s integrated is different as well.

But I think the viewership numbers are really important because it’s amazing how many people think, wow, Peacock and some of these others are just doing huge numbers with the Super Bowl or even sports, call it, the Olympics or whatnot. Actually, the numbers are very low when compared to pay TV and we know them, right?

We put them, they’re put out. Peacock says the average minute audience, what we call AMA, which is the primary way our industry measures viewership, it used to be called simultaneous streams. Now it’s called AMA. The largest Peacock, NBC Sports, NFL football stream this year was 1.85 million viewers, AMA, average minute audience.

Now that’s across though Peacock, NBC Sports digital platforms, and NFL digital platforms, all combined, 1.85 million. So not a gigantic number when the total viewership on pay TV was 26.9 million. It’s a very small fragment of pay TV viewership. Same with college football. The largest one this year for – was on NBC Sports, was Ohio State’s victory over Notre Dame. It was 605,000 average minute audience viewers.

Now pay TV, it peaked at 14.2 million. So that would make streaming only 4.2% of total viewership if streaming viewership peaked at the exact same time of pay TV viewership for NBC Sports. So in some cases, you’re talking 2% to 4% of total viewership of some of these games is streaming-related.

RS: And does that swing as the years go on? Does that ratio keep switching?

DR: It does to a degree, but not by a large percentage. And the reason is there’s still so many games that are on pay TV and as we see with all these rights deals are being locked up for such a long period of time.

If you stripped out, let’s just be honest here, if you stripped out the money from the tech companies that these sports leagues are getting, we’d be in a completely different place as an industry from a sports standpoint – sports licensing standpoint because who has driven up the cost of sports licensing?

Google, Amazon, it’s tech companies. No company is willing to drop this ridiculous amount of money because they’re using that sports content for another purpose other than just advertising.

Well, when you’re NBC, when you’re CBS, when you’re Sky, when you’re ESPN, you are getting sports content and you’re licensing it for one reason and one reason only, advertising. That’s it, and keeping pay TV subs, and keeping TV distribution. So if you strip out the money that these big tech companies have really thrown into the space over the last couple of years, the landscape looks really, really different.

I remember many years ago, everyone said, Meta Platforms, Inc. (META) was the one who was going to dominate the space and Facebook did come in. They also said Twitter. Twitter did a whole season NFL games, people may not remember early on. And Facebook played around, I’ll say, played around because they were really testing the waters with some live sports. And after testing that for a couple of years, what did they realize? It’s not a business we want to be in.

So if you strip out the money, just the big dollars from the tech companies, this industry would look very different.

RS: And is there a play there for investors in terms of the tech companies being invested and how you think they’re strategizing around that?

DR: For investors, I would say no, only because we don’t have any metrics or data to know the true impact of their business. We all know where Apple gets their money from. It’s not Apple TV+. They’re not breaking out how many subs they have. They’re not breaking out whether or not that business is profitable. The rumors are they spend about $2 billion this year on total content acquisition costs. We don’t know that. That’s outside of the MLB deal. We don’t know that.

So is it profitable? We don’t know. But does that matter as an investor to Apple? No. Because even if Apple loses money in Apple TV+, it’s not impacting their overall business. It’s not impacting their stock price.

We did just recently get from Major League Soccer a number saying that they now have 1 million subscribers to Apple’s MLS package. I thought that was really interesting because a lot of people in my industry have been saying, oh, they must have 6 million, 7 million, 8 million. It’s like, nope, they have 1 million.

The other thing they didn’t say is they didn’t say those were paying subs. They just said 1 million subs because some of the subscribers to that service get it for free if you’re a season ticket holder. So how many actual paying subs do you have? They didn’t say.

So it’s hard to play on the sports side as an investor because we don’t know overall what they’re spending. Disney, for instance, tells us here’s how much content they’re going to spend – sorry, here’s how much money they’re going to spend on content in 2023. But then they don’t break out for us what percentage of that is going towards streaming traditional broadcast, ABC, ESPN. They won’t break that number down.

So we have very little information directly from the companies on what they’re spending and what they’re getting from a result standpoint for anything tied to sports, even with Netflix doing one or two live sports things and they have another one coming up with a tennis match next year.

We don’t really know the impact of that. That’s more of a marketing push for them for content. But Netflix is very clear that the reason they’re not in live sports is they don’t feel they can make money from it.

RS: Incidentally, in terms of the numbers that Netflix, Inc. (NFLX) recently released on their numbers, do you have any thoughts to articulate there?

DR: All those numbers are pretty useless. There’s really no value in them. I thought it was interesting how many analysts were calling them, Netflix is releasing unprecedented detail. It’s a game changer with comprehensive stats and it’s like, no, it’s not. It’s total number of hours viewed. And that by itself is a flawed metric to judge success. And don’t listen to me, listen to Netflix.

In Netflix blog post, when they announced that they were releasing these numbers twice a year, Netflix points out in their blog post that total hours viewed is not the only metric to judge success of content. Popularity doesn’t equal profitability.

So it’s not offering any transparency into their business. It’s not truly measuring engagement. We also are not getting that content broken down on region. It’s not broken out by country, a region of the world.

The other thing that people have to understand is the way they count series, the way they count titles. So what is the completion rate? We don’t know. How many of these viewers are unique? We don’t know. What percentage of all hours viewed had ads delivered against them?

We don’t know.

So you really have to break down those numbers in terms of what’s popular because some of them are very skewed because it’s counting one particular movie against a series that might have 10 episodes. And obviously, some of these shows are 30 minutes in length and others are two hours as far as the movie goes.

So the data is not very helpful. It doesn’t really give us much indication of anything. Some people are also forgetting that this was a requirement Netflix now had to do because of the strike. They have to provide.

Now, they didn’t have to provide it publicly, but it’s not surprising they did that because somebody would have ended up leaking the information anyway. They say that the strike did not push them to do this, but yeah, I don’t really agree with that because we know they had to do it. It was one of the terms they agreed to. They had to release under NDA basically total number of hours viewed on a global basis for productions that had a certain level of production cost to them.

So did they release more than they had to in the report? Yes, they did. But again, it doesn’t really give us much indication about the business.

As analysts in the market, we want as much information we can as to who’s viewing what, when, how, where, and what device, to what engagement rate. Remember too that Netflix changed their methodology for how they define a viewer. So sometimes when they come out and they say, X percentage of Netflix users watched this new movie we just released. Their definition of a viewer is you watch two minutes.

So the movie is two hours long. As long as you watch two minutes, they define you as a viewer. So the methodology for all these companies is different as well. What we would love to see is broken down what true engagement is.

So it’s great that 40% of all your users might have watched this particular movie you just released, but of those 40% that watched it, how many actually completed it? And then what percentage of all your content has ads in it? Today, it’s still small. They said, they have 15 million users on the ad plan.

So notice they didn’t say subscribers, they said users, different. We expect that to grow over time. We know that’s going to take a couple of years to really grow. Netflix has publicly come out and said that to Wall Street multiple times that this is a multi-year endeavor on their part to where advertising revenue has a material impact on their business.

But down the line, that’s more interesting number that we really want to see and investors want to know is how well are you monetizing your content from an advertising standpoint? And that’s something we just, we don’t know. We have no insight to, but it’s not just Netflix. None of the other companies give insight into that either.

RS: So how would you – well, first of all, you mentioned that the Formula 1 and the NBA deals are upcoming. How do you see that shaking out? And then how do you see that influencing the landscape?

DR: Good question because the NBA is the big one. The NBA is the big, the big, big one. So right now, this will be the first time the NBA is putting their content out for bidding in 10 years, first time, and we’ve seen what all the other sports leagues have done.

So it’s actually good timing for NBA. Its partners right now are ESPN, Disney, Warner Bros. Discovery, Inc. (NASDAQ:WBD), which is TNT together combined, the two of them pay about $2.6 billion a year. But both have also come out and said, “We’re trying to get the profitability, so we’re not interested in paying more than we’re paying now. Both companies are under pressure to cut costs, we obviously know. Also cable TV, pay TV decline, that impacts them as well.

So the rumors are that ESPN and TNT, which carry over 150 nationally televised games, are looking for smaller packages. But it would also, if they could, and the NBA has supposedly been open to this, they also want to get rights in local markets.

So if they could get rights in local markets, that’s now a different type of offering than they’ve been showcasing before because now you don’t have blackout restrictions. So that would be really interesting and maybe they could get a little bit more money for that.

But it’s an interesting time because all of these streaming services have said, we can’t break the bank in terms of getting sports content where we’re going to have to pay more money than we can afford to and just not make our return.

So Paramount CEO was recently asked about NBA rights are coming up, we don’t hear your name. How come we don’t hear Paramount being floated around as a company who’s looking for the NBA rights?

And he said, “We’re actually in an excellent place where we don’t really need, we don’t want nor are we actively looking into any more sports.” So there’s Paramount saying, listen, we don’t want NBA.

YouTube CEO also came out and said, their focus for them right now is NFL Sunday Ticket. That’s really what they’re putting all their efforts into and that the NBA was not a focus for them.

So it’s also an interesting time for the NBA because if this was two years earlier, everybody was bidding on sports, whether it made sense for them from a balance sheet standpoint or not. Because the way the economics have changed, and we know Wall Street is now rewarding companies based on profitability more so than growth when it comes to streaming.

There’s fewer companies interested in the NBA deal. I also like the fact that, and this is important, the NBA came out and said, we want to add more distribution platforms, but we don’t want there to be five or six places you have to go to get your NBA games. Thank you, NBA. Not that I watch basketball, but it’s the exact opposite of what the NFL and Major League Baseball has done.

In some cases, there’s five different platforms that those games are on this year. It’s not a good fan experience. The NBA makes it sound like they want to have a max of three different places where the games might be seen. So, I like that from a fan experience.

RS: Is that a money grab from the NFL and the MLB? Is that the difference there?

DR: Absolutely. I’ve come out and said this before, it is nothing but greed. It’s all it is. Because they keep saying, we care about the fan experience. Well, the amount of fans that don’t know what game is on when and what night and what channel and where and what you have to have.

And I still keep using the example of Friday night baseball. How many bars have Apple TV installed on their TVs in their bar? They don’t. So they just choose not to have the game.

So, if you happen to be whatever sports fan you are throughout the season, you’re going to have a couple games where your team’s on Friday night. There’s a lower chance that you’re watching that game. That’s just the reality of it. Now, of course, the sports leagues love to come out and say, well, because it’s on Apple TV, we’re reaching a much younger fan base, which I think is nonsense because the younger generation is not sitting at home on a Friday night watching baseball.

Of all sports, the game that takes forever to complete a game, which is the whole reason baseball completely changed the rules and you now have a pitch clock. Because games are taking too long, and viewership was down. In fact, the last World Series this year that just came out had some of the worst viewership on Pay TV. The 2023 World Series between, and I forget who it was, but with the Texas Rangers, it averaged 9.1 million viewers on Fox. It’s some of the lowest on record.

So, yes, I think it is just a money grab from the sports leagues without truly thinking what the sports experience should be. And then to your point, you mentioned Formula 1. That’s a real interesting one. So, it’s been reported, not confirmed, this is a rumor, that Apple is eyeing Formula 1 as its next big investment. It’s also being rumored it would cost Apple about $2 billion per year, which would be double what Formula 1 is getting right now.

The interesting thing here is the contract would be regional at start and go global over time. So, U.S. rates are currently tied up for Formula 1 with ESPN until 2025. So, if a deal was done, the deal with Apple wouldn’t kick in or whoever it may be until 2025. The deal would be 7 to 10 years because then global rights become available about 5 years in. The current F1 media deals expire before 2029.

So that means that Apple or somebody else would start showing Formula 1 in certain regions around the world, and then over time get global distribution. And the one thing we know from Apple, because they’ve publicly come out and told us this about Major League Soccer, is they are looking for more distribution deals where they get global rights.

They’ve said part of the reason they haven’t been on other sports content is, they don’t like the idea of, from a business standpoint, of, okay, you paid all this money for this content, but you can only show it in one country or there’s blackout restrictions. So, they’ve been very clear about that. And Formula 1 would be similar to MLS in the sense that they would be able to eventually have global rights.

RS: Earlier this year, we saw ESPN have some issues with layoffs and speaking to profitability and trying to get closer to that. How would you say ESPN is doing and how would you say Disney is thinking about ESPN?

DR: Yeah, that’s a great question. We’ve gotten conflicting information from Disney executives over the, let’s call it over the last two to three quarters. So, we don’t really know. We did see Disney break-out ESPN revenue separately for the first time. So, in Q3, ESPN revenue came mostly from affiliate fees, no surprise, a little over 8 billion. Advertising was 3.2 billion, subscription fees were 1.1 billion.

We had Disney Executives, CEO Bob, come out and say, well, we’re thinking of what we might do with ESPN and the broadcast channels like ABC. We’d like to bring a partner in with ESPN. They didn’t say who. I don’t really see how a partner helps them because it’s not a technology problem that they’re having. They’re talking also about this ESPN Direct to Consumer service separate from ESPN+ will definitely they say roll-out by 2025 at the latest. But what content is that going to contain?

Is it just going to be an exact duplicate of what you’re getting on ESPN on Pay TV? And what will the cost be? We don’t know about that either. And now you’re competing directly with the Pay TV providers that you’re licensing that content to and getting a lot of money from. Recently Disney has then come out and said, well, we took a look at our broadcast business a little deeper, ABC, ESPN, and we actually think it’s in much better shape than we originally thought.

So, we don’t have to necessarily sell off that portion of the business, which originally they made it sound like they really wanted to divest. So, we’re getting some mixed comments from them. What they’re going to have to figure out though, what Disney is going to have to figure out is, what does ESPN as a product and service look like going forward in the next 2 years? What is the business model? Which partners are they going to have? Which ones are they going to cut? What does the content look like?

If you have an ESPN service, but then you have an ESPN+ service, can you imagine how confused consumers will be with that? They will lose their minds. I have so many friends who are like, oh, I signed up for ESPN+, but I can’t get whatever Sports Center and whatnot. I’m like, well, because that’s not on ESPN+. And they’re like, well, I don’t understand. I know it’s on ESPN TV. Why isn’t it the same thing?

So, extremely confusing from a content standpoint. Are they then going to bundle ESPN+ in with ESPN? Do you create one app that has two levels of service with two different levels of pricing? All that is completely unknown. But one of the things they need to understand is ease of use is the number one thing consumers are looking for. And that’s the whole reason they’re now combining Hulu’s content inside Disney+’s app, because they’re trying to make it easier for consumers so you don’t have to have two different apps.

Now, you still have to have a second app if you want Hulu + Live TV, because that’s not going to be in Disney+. This is a lot of apps. And now you’re going to add another streaming service and potentially with a partner, which means how is that branded, distributed? There’s so many unknowns right now with Disney.

The bottom line with Disney though is, they need to get their direct-to-consumer business to profitability. And they say they’re going to do that by Q4 of fiscal 2024. So that gives them another couple quarters, but man, they better get there.

RS: There’s a lot of writing the rules as kind of the ground is solidifying beneath them. I think there’s a lot to handle as we’re talking about new technologies and new licensing and all of these things that have to be considered, which I assume has to do a lot with the kind of mis-strategizing and missteps that befall these companies. A, would you agree to that?

And B, in terms of Apple eyeing Formula 1, do you think that’s a good move for them? And do you think – how do you think that fits into their overall strategy?

DR: Let’s tackle the Apple one. I do like the Formula 1 deal if it happens, right? Again, it’s just a rumor. And the reason for that is, if you know Formula 1 and you know the average fan, many of them are technical. And Formula 1 as a brand and where they have it and some of the locations, I can see that pairing very well with the Apple brand. I could imagine all the things Apple could do inside the app, helping you with ticketing, what they could do with maps inside the actual racetrack.

I just see it as a natural progression between two companies that are very tech-heavy. Formula 1 uses an incredible amount of technology. The teams as well on the back end just in terms of doing calculations with using AI to figure out all kinds of things around their cars. It’s so technical as a sport that I think it pairs very well with Apple. And I think Apple could make some of that simpler from a fan experience while also enhancing the fan experience.

So, I think those two brands just really align very well. Now, is $2 billion a year too much? I couldn’t say because we don’t know how Apple would make money or lose money on that, or how they would, even if they lost money on that deal specifically, are they making up on it from other places where we know Apple makes money? Apple has such a diversified line of business from a product standpoint. Very unique in that regard.

Opposite to Netflix that makes money from one thing, a streaming service.

So Apple, much harder to judge success there, but I think they’re very good internally in terms of knowing what is successful for themselves as a company and as a brand, and wouldn’t be bidding on that if they didn’t feel it was a really good fit in return on investment.

As far as your comment, you’re absolutely right that it seems many of these companies are changing their strategy on the fly based on missteps they’ve made in the past. Yeah, I would agree with that.

I think a lot of companies just during the COVID time weren’t living in reality. And thought nobody was going to go back to anything in-person, everything would now be online. Everyone’s going to cut the cord. There’s just going to be no Pay TV of any kind. So, everything will have to be online. So, whatever these rights cost, we’re just going to buy them. That’s the future.

And then all of a sudden it was, oh, well, actually we couldn’t make money off this. You know, like Disney telling us that with their Hotstar brand in India, with cricket. So, they decided not to bid on it. But what was interesting was Disney did bid and win the TV rights for that content because they can make money on the TV side.

And then part of it too is companies overbuilt during COVID. They just tried to do too much. We’ve heard Disney multiple times tell us they tried to create too much content. They didn’t handle some of their franchises properly. So, there’s been a lot of missteps and some of it’s also just been a change in strategy. I think the acquisitions were, for instance, with Warner Media, now Warner Bros. Discovery, now all of a sudden they had under their fold TBS and TNT.

That’s the whole reason they’re bringing sports to Max because with the acquisition, they can integrate that content. They already own it. But then you also have a service that used to be called four different names before it’s – today it’s called Max. And then you’re also telling consumers, by the way, you’ve always thought of us as original good quality content. We want you to think of us now as a sports platform.

Oh wait, now it’s sports? Well now what? Now, you have to go out and market to consumers. We now have sports, which is why you give it away for free for a few months. But now you’re also telling them, hey, you’re going to have to pay $10 for this in the new year. So, it’s unknown to them how many people are actually going to want to pay for this.

So it’s also just a very competitive business and everyone’s competing for our eyeballs and our time and there’s so many different streaming services out there and the fragmentation is huge, especially when it comes to sports. We all want different experiences or to watch our games differently or with different features and function.

Just look at what YouTube has done with Multiview for NFL Sunday ticket. It’s interesting technology that will only improve over time, giving fans more options. They definitely will be able to pick and choose their games down the line. Right now they can’t, of what shows up in Multiview, but the fan experience is going to get better.

But no doubt, some of these companies have made some pretty big missteps and it’s cost them a lot of money, in the billions of dollars, which is also why we keep hearing them announce they expect to save even more money than they were originally thinking they were going to save. And the numbers are going up in terms of how much money they’re going to save over time and how that’s going to impact their balance sheet.

Paramount Global’s (PARA) a good example of that. They recently came out and said, you know, we think we’re going to save even more money than we originally told the Wall Street that we were going to before.

RS: Who do you think has handled it the best in terms of, I know that there’s differentiation and I know there’s different focuses and all of that, but in terms of the broad scope of approaching sports, which company do you think has handled it the best and who do you think has come closest to it really, kind of throwing them off course?

DR: I don’t know that I can say because what is the methodology we’re using to judge success? And we don’t have the metrics or the numbers behind a lot of this.

I love the fact that Apple’s very specific in the content they’re looking at because they want global rights. I think that’s cool, but also there’s very few sports leagues around the world where you can get global rights. Very few. But again, that’s not what’s really driving their business.

I think Disney’s made a lot of mistakes, clearly, if you look at just what they’ve done in India, you know, Reliance got the streaming rights to the Indian Premier League for 2.7 billion in 2022. And there’s discussions right now that, you know, Disney has come out and said, well, maybe we should exit India. And then they came out and said, well, again, maybe we don’t need to, but there’s rumors out that they’re going to sign a deal with Reliance Industries to merge operations in India. And that would certainly help Disney.

You’d have a local, largest media company really there in India, so that would help them. But at the same time, previously they’ve invested a lot of money into Disney+ Hotstar, all because of cricket. That was the whole reason they licensed cricket was to grow in India. And then they decided, oh, well, this cricket license is really expensive. We’re not going to renew it. And then once they didn’t renew it, what happened, they started losing Disney+ Hotstar subs. We knew that was going to happen.

So, it seemed like that was their strategy and then all of a sudden after one year it was like, okay, this maybe isn’t quite working so let’s just completely change tactic here and now maybe let’s just exit India altogether or just take on a partner. That’s a really big change in a short amount of time. And I think that’s part of the problem is, some of these companies aren’t sure what the return is going to be. And because the sports content licensing rights are so expensive, they don’t have multiple years to try and figure it out.

Disney in particular, just because of all the other challenges they’ve had with their business. When you’re Amazon, they’re competing against Amazon, they’re competing against Apple. They’re competing against Google, YouTube. Those guys, they can afford many more years of trial by error if they need to than somebody like Disney can. That’s just the bottom line.

RS: How would you synthesize Google and Amazon’s approach to things?

DR: Again, we have no data of any kind. Amazon has given us no indication of how Amazon Thursday Night Football games have driven Amazon Prime memberships. Only at one time did they say, because of the games we had a record number of signups, but that doesn’t mean paying members because people might have signed up just to get a particular game. Also the Friday game, Black Friday game was free, so you didn’t actually have to be a paying member. You just had to have an account.

So, I’m sure people signed up for a free account. Did that translate into people buying products and services? Maybe. But they’ve given us no information or indication of how well Friday game even did as far as ads go, because they had different types of ads and QR codes that you could scan and whatnot, but they gave no information on that. The only thing we get from Amazon through Nielsen is viewership numbers, but those are extremely tainted because Nielsen won’t define the methodology of what some of these terms mean.

They don’t give out an AMA, Average Minute Audience number, which is what every other company does. Nielsen doesn’t do that. So, we don’t know what “a viewer” is. Also when you go to Amazon’s homepage during Thursday Night Football, the game can be auto playing in the upper right hand corner. Am I counted as a viewer if I don’t engage with it? I don’t know. Amazon won’t say. They say, well, you got to ask Nielsen their numbers. Well, Nielsen won’t say either.

So, we have no idea how Nielsen defines viewing time or defines a viewer. It’s very unknown. And Amazon’s given us no indication of, because we have Thursday Night Football, we’ve now boosted our business in some other way. So, we have no indication from Amazon whatsoever. On the Google side with YouTube, again, there’s no subscriber number that they’ve given out of any kind.

And not surprising, these are two companies that don’t give out a lot of detailed data and analytics around how their businesses are doing when it comes to things like that. Also, both of these deals are long. I forget the exact number, but what it’s at least 7 years, I believe, for both of them. And we’re in the first year of an NFL Sunday ticket. We’re in the second year of Amazon Thursday Night Football.

So, will we get some sort of statistics from them of some kind down the line? We will. It might be 2, 3, 4 years in. But at some point, we will because they’re spending enough money on it that shareholders are going to want to know what is the return on investment here? But I doubt that’s any time soon from two companies that just historically stay very quiet. And also the only reason we got a number from Apple with Major League Soccer is, we didn’t actually get it from Apple.

Major League Soccer, one of the executives came out and said that number when they were sitting on a panel at a conference tied to sports. And interesting, just you wonder the backstory there if Apple wasn’t happy they put that number out because Apple is, as we all know, one of the quietest companies around and giving us statistics. So, at least that number leaked out from somebody we can trust. But otherwise, it’s very hard to judge success when we don’t have metrics.

RS: It’s funny. Sometimes a slip of the tongue, those conferences – never underestimate the power of in-person appearance, I suppose.

DR: That’s right. That’s right.

RS: Yeah. Anything else to leave investors with as we’re unpacking and thinking about the sports segment of streaming?

DR: I would say look at the numbers that we do have. Watch the viewership numbers that come out. Understand what is taking place with live streaming and the number of subs.

We have numbers from fuboTV Inc. (FUBO). We know how many subscribers they have, but I know someone the other day who said to me, they were amazed that Fubo had grown to over 10 million subscribers. I was like, where are you getting that data from? They’re a public company. They have over a million. How are you off by a factor of 10? That’s a problem. So, you really have to understand the numbers. The numbers matter. The numbers are …

RS: Where were they pulling those numbers from?

DR: I have no idea. No idea. I don’t know if they were thinking maybe those were DAZN numbers, but we haven’t got numbers from DAZN in over a year. So, we don’t know what DAZN’s numbers are. Actually more than a year since they’ve put anything out. We don’t have any numbers from YouTube TV.

We have Hulu with Live TV, but again, that’s all Live TV, that’s not just sports. We have no numbers from Fox Sports on digital. Fox Sports to date has never put out a single streaming number like NBC Sports does where they break out here’s TV viewership, here’s digital viewership. Fox won’t do that. Fox will only give out one number of everything combined, which is disappointing.

And then you don’t have much from the NBA, Major League Baseball. We have nothing from the NFL. The NFL has a new product and NFL+ new product this year in terms of the types of content you can get in it. But we have no numbers from the NFL in terms of how many people actually signed up for it and what they’re actually paying for it.

So, what I always say to investors is focus on the numbers you do have. Yes, we’d always love more, but focus on the numbers that we do have, focus on the viewership numbers, focus on where the viewership numbers are trending. It’s incredible how many times I hear people say, well, things like the Olympics are going to really propel some of the vendors in this market forward who are providing the infrastructure for the Olympics.

The Olympics’ largest peak ever simultaneous streams in history is a little over 2 million. That’s it, 2 million. That’s a public number you can see from the broadcast outlets who have it, NBC Sports or NBC Universal. So, the Olympics don’t drive huge amount of viewership. The Super Bowl doesn’t drive a huge amount of viewership.

RS: Really? That’s kind of surprising.

DR: No, Super Bowl doesn’t either. Well, think about it. Super Bowl is one of those things where you’re getting together with others around a TV. It’s something you want to see with other people for the most part. You’re also not going to all sit around on a computer or a phone. And Pay TV again is why a lot of people have it. You can get it OTA over the air.

So, the Super Bowl numbers are never that big. And those numbers are put out every single year. So again, there’s numbers we have. Also, the Super Bowl is not in 4K. It was upscaled one year to 4K, but it was not in 4K.

So it’s still important because 85% of total viewing hours in the U.S. on Pay TV is still tied to live sports. Those are numbers you can see as well.

RS: Interesting. Interesting. So, a lot of it is just to be determined in terms of how this shakes out as we see, kind of the deals continue and get done.

DR: Yes, except I wouldn’t say shake out only because I think it’s already – we’ve already seen that shake out in the early years, a couple of years ago again, when companies like Facebook and others, Twitter and others were like, oh, let’s get into this industry. Then what happened? They’re like, no, it’s not for us.

Now, the deals that have been signed, again, because they’re 7 to 10-year deals, Amazon’s not going away. YouTube’s not going away. Apple’s not going away.

These are companies now, they’ve locked themselves into these deals. They’re here. So, the only potential one that is tied to sports that is interesting to watch in terms of how it might drastically change is Paramount.

Paramount at some point is going to get sold. It’s going to happen. So Paramount has football rights because of Paramount Plus, CBS, that’s going to get sold or merged with somebody. So, where are those rights going to go?

That we don’t know, but it’s only a matter of time. Some have been reporting, oh, Paramount, will go bankrupt next year. They won’t. It’s not going to happen. Again, you have to look at the numbers. They’re going to get about 1.3 billion in net proceeds from the Simon & Schuster deal this quarter.

They’ve got a 3.5 billion revolving credit facility which matures in 2027 now, which they extended. The debt next year is 555 million. They’ve a $2 billion payment to the NFL in multiple payments. They have enough money to survive, but they don’t have enough money…

RS: To go after the NBA.

DR: Right. To go after the NBA or to just, you know they still have 15 plus billion in debt. Their balance sheet is not great, but they’re not going under. But somebody is going to acquire them or chop them up in some way, in which case where are those NFL rights going to go? So that could be interesting. But that’s the only big thing I see tied to companies out there where we may have a change because all the other companies have enough cash and are large enough to where they’re not disappearing.

RS: Any thoughts on Paramount suitors?

DR: No. My guess is just as good or as bad as yours or anybody else’s. It’s an interesting business, I think, in the sense that there’s pieces of it that depending on who the companies are looking at it would not want, but is Paramount willing to chop it up? Maybe not. Is Paramount willing to maybe take an investment and not sell it? That’s been something that’s been rumored. But here’s the thing, and Paramount, if you’re a buyer for this, why would you buy it now?

You wouldn’t. There’s no sense of urgency. You just let it continue to where a year from now, 18 months from now, they really have to sell it, in which case it’s in your benefit as a buyer. The other thing is the regulatory approval for this would be huge. That said, the rules around acquisitions like this change if a company’s financials go into more challenges. All of a sudden, deals are allowed to go through faster when it comes to two competing companies getting together because the government doesn’t want to see, I should say the regulatory bodies, don’t want to see one company go under.

So, many times the amount of time it takes to actually get a deal pushed through gets through a lot faster when finances are in distress, but Paramount’s aren’t in distress as of yet. So, we’ll see what happens. They are going to be sold, no doubt invested in. It’s only a matter of time, but what that timeframe is, is really the question.

RS: One last question as an NBA fan. I know you said, you weren’t. Are the new kind of iterations in the NBA, like the In-Season Tournament, does that have to do with – is that a reflection of wanting more engagement, creating more buzz with the new deal?

DR: I’ll be honest. I know nothing about the NBA from a fan standpoint. What I can tell you though is the NBA is very vocal and comes out all the time talking about what they want from the new distribution deal. And the biggest thing that they want and where they’re seeing traction is the younger demographic. Because the NBA, And I see this in terms of how they talk about it, it makes sense from a social standpoint, so much of what’s going on at the NBA as a sports league is who’s sitting on the sidelines.

Who are the stars there? Like, what jewelry are they wearing? What’s their fashion? And you have so much music tied into the NBA. So, to me, the NBA, not being a fan, just looks more of a true sports media and entertainment brand. I don’t think anybody would say that’s the case with Major League Baseball. It’s not. So, the fact…

RS: I would say the case can be made about Formula 1 up and coming. That seems to be, kind of a cultural touch point.

DR: Agreed. And you have young drivers that ties to it as well. Major League Baseball has some young stars, no doubt, but it seems NBA highlights them more. And the NBA has put out for those listening, they have put out very detailed statistics on the social side of the engagement they’re getting and how they’re interacting with fans, so you can look that up. So, I think it’s different how they’re approaching the content they have and who the fan is. I think that’s what it comes down to.

RS: Very good. Dan, always enjoy talking to you, always enjoy these conversations. Appreciate you taking the time and Happy Holidays and Happy New Year.

DR: Thank you very much. I appreciate you having me on again and for listeners looking for information, just Google things online, but I’m always happy to answer questions as well. If you just reach out to me on LinkedIn, Dan Rayburn, I’m happy to answer any questions you have.

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