Basketball Local Streaming Launches, Still Missing Key Target

Earlier this year the NBA became the first league to officially hand over local digital rights to its teams and local media providers, contrary to the tight control that MLBAM has kept over local rights. After no movement last season, and a trial run by the Yankees and Padres during baseball, the Sixers and Blazers both went to market with local streaming offers at the start of this season.

The Blazers plan to charge a la carte or flat rate for the full package of 15 games, but thats where the problem starts – 15 games. Portland plans to stream the 15 games scheduled for over-the-air broadcasts, none of the remaining games to which Comcast Northwest hold the rights. Portland is one of the markets with carriage problems preventing fans from watching the team. CSN Northwest does not have carriage deals with Charter, Dish, or DirecTV.

This is where live streaming is most valuable, the fans who can’t receive the broadcast on television. Those fans likely have a higher willingness to pay for live streaming, a higher likelihood of using advanced online features and becoming the type of engaged user that advertisers covet. Yet, Comcast excludes them, just as the Yankees and Padres did during the season.

We understand offering it to subscribers that also receive the cable network to prevent cannibalization and prevent free riding from undermining the cable business. But its still hard to convince those customers to pay incremental fees to watch on a laptop the same game they can watch in HD on the big screen, though the number of people interested continues to grow.

However, fans that are not cable subscribers – or not subscribers to a provider with carriage of the local rights holder – arguably have more overall value. If CSN has a functional authentication process in place, it could still offer the package for non-subscribers, possibly using price discrimination and charging a higher fee since they don’t technically pay affiliate fees for your cable channel. The team benefits by extending its digital marketing platform and adding value to the advertising inventory, the right holder benefits by luring in valuable new customers. Customers from Comcast competitors, and customers from the same MSO’s that CSN is negotiating carriage deals with. And everyone earns additional revenue.

Why would CSN not want to make money off customers from the same companies that won’t carry its channel. It could help provide leverage in the carriage negotiations. If not, at the very least, it increases revenue and may help add a premium price component to the product if they can charge non-subscribers a higher rate.

The team and rights owner both maintain control and it’s paid content, so I’m not sure why none of the local streaming deals has gone this route yet. It’s possible the authentication schemes are not as advanced as providers would lead us to believe, its possible they want to take baby steps for now, but for streaming to move the needle it needs to be accessible to the entire local market using a well-thought, profitable pricing scheme.

NBA Cinches Critical Cable Carriage Deals

Rumors surfaced last year, following the NBA partnership with Turner about a compromise of lower affiliate fees for expanded coverage on Time Warner Cable. It made sense given the Turner relationship, and as I continue to harp on, is critical as league-owned networks near a make or break tipping point.

In advance of last week’s Opening Night, NBA TV closed carriage deals with Time Warner, Cablevision, and Dish, adding to its distribution roster of Comcast, Cox, DirecTV, and Verizon. The latest additions put NBA TV at 45m homes, a 3x increase from last year’s opening night, and a clear signal the network plans to become a major player.

What the NBA has going for it that none of the other league networks have are the Turner partnership and a strong digital offering that aligns with the on-air product. No, I’m not forgetting the power of MLBAM, but I am accounting for the fact that MLBAM operates in a silo and appears to clash more than integrate with MLB Network – and the league for that matter. However, taking a page from MLBAM’s playbook, NBA Digital recently released a mobile application for its streaming video package and it continues to market and improve the online version. They have done well to leverage TNT talent and production capabilities to create a quality mix of online and broadcast programming.

Thinking bigger picture for a second, while the NFL may command the most demand, the NBA and MLB have the longest season and the most content, two ingredients that work well for media. The demand for the NFL may actually work against NFL Network, since it increases the competition it faces and the event driven nature of football concentrates the competition into certain days and times. Meanwhile, though they have less absolute number of fans, NBA TV has an opportunity to capture a bigger share of the market, and partnering with its top television partner for production and marketing only adds to the possibility.

Long term, if the network can entrench itself with fans, slowly build a stable of exclusive games, grab rights to ancillary basketball events (Olympics, college, overseas, maybe NBA games played overseas), it has a chance to continue to expand that 45m subscriber base and boost its subscriber fees. It’s pulling the right strings hiring solid talent (adding McHale to a cast that include C-Webb) and proliferating digital distribution channels. Within a few years, NBA TV can become a meaningful revenue stream for the league and a serious competitor in the sports television landscape.

Success in media continues to get more difficult with lower barriers driving increased competition and fragmentation. However, NBA TV, and the other league networks have one significant advantage – they own the content. MLBAM has proven on the digital side that managing content correctly can lead to big business, while on the other side the NFL Network shows that just putting games on will not bring customers and providers to their knees.

Similar to my criticism of the NHL Network for not committing to wider carriage and making a strong push, let’s commend the NBA for getting the deals done and putting the resources behind what can become a big future revenue stream for the league that will offset some of the decreases it expects in other business lines.

Football Business Not Bulletproof

Without debate football is the most popular sport in this country, though in some parts college may edge out the pros, on the whole the NFL stands atop the perch. Many factors contribute to its popularity – the shorter schedule makes it easier for fans to follow and each game more meaningful, the hitting and action, the weekend schedule and prominent media coverage make it hard to avoid, but two huge differentiators are fantasy and gambling.

As typically happens in business, success and excess profits attract competition. This year brings with it another round of potential NFL competition (or complements, depending on your view), with business models built on the premise that we have an insatiable, almost infinite demand for football. Unfortunately, the early returns for the UFL, as many predecessors found it, find that high demand is not necessarily the case when you take away the top players, team brands, and with it the quality of football. Who thought billboards of Ted Cottrell would ever draw fans in NY? Forget the product on the field, I would never want a marketer trying to jumpstart a league that would come up with the idea to market Ted Cottrell to the NY market.

We can debate about the league structure not working, the time of year creating insurmountable competition, but what the league lacks is a gambling interest and fantasy games. Of course, it needs public awareness and superstar players to draw that interest, however in the end gambling and fantasy may mask the true popularity of football. College football creates a strong fan base from alumni or a bond in the local community that is impossible to recreate, especially for a league whose teams have no true home fields or home cities, since its setup more as a barnstorming operation.

Ratings and attendance fell woefully short of expectations in the first few weeks, and the league has already decided to move games from prominent professional stadiums to smaller, local venues (Citi Field to Hofstra is quite a drop off), which is not a good sign in the first month or two of operation. It took the AFL almost 20 years to reach some level of national appeal before it fell apart due to ownership and labor disputes. The UFL and others don’t have that kind of time, and the nomadic model that lacks the cornerstones that make football America’s sport are missing.

On the flip side, the NFL staged it’s third annual London game this year, with much less hype and, up until game day, still not sold out. Stories continue to swirl about the expanding the overseas schedule, franchising a team in the UK, and eventually a Super Bowl there. That’s all well and good, but the league should get its house in order in its core market before making the plunge. Jacksonville and Detroit games are regularly blacked out, the second biggest market has no team, the sport has struggled to gain traction with some ethnic groups, notably the Hispanic community, and it’s failed to gain a foothold in neighboring Canada.

Creating an additional revenue stream through international is all well and good, but for a sport that is not marketed overseas and that few other countries can relate to or understand, one off games don’t create the type of impact that an effort to resolve some of these domestic issues could have. Played one game annually generated initial excitement, but after three years has lost its twinkle, as seen by the lower ticket sales and less emphatic splash. Plus, you can’t send the Tampa Bay Bucs and expect to win over skeptical fans. The fact the league needs to compensate them to go should speak to how little enthusiasm teams have for this idea. And when the fans get more excited about extra point kicks than touchdowns, we know a hard education on the rules is still in order.

I still think international is a great expansion venue for league business, but I think the NFL has some pressing issues within the core market that it needs to address with more vigor before focusing the required effort on a bigger effort overseas. This is without even mentioning the pending labor issues they face. Overall, football is not bulletproof and we may be able to link many of its advantages over the other major sports to gambling and fantasy sports.

NHL Trip Abroad Misguided

A few weeks ago the NHL dropped the puck on its new season, which many of you may have missed. Even those who watch hockey might not know opening weekend took place in Helsinki and Stockholm. Another misguided, failed business move by the league, though I can’t say what they failed at since its not clear what the goal was.

For the NFL, MLB, and NBA, international makes sense since these sports are near a saturation point in many domestic markets and need to establish themselves outside the country to develop new revenue streams. Further, most of the world is not as familiar with baseball and football – though baseball has come a long way recently and is big in the Pacific Rim, so the mission of those leagues is part educational, part evangelist, all to drive future business, similar to what the NBA did starting with the Dream Team.

On the other hand, hockey is arguably more popular in some Northern and Eastern European countries than it is domestically. Not to mention the NHL is far from a saturation point in the US, and still has growth opportunities in its home base of Canada. By taking opening weekend out of the country, it became out of mind, out of sight on the sports scene. The games started at noon, a losing proposition during the week or on the weekend against college football. They were buried on Versus, so no casual fan was likely to stumble upon it. And most importantly, the league did next to nothing to market the games, neither hear nor in Sweden, according to reports from the game. If the NHL plans to have the games, at least stand behind the decision and try to make it successful.

Here’s my confusion. No marketing push. No chance that a team will move to Sweden, so cross off market testing. No need to establish the sport there, as its already popular. Maybe I’ll buy extending the NHL brand, but Sweden has produced numerous NHL players, so fans are likely familiar with the league – and Sweden does play in the Olympics, often finishing better than the US.  Attendance was disappointing, and the league garnered no additional media deals or sponsorships (to my knowledge), so not much on the revenue angle.

All this said, what exactly were they trying to accomplish? While they were trying to accomplish this, did they notice they missed another opportunity to gain some notice with casual fans in local team markets by pushing Opening Weekend, or by having a big game on Versus (think Crosby or Ovechkin) to start the season. Instead, local television in Florida decided not to air one of the games in Helsinki. Explain how that helps a struggling franchise.

Hockey may never compete with the other leagues, but with continued in fighting and poor business decisions, its going to move in reverse as smaller sports surpass it.

Should Sports Change Revenue Sharing to TARP-like Program?

Last week’s SBJ cover story on the state of Detroit’s sports teams battling through the recession further illuminates how hard the recession has hit that part of the country. Sports teams are the least of Detroit’s problems, yet they remain one of the few refuges for an area fraught with unemployment and failing businesses.

Three key points I took away from the story: 1) Detroit has phenomenal sports fans, it’s aggregate per-cap attendance across all four major sports as a testament; 2) for the most part, the city is blessed with top ownership (we know about the Lions), Davidson and Ilitch have put wining teams on the field, done right by the fans, and tried to do right by local business; 3) the recession is stronger than both #1 and #2, which will make it difficult to sustain these teams over the next decade.

Ticket sales and sponsorship revenue are the most critical and most volatile revenue streams for teams. The economy has put both under significant pressure in the Detroit market. Teams face a steeper trade-off in ticket sales vs. price reductions than most markets and its key sponsors lost significant marketing budget. Lions aside, since the NFL shares revenue in a more equitable manner across the league, each team expects a significant revenue drop this year, which immediately makes it more difficult to field a championship-caliber team.

Looking further down the line, the auto industry will never look the same, and the future of these key sponsors and a critical regional source of employment is in jeopardy for the long-term. That said, will Detroit teams require, and should they receive a boost from the league’s central pool, similar to the government backing its local companies.

From a pure market size perspective it’s a border line top 10 DMA (11 to be exact), but the unemployment numbers, per capita income, and discretionary income numbers make it a candidate for help. Should leagues focus more on helping these owners, who have proven they invest in the team, have loyal fan bases, and can be a key market for leagues than the low-income owners that reap the benefits of revenue-sharing, yet do not add much value to the league.

Putting absolute numbers aside, using forward-looking marginal revenue metrics, leagues should consider if adding each dollar they subsidize Detroit with adds more value to the league and other teams than each dollar MLB subsidizes Pittsburgh or Florida, for example. Market size, ownership wealth, and absolute revenue numbers don’t encapsulate who most needs revenue sharing. Leagues should visit which teams need it at the margin, and how much value the investment (and it is investment by the other teams) can add to the league at large. Detroit – along with other traditional sports cities in struggling regions, are good candidates to consider in the short-term.

Can Fans Handle More Fantasy? Teams Should Find Out

Nobody can debate the power of fantasy sports and the value of the marketplace, currently dominated by football. Following typical economics, as customers showed their appetite for more fantasy, competitors have flooded the market with countless products, each claiming a different fantasy experience, or unique prizes. In the end, most of the products are similar and ESPN and Yahoo continue to dominate because of their established brand and unmatched scale.

However, one area I’m surprised content producers have not yet fully exploited is team-based fantasy games or contests linked to in-venue or in-game viewing. Football aside, other major sports have room for growth. In fact, basketball and baseball participation remains flat or down the past few years, so each could use some innovation to invigorate it. Further, the local nature of these sports lends themselves more to team-based games involving their home team and maybe specific opponents or rivals.

The concept aligns with the current movement for teams to nurture a community. Nothing stimulates engagement more than fantasy, so if teams can steer that engagement to their own websites, broadcasts, and live games, it could lead to indirect benefits in key revenue streams, in addition to creating a new branding platform. Further, teams control the assets (players), the arena, at least have a significant say in television, and have a complementary web presence. With this combination of assets teams could activate fantasy in a compelling manner through multiple distribution channels and have real, coveted prizes (locker room visits, luxury suite, road trip) with access that other fantasy outlets can’t offer.

Thus far, most teams and leagues have taken a backseat, allowing media and retail operations to claim much of the value they create. It’s time for teams to become more progressive, be willing to step out and be innovative. We can think of any number of ways to implement the game, that’s not the hard part. Making the decision to do it, marketing it the right way, and executing well are the keys.

Conversely, if teams don’t act soon, media outlets with focus shifting toward local will jump on it. ESPN <Fill in the City> already possesses the know-how and operations to extend fantasy to city and team levels. CBS can leverage its local radio stations to do so as well. It’s only a matter of time for RSNs finally to move on this opportunity they have sat on for years, especially with the ESPN putting the competitive pressure on.

Maybe the fantasy market truly is saturated, and fans simply can’t handle more. But, if I’m running team marketing or business operations, I’d rather find that out rather than let someone else cash in on my assets once again. A few small shops have started to poke around with Facebook apps (Watercooler), and a rogue game or two has emerged here or there, but when the teams or major media entities make the move, then it becomes serious.

MLBAM Postseason Deal Solidifies Key Premise in Digital

MLBAM announced a deal with Turner and Fox to offer a postseason version of its popular live streaming video package. I’ve read a few comments describing confusion over adding another product to the myriad of permutations that MLBAM already offers, but this should be a case study on monetizing digital content.

MLBAM is taking its valuable core content – mainly live baseball games, to which its held onto the digital rights to – and pushing it out through every viable distribution channel. Then it’s repackaging the content to develop a new offering of the same core content, charging users a fair, reasonable price for each unique offering

MLBAM is executing the Internet business model many write about, but few perfect. Taking advantage of the low distribution costs to put their content out in multiple places, understanding the profit margin increases with scale, so finding ways to deliver the same content to more people directly boosts the bottom line, and understanding the value of its content to strategic partners (i.e. Turner and Fox) and to customers in the marketplace. The $10 computer version or $4.99 mobile version may not sound like significant revenue generators, but in all likelihood the marginal cost to develop these products is next to nothing since it leverages the same technology MLBAM already uses all season and the same content and camera angles going to broadcast. Net result is a significant profit margin for the partners to share.

Of course, the other key factor is that MLBAM offers the best products. Aside from executing on the business model, MLBAM delivers a great user experience, and is more willing to try new technologies, new distribution, and new features in digital than any sports entity. The HD feed is ridiculously close to what you get through TV. The Twitter feed and social networking integration with TBS Hot Corner are fun value-adds to occupy fans during what can be tediously long games. Camera angles, Tivo/DVR-like replays and highlights, box scores and game summaries, multi-screen layout, it has almost everything fans want. They should consider integrating a live, real-time fantasy game involving the players playing in that game, but that’s an entirely different topic for another post.

Overall, MLBAM is a model for not just sports, but any digital business with valuable content trying to figure out how to monetize it. Focus on your core product, find as many unique ways as possible to package it, leverage every possible digital distribution channel, find partners to extend the distribution even further, and monetize it every step along the way.