Can DAZN thrive from the danger zone?

OTT has been the darling of the media industry for more than a number of years now. Sports in particular being a focus, with the often rolled out question “Who will be the Netflix of Sports?” Clue: It’s not Netflix.?

But could it be DAZN?

Well, as with most things in life – it depends.?

In this article, i aim to decipher and simplify the sports viewing marketplace into an easy to understand structure of macro stakeholders all vying for the attention of sports fans with differing hard and soft power plays.?

The key players are categorised according to descriptions general sports fans would understand as opposed to getting lost down a mine of elaborate acronyms to describe the multitude of options which determine the varying business models which exist across the market.?

I’ve also used the largest media market in the world, the US, and its most successful sporting Rights Holder, the NFL, to demonstrate the dynamics of the market from a competition, collaboration and integration perspective.?

And when looking at the incredible competition within the market i consider the numerous challenges faced by new kid on the block DAZN and explain why the Netflix of Sports analogy is misplaced.

I conclude with perspectives as to where the new battle lines may be drawn, the range of sectors new entrants may come from, and what this all means for fans.

So where to start??

The media marketplace is more fragmented than it’s ever been. There are more tiers, more peers, more players, more layers than ever before.

And the options for how to build or build-on a business model are as long as they are wide. Whether it’s making money from subscriptions or advertising, offering packages or total access, standard definition or HD, linear or on-demand, one device or multiple, the strategic choices are numerous.??

As a result, the lines between what many media businesses actually do has become incredibly blurred. Closer inspection of the market doesn’t bring clarity but reveals greater complexity.?

When you look at the market from an outside-in perspective, however, and synthesise it to its simplest purpose and form, this is about reaching audiences with content their interested in, at the right time, in the right place and on the screens they increasingly use.?

And within every market for sports content there are essentially five macro stakeholder categories looking to achieve this:?

1. Rights Holders

2. TV Operators

3. Networks

4. Streaming Services

5. Streaming Devices

So, how does this all work together?

Everything naturally starts with the Rights Holder. They can slice and dice sports packages any way they see fit be it by quantity, quality, geography, days of the week, live, highlights, mobile, TV, laptop etc.?

Generally, the division tends to vary according to the two main variables of content and devices.?

Rights Holders offer packages to the market either exclusively or to different parties with small or large differences built in.?

They can also keep packages back for themselves which they commercialise through distribution across the media landscape through the creation of their own products and services.

The traditional approach was to sell to Pay-TV Operators (usually big Telecommunications businesses which deliver TV services through cable or satellite) or Networks (generally content creators and curators) and let them drive the price up through competition.?

This worked for decades, driving exponential growth in sports rights fees, until the media landscape evolved and fragmented.

Pay-TV Operators and Networks collaborate commercially through carriage deals around content provision. Some relationships are driven by regulation others by strategy. In the US, the major Networks are generally carried by the majority of Pay-TV Operators and can also still be accessed terrestrially by the majority of US households with an aerial.

So, even if you subscribe to a Pay-TV Operator who doesn’t directly own sports rights you can generally still watch as a result of collaboration across the market. And if you don’t have Pay-TV then you can just use an aerial to receive the broadcast transmission from the Networks over the airwaves.?

With me so far??

Improvements in technology mean content available traditionally through Pay-TV Operators and Networks can now be streamed through the internet.

There now enters?a host of new players into the market in terms of Streaming Services (which only need the internet and the capabilities to host live video) and Streaming Devices (digital media players, smartphones, smart TVs, laptops, PCs,?tablets, VR headsets etc).?

The Rights Holder now has a host of new interested parties it can sell its packages to and the opportunity to get creative in doing so.?

As these businesses are looking to grow consumers, users, subscribers or viewers which can be advertised to, many of them are naturally prepared to pay for sports rights to build their businesses.?

So, the Streaming Services can now either buy packages direct from the Rights Holder or collaborate across the marketplace by helping?Pay-TV Operators, Networks or the Rights Holders themselves integrate their content into their Streaming Services.?

The traditional Pay-TV Operators and Networks by turn also create their own Streaming Services which either allows existing subscribers the flexibility to watch “TV Everywhere” i.e. on any device, or offers those without a desire to sign up to or continue paying for Pay-TV the opportunity to access some content through a sub-branded Streaming Service.

Added complexity comes from the fact all stakeholders across the market have for years attempted to reach new audiences through social media. So almost everyone, including the Rights Holders, have a social media presence, which means they also have the option to use these platforms as Streaming Services, subject to contract.?

The growth in the number of Streaming Devices in turn has opened up a whole new world of screens to reach fans on.?

For the most part Streaming Devices are enablers of the delivery of content for all parties across the market. But they can, if they deem it viable, also bid for sports rights.?

And in some cases, a select number of Streaming Devices have complimentary Streaming Services which they need content for. So, they collaborate across the marketplace to integrate sports content as part of an overall offering or as hosted channels and apps.?

What does this look like for the NFL in its home market??

The NFL is probably the most powerful Rights Holder in the world due to the incessant demand for its product from all corners of the market, so it has the power to control the distribution of its content however it sees fit.

The NFL divides up its rights into as many packages as commercially viable. It then encourages competition for each package amongst the market, while keeping some back for itself.?

A direct view of the market, however, wouldn’t look massively different from the traditional approach. A few big players securing the major rights.?

But what’s interesting is what happens to the market when you consider competition and collaboration amongst its constituent parts.?

It comes to life. And a multitude of new partners connect with NFL content.

The marketplace is as collaborative as its competitive

One of the simplest mistakes to make when viewing the marketplace is to see it as zero-sum. That everyone is in a fight to the death to capture audience. The market is a fully breathing, ever-evolving organism that thrives both on competition and collaboration.?

And sport is a catalyst for much of this. If you work your way through each of the individual businesses, you’ll quickly find their NFL offering.?

Due to the economics of the market it is almost impossible for certain players to survive without collaboration around sports content. The cost of rights are huge, and for those who buy direct there is a need to invest in promotion and presentation as well, so recouping some of these costs from collaboration is essential.?

For indirect partners, these businesses need users and the biggest driver of recruitment is and always has been sport. Sport then acts as a gateway into other content to keep viewers in their platforms.?

So almost everyone needs something from everyone else. With one exception. The tech giants - who pose the biggest threat to the establishment.?

Integration is driving clutter in Streaming Services

Integration is one of the most under-talked about areas of the market. Most of the hype is about new entrant’s vs the old guard. But this overlooks the behaviours of the traditional players.

While lots of Streaming Services have emerged from non-traditional parts of the market, there is a clear movement from Pay-TV Operators, Networks and Rights Holders in this direction as well.?

As a result, in the Streaming Services space there are now Pay-TV sub brands, Network sub-brands, Social Media brands, Commerce sub brands, Gaming brands, Content only brands and even Rights Holder sub-brands all vying for audiences.?

And some brands may appear to be challengers but are actually born from collaboration between existing market players e.g Hulu, or are heavily invested in from stakeholders across the market e.g. fuboTV.

So, it’s clear the new battleground is in Streaming Services.?

So, where does this leave everybody?

Rights Holders have more opportunities than ever before

If you’re a major Rights Holder with a marquee product like the NFL, then you’re in prime position. You have the opportunity to harvest value from all corners of the market by fostering competition for packages. You can also create your own direct to fan Streaming Service which can be commercialised through subscriptions and/or advertising.?

However, you need to ensure your strategy doesn’t result in a significant reduction in viewing figures or the potential collapse of the Pay-TV market.

What about mid-tier Rights Holders??

The same applies for mid-tier Rights Holders who may have had to play second fiddle to the big boys through the old model. They now have more opportunities to capitalise on the increasing competitiveness of the market and similarly can create their own Streaming Services to open up their content more broadly.

For those with the strategic and creative nous the opportunity to lock in long-term value is huge as witnessed by the European Handball Federation’s game-changing deal with DAZN and Infront.?

It also represents an easier way to get more of your product to fans who may have only had limited access through the traditional Pay-TV / Network model. The EFL’s iFollow being a good example of a Rights Holder taking this approach.?

What about the smaller Rights Holders?

At the lower level there will still be difficulties in attracting attention due to interest, scale and reach of the core product but the opportunities for experimentation now exist where previously there were none.?

So, for Rights Holders, the drive towards Streaming Services has created more opportunities than ever before, and at all levels of sport.?

But there are still major challenges.?

While the idea of obtaining or creating new means of distribution may seem a no-brainer, if the content doesn’t drive the numbers Streaming Services are hoping for deals won’t be renewed, especially if they also don’t contribute to building brand.

And while the creation of a direct to fan Streaming Service may well be a nice idea. 90% of the job is in the execution and Rights Holders don’t historically have the expertise in delivering projects of this nature which has the potential to undermine the quality of the product.?

So, Rights Holders need to have a clear understanding of how best to achieve greater reach and revenue in both the short and long-term before abandoning old models or betting the house on creating their own services.?

But there's no doubt now is the time to make hay.

Pay-TV Operators and Networks face existential threats

A lot of the press focuses on the decline of Pay-TV, and it’s clear that cord cutting is a growing problem, but declines are coming from positions of unprecedented power and strength.?

And the Pay-TV Operators and Networks still have plenty of power. Established brands in their own right, these businesses can leverage decades of experience, deep relationships and significant buying power to try and hold on to what they've got. For the time being, they also still own the majority of the major sports rights deals.??

It’s also much easier for them to evolve their business towards Streaming Services and Streaming Devices, whereas the rest of the market are unlikely to ever become Pay-TV Operators or Networks.?

However, there’s no denying that if the big tech giants go big on the major sports rights these businesses face existential threats.?

PWC’s “I Stream, You Stream” report found that “82% of sports fans would end or trim their Pay TV subscription if they no longer needed it to access live sports”.?

So, there is the potential for a House of Cards effect to the Pay-TV model, should major Rights Holders exclusively move packages to the tech giants.

Which is why major Rights Holders need to be abundantly aware of how their commercial decisions could potentially destroy the value their long-term partners have built up over decades.?

Streaming Services and Streaming Devices are poised to pounce

The majority of Streaming Services and Streaming Devices already have big businesses in their own right. Most don’t need sports content to survive but there’s no doubt they’ll all become much more engaged in the market.?

Amazon, in particular, has already seen the value in sports content driving Prime membership sign-ups which in turn increases purchase on Amazon.com. While they’re currently in more of an experimentation phase they're definitely the ones to watch.

With Facebook, YouTube and Twitter similarly in experimentation mode, it's clear the biggest holdback is the technical challenge of live streaming at scale rather than budget or willingness. Once these problems are overcome the real sport will begin.?

As for Streaming Devices, most of the hardware manufacturers seem happy to be enablers for the time being but it seems inevitable Apple will at some point make a major move into sports as it attempts to build a global Streaming Service to rival Amazon Prime and Netflix.?

So, the heightened competition which used to exist within the old Pay-TV / Network model has transferred to the new world of streaming.?

In light of this, the biggest challenge would appear to be in creating a Streaming Service, independent of other market stakeholders, with a sole focus on sports content.?

Which is why DAZN will be such a fascinating case to watch.

Will DAZN survive or thrive?

DAZN has deep pockets, which guarantees them a spot at the table. They also have the benefit of being born from a business in Perform with decades of experience in sports, technology and media.

They’re focusing on under-served audiences in under-served markets. Targeting the unmet need first shows an astute commitment to market orientation.

They’re making more content available than the competition because their business model permits it and the audience is responding to it i.e. watch as many matches as you want every week as opposed to the limited coverage available through traditional Pay-TV / Network routes.?

Being an internationally focused one-brand business also has advantages.

DAZN can build scale without competing head-on with established domestic giants in their home markets (for the time being), as they only need to capture a portion of the audience in every market to establish a large international footprint.

The opportunity to build a global brand with a consistent positioning will deliver communications efficiencies in the long-term. Especially as the majority of traditional players, although part of globally established conglomerates, are primarily domestic brands.?

From a rights and content perspective, they’re incredibly smart to target boxing and fight sports which are huge in the US. Boxing is an industry ripe for disruption in more ways than one. The Pay-Per-View model is one no fan enjoys. If DAZN can prove their model to boxing fans it could be game-changing.?

Tying up major fighters to long-term deals, as per Canelo and GGG, could also finally be a solution to the mess of the perennial conflicts between promoters and Networks which continuously prevents the biggest fights being made.

And of course, when they want to, they can easily leverage the vast potential for collaboration across the market.?

But DAZN faces some major challenges.

Building a brand from scratch takes time, effort and money. Doing so across a multitude of markets even more so. And DAZN doesn't have the privilege of being an endorsed brand or sub-brand of a major conglomerate or tech giant.

Meeting the unmet need of under-served sports fans will at some point hit a ceiling. To drive continued recruitment and growth DAZN will eventually need to compete for the major rights deals in the biggest markets. That in itself creates jeopardy as the size of the investment to secure these rights often carries significant risk if returns can't be achieved or offset.

And then there's the ever-evolving challenge of competing with the biggest players in the market (old and new) for differing reasons.

The Pay-TV Operators and Networks may increasingly see a need to secure broader sports content for their own Streaming Services and to protect themselves should they lose some of the major rights deals. With deep pockets and a long heritage of understanding how best to promote, present and distribute live sport they're likely to work down into DAZN's space.

The big tech businesses will step up their commitment as they become more confident in their ability to live stream at scale. With deeper pockets than anyone, global brands, captive youth audiences, and the ability to augment the live sport viewing experience through the integration of social feeds, messaging, co-watching or commerce, they present a clear and present danger to DAZN as they work their way up to the marquee deals.?

On top of that, DAZN also has to go head to head with growing power players such as the Qatari backed beIN Sports who are similarly looking to buy up sports rights across the globe for their portfolio of TV channels.?

So, DAZN needs to scale globally quickly, as a business built on sports rights and streaming alone faces the biggest hurdles to thrive and the biggest threats to survive.?

Why it’s wrong to compare DAZN to Netflix

While there are some similarities between DAZN and Netflix, the sports market is different to film and television.?

The sports business is built on live. The ability to watch something in the moment as if you were there. Netflix is built on a broad collection of original and licensed content you can watch any time i.e. On-demand.?

But On-demand doesn’t work as well for sport as people are drawn to the drama of what’s happening in the live moment. That’s its power. So, while Netflix attracted new users through original content such as Narcos, that won’t fly in the sports market.?

Furthermore, the traditional structures and stakeholder positions within the sports market are more entrenched than within film and television. The major Pay-TV Operators and Networks have built their businesses on sports rights. Fox and Sky would be nothing like the businesses they are today had they not changed the game with their acquisition of NFL and Premier League rights respectively.?

The idea these businesses are now so multi-faceted they can live without sports is a fallacy. Remove the sports and you still have strong businesses but the perception of the overall value amongst consumers and markets is greatly diminished. Losing film and TV rights by comparison is nowhere near as damaging.?

Sports rights aren’t about direct and immediate ROI i.e. we paid X for Y to achieve Z subscribers. Their value is way more integral to the overall viability and long-term sustainability of these businesses. Whole new businesses can be built on sports rights which is why the Pay-TV Operators and Networks will fight tooth and nail to keep hold of them.

Buying rights is also different within film and television. Netflix can buy rights from anyone who creates content. Within sport, however, the Rights Holder is predominantly the competition organiser - for the time being at least.

Of course, innovations and new sporting concepts from across the market are emerging which could increasingly test this.??

Live sport is also the only content which can attract massive audiences in one place at any one time, which is gold for media owners and advertisers alike. Again, this rarely happens with film and television.?

And this culmination of viewers around sporting events creates greater technical challenges in the streaming of live sports versus the delivery of on-demand content, which has already posed problems for Streaming Services with sports rights.?

110m watching the Super Bowl online may be the dream. But the reality is for now, that would be a viewing disaster for most.?

Will presentation of sports be the new battlefield??

While all Streaming Services work on improvements to the delivery of live streaming, one of the most noticeable changes occurring concurrently is how sports content is presented.?

DAZN’s research claims fans increasingly don’t want to listen to pundits pouring over analysis in studios, which guides their approach. At the same time, Networks are increasingly experimenting with new ways of bringing fans closer to the action on the field.?

It’s possible we may start to see a replication of what’s happened in retail, with an increasing polarisation between luxury experiences and quick and easy one click shopping, with everything in the middle struggling.

The binary choice would appear to be augmentation of the viewing experience via products such as Intel’s True View or strip presentation back to its most basic form with nothing but the action itself.?

But as the battle for audience intensifies, we’re likely to see much more experimentation in this area from fans fronting programming, commentary choices, co-watching, multi-screening, integration of social feeds, direct links to commerce, and personalisation of the viewing experience both in services and via aggregators.?

New competitors and collaborators can emerge from anywhere

With barriers to entry in Streaming Services much lower than Pay-TV there are a number of sectors from which competitors and collaborators can emerge.?

If deregulation of the gambling industry happens at speed in the US, sports betting brands may well look to buy up rights exclusively to stream through their own platforms. Combining live sports with live odds providing a point of differentiation in their presentation.

Messaging will be the next frontier for media. Facebook’s integration of Instagram, WhatsApp and Messenger being a major move as the shift from social to messaging starts to manifest itself. Could we see sports rights being streamed through messaging apps to capitalise on the trillions of interactions which already exist in a largely untouched space by content owners and brands? Could chatbots from within messaging become a whole new delivery vehicle for sports rights?

If Amazon ups its investment in sports, we may see greater competition on a global scale between the major online retailers looking to build out their Steaming Services, such as Alibaba and Rakuten. A reawakening of the West v East quest for global domination.?

And what about brands? Brands have often talked out becoming media owners in their own right with Red Bull being the poster boy for this.?

As brands look for new ways to reach audiences at scale could they throw their hats in the ring? Could Mastercard see sports content as an opportunity to ensure it’s the only payment solution for watching live sport online while owning an exclusive market to advertise to??

Software business are the invisible glue which join up lots of stakeholders across the market with their operating systems. Could Google and its Android OS buy sports rights and commercialise them through existing relationships with device manufacturers??

And what about enhanced presentation??Could innovative businesses such as Magic Leap with their mixed reality offering become the ground-breaking future of sports presentation? Will they see sports rights as the ultimate canvas from which to fully demonstrate the true potential of their products??

Finally, where does the fan fit in amongst all this change??

The complexities of the market are hard enough to navigate for seasoned professionals. Asking fans to work their way through the current maze of options is already problematic.?

Too much choice and not enough clarity may lead fans back to a comfort zone they’re already familiar with such as terrestrial or scare them off altogether.?

It's also somewhat presumptuous to believe simply creating a Streaming Service will naturally attract younger viewers who weren’t interested in Pay-TV subscriptions. That’s the where not the what of the problem. A declining interest in the traditional sports offering combined with a continuing obsession with the instant gratification of social media still pose threats to the industry as a whole.?

For dedicated sports fans who used to be able to access everything through one or two providers, their halcyon days are numbered.?Fragmentation means those who were prepared to pay for everything are now more than likely forced to make financial decisions on what they choose to watch.?

The quality of the product on offer is also beset by potential problems. Streaming Services are dependent on internet connectivity which can be patchy in places, and buffering is unacceptable for most when watching live sport. Two or three failures and people drop out and never return.?

Many subscribers to these services are also likely to look for additional connecting products to stream content from their TV via a laptop or smartphone. Hardly ideal.?

There’s also the problem of rights deals ending and moving from service to service much more frequently, meaning fans subscribe to something one year which disappears from the service altogether the next.?

And the problems some businesses face when they can’t ensure collaboration across the market creates further frustrations. Eleven Sports challenges with La Liga and Serie A rights in the UK being a prime example.?

So, from a user journey and experience perspective things aren’t great at the moment for fans.?

And that should be a concern to anyone in the market. Lots of complexity, people unsure exactly what they are signing up to, and poor service quality is something the mobile phone market specialised in for decades. Let’s hope the current state of play can be classified as growing pains and not strategy.?

On the flip side, this new era of streaming is facilitating access to more sports, more often, and across more and more devices.?

As the market eventually consolidates, live streaming at scale becomes as easy to deliver as a television broadcast, the presentation of sports becomes more immersive and interactive than ever imagined, fluidity of transition between devices and services becomes seamless, and anyone with an internet connection can curate their own sports viewing experience around individual tastes, then we may emerge in a new world far more rewarding than anything which came before.?

No pain, no gain as they say.