Tellynomics 38: Cautionary tales from the growing MLS/Apple struggles

A sure sign that a subscription product is struggling is when promotional offers become more and more generous. The surest sign is when the offers include another party giving the service away for free. This is the desperate reality for the MLS as the start of Apple’s season three approaches, with the MLS Season Pass now available for free (“for a limited time only”) to T-Mobile customers in the US. This is not a great surprise, and the broader story offers a series of cautionary tales for both rights sellers and streamers.

The money

A quick recap on the background financials. In 2022, the MLS agreed a 10-year global deal with Apple for a headline-grabbing $2.5 billion, or $250m pa, starting in the 2023 season. Since then, and we are now approaching season three, Apple has offered all MLS matches in an MLS Season Pass for $99 for the year (or $14.99 per month). These standalone prices are discounted to $79 (or $12.99 pm) if bought through the main Apple+ streaming service.

Is $250m pa a lot of money? If everyone pays the $79 fee, that requires 3.16m subscribers to generate revenue of $250m. That suggests that, with other fixed and variable operating costs to cover, more than 5m subscribers might be needed for Apple to break even on a profit basis. The calculus is, however, more complex, because some people paying the discounted fees are taking Apple+ when they would not otherwise have done so. For such people, the core Apple+ subscription price is also being driven by the MLS offer. So perhaps 5m subscribers is a touch too high for the breakeven number.

Sadly, there is no data to get a sense of whether Apple is on track. Apple has released no subscriber numbers, and there are no viewing figures to provide a proxy. But the general mood is not positive.

The format

The MLS follows a typical US competition format, with 30 teams playing a regular season in two “conferences”. Each team plays 34 games (28 matches home and away versus the other 14 teams in the same conference, plus a selection of six matches against teams from the other conference) in a league format. At the end of the regular season, the best 18 teams progress to the playoffs, with a knockout format, leading to the MLS Cup Final to find the champion.

Not as much exclusivity as initially suggested

Some wondered whether it was wise for the MLS, still trying to build its presence in the US and more widely, to do a deal with Apple, a relatively niche streamer. From the outset, however, the MLS clearly saw Apple+ as a narrow environment, so they would need wider distribution to avoid disappearing without trace and to provide sampling opportunities. Hence Apple has all the games but does not have total exclusivity.

Alongside the Apple deal, the MLS has a parallel US non-exclusive deal with Fox for 34 regular season games (one per round), plus 8 playoff games, plus the MLS Cup Final. This is a strong offer, bringing both regularity and key moments. It is, moreover, widely available to US general sports fans, many of whom remain in the traditional linear world with access to Fox and its sports channels.

The Fox proposition is likely to be enough to satisfy many casual MLS fans, as long as the game each week is of a good standard. If true, this means the Season Pass was only ever relevant to super-fans, those for whom a game a week plus the key post-season deciders is not enough.

New developments for this season

In recent weeks, even beyond the T-Mobile giveaway, there have been hints that all is not well, with Apple making several changes ahead of the imminent third season.

The MLS Season Pass is now available through DirecTV and Comcast’s Xfinity, for the standard prices of $99/$14.99. In one sense these are smart typical distribution deals in which you put your content where the customers are. But they tend to suggest that the initial plan to use MLS to drive people to Apple+, as a gateway to gaining access to MLS, has been watered down.

More significant for this season, Apple is now offering an MLS “game of the week”, in a new primetime Sunday slot, to all Apple+ customers, even if they don't take the Season Pass. To be fair, this is consistent with trying to add value to the core Apple+ proposition. It is, however, a substantial dilution of the Season Pass offer. With a game per week on Fox and, apparently, the best game of the week also available outside of the Season Pass, the need to take the Season Pass is less than ever.

According to the messaging from Apple, this new Sunday slot is being activated in the name of “sampling”, giving people a taste of what the MLS has to offer in the hope that they upgrade to the full package. But a “game of the week”, every week, on top of the Fox game per week, is more than a sample, it’s closer to a three-course meal than an amuse bouche. It smacks of desperation and is likely to be counter-productive, the equivalent of Sky, trying to get people to take Sky Sports, deciding to offer the top-of-the-bill Sunday 4pm Premier League match outside of Sky Sports in the basic tier. More likely to drive spin-down than upgrade.

Lessons, most of which we have seen before

What are we to make of all of this? The overall message is to reinforce a series of cautionary tales for rights owners and streamers alike.

• Ten years is a long time to be locked in to a media exploitation model, especially a novel and potentially flawed model. If it’s going badly for you, your best hope might be that it’s also going badly for the other side, which provides scope to agree to make changes. That seems to have happened here. Your other hope is that you were smart enough to build in a break clause, allowing you to renegotiate and there are suggestions that Apple did this, much like DAZN is rumoured to have done for top-flight French football.
• When a subscription offering is not releasing subscriber numbers, or even viewing figures, it is plan for all to see that things are not going well. Worse, when others are giving away your expensively assembled product for “free”, that’s not a good look, it devalues the product and tells everyone there is a problem.
• It’s tough to sell a paid-for proposition if a solid subset of your proposition is being given away for free. Beyond recent developments with T-Mobile, the extensive proposition on Fox comprehensively undermines the Apple plan. Yes, the Fox offering is part of core cable, satellite and vMVPD bundles, which are not free. But most sports fans are already paying for one of these, driven by demand for other sports, so for them the Fox channels are free at the margin. In this world, Apple is limited to a narrow target pool of the people who simply must have it all. Are there really 3-5m of these around?
• Using sports rights to force people to switch platforms or devices, or to take services that they would not otherwise buy, rarely works. People don’t like being manipulated, or coerced, and the gains from switching are almost always outweighed by the losses from constrained distribution. This is why Sky always supplied its sports channels to cable operators. Apple has taken two years to learn this lesson.
• The idea that DTC streaming is a kind of magic, a mode of distribution that can access wider audiences than the old models, is flawed. Time and again we see bold streaming-only strategies quickly give way to distribution through traditional platforms as a key element. Reach is important, for visibility and for the economics, which means that a hybrid of linear and streaming works best.
• Narrow – one-sport or, worse, one-tournament – offerings don’t work well. This has been shown time and again, with DAZN and Ligue 1 football in France the latest casualty. Experience repeatedly shows that sports work well in bundles, and sports bundles work even better when mixed with other content. It’s not clear how many times this basic economic lesson needs to be learnt before the message gets through.
• For sports rights owners, there is a trade-off between reach/visibility and money, and a fundamental part of the job is to decide where to strike the balance for the long term good of the sport. But key point to stress is there is always a trade-off. The MSL seems to have tried to have their cake and eat it, taking the money from Apple, as if they had sold them a strong subscription driving proposition, while also claiming reach from Fox. But the latter is killing the economics of the former and it’s hard to see this lasting ten years.
• Sampling (offering free stuff) as a means of driving paid for subscriptions is notoriously difficult. If you don’t offer enough, it has no impact, or worse, it creates a poor impression that damages the brand. But the more you offer for free, the more you undermine the need to pay to subscribe in the first place. You might hope there is an optimal middle ground, but sometimes there just isn’t. A middle ground can be both “not enough” to draw in the doubters and still “too much” such that it undermines the need for more serious fans to subscribe.
• The corollary is that if your service is not fully established, still growing and not well enough known that you think you need to allow people to sample, then a narrow, paid-for model offering might not be the right model for you at all.