PARQOR Monday AM Briefing #39
The stories and trends in OTT streaming you *need* to know for this morning & the week ahead
Good morning,
First, a reminder that you are receiving this week’s Monday AM Briefing from Substack (and not Mailchimp) because I will be sending all PARQOR mailings from this Substack - parqor.substack.com - for the next two to three months.
Second, I created a coupon 90DAYS on both Substack and Memberful that will give a 33% discount for one year or $33.50/month, to any subscribers wanting to upgrade to Member Mailings.
A Short Essay on Sports Streaming
I last wrote about Fubo TV in July 2020. Since then, it has become a retail stock darling, reaching a price per share of $60, or over 12x its IPO price of $11 per share. What I liked about Fubo TV, and what investors also seemed to like, is that its value proposition is simple: a portfolio of sports streaming networks.
TMT analyst Andrew Freedman of Hedgeye has been among those beating the skeptical bear drum loudly on Fubo TV in my Twitter feed on this point. Here is one tweet in particular from two weeks ago:
Let’s play with that second point from Andrew for a second: “The future of sports in streaming is NOT linear.”
Last week it emerged that the NFL is ($ - paywalled):
…on the verge of signing new rights deals with media partners that could see Amazon.com carry many games exclusively and TV networks pay as much as double their current rate.
New agreements could be in place as early as next week, the people said. The television deals for the league’s Sunday and Monday franchises with Fox, CBS, NBC and ESPN are likely to run for as long as 11 years, they said.
ESPN’s deal would go into effect after the 2021-22 season while the Fox, CBS and NBC agreements would kick in after the 2022-23 season.
Fubo TV is a virtual MVPD (vMVPD)- basically, an OTT-only version of linear cable packages. So, looking through the lens of the NFL deal terms above, Fubo TV is arguably in a good place for sports distribution: the NFL is positioned to stay on linear distribution channels for the next 12 to 13 years, and Fubo TV will be distributing those networks.
Fubo TV is well-positioned to capture NFL fans with its simple value proposition of sports viewing.
The problem is, all four of these networks seem to be betting more heavily on their respective streaming apps than on the future of their respective linear businesses. Those streaming apps have more complex value propositions than sports-focused Fubo TV.
This means, all five networks are spending billions to buy these rights with the assumption that existing NFL audiences will migrate to watch NFL broadcasts across their respective streaming apps than via MVPDs or vMVPDs like Fubo TV.
So, back to Andrew’s point: it’s pretty clear the future of sports in streaming is NOT linear.
That said, it’s not unreasonable to ask what IS the future of sports in streaming, because it is not yet proven that streaming apps can scale with sports as part of the value proposition.
Amazon Prime Video is the market precedent here, as Joe Flint writes in The Wall Street Journal:
A move to put a chunk of NFL games—which typically dominate television ratings—exclusively on a streaming platform isn’t without risk. Amazon carried one game exclusively last year and drew an average audience of fewer than five million, much lower than the typical NFL game on broadcast television or ESPN’s “Monday Night Football.”
Super Bowl LV drew a record streaming audience of 5.7 million, topping last year’s streaming audience by 68 percent.
For argument’s sake, let’s assume five to six million streaming viewers per game as the benchmark to reach for all streaming services offering the NFL in 2021. Let’s put that number in context for each company’s streaming services:
ViacomCBS: 25% to 33% of its total subscription streaming audience of 19.1MM, or 50% to 67% of its estimated CBS All-Access audience of ~9MM pre-launch of Paramount+;
Disney: 42% to 50% of its ESPN+ audience of 12.1MM;
Fox: 16x to 20x the existing audience of the Fox Nation app (200K to 300K subscribers);
Peacock: 15% to 18% of its registered user base of 33MM;
Amazon Prime Video: 5% to 6% of its estimated 100MM U.S.-based Prime Video subscribers.
It is immediately evident how Amazon is the only service that has the most cost-effective marketing model to reach 5MM to 6MM subscribers. The risk it assumes in any deal with the NFL is how to market to existing Amazon Prime subscribers or Amazon.com visitors who like the NFL, and convert them into Thursday night NFL viewers. That’s a question of converting a small percentage of impressions of in-house inventory at zero marginal cost.
For everyone else, betting on the NFL for acquiring new subscribers off-platform will require additional marketing spend and subscriber acquisition costs. So, on top of paying double for their existing rights deals, all services not named Amazon are also going to have to spend to acquire 5MM+ subscribers to watch each of these games.
There is no rule of thumb for subscriber acquisition costs in streaming, but given that Fubo TV is sports-oriented, we can use them as a reference. Sales and Marketing expenses for Fubo TV in Q4 2020 were $29M, and there were 548K subscribers by year-end, that’s a Subscriber Acquisition Cost of $53/subscriber. To get 5MM to 6MM subscribers, that’s an additional $265MM to $318MM per quarter per year.
If the NFL is effectively across two quarters per year, that’s an additional $530MM to $636MM these services will need to spend to market to subscribers, per season, on top of the $1B to $2B they will be spending, per season. Without the “ubiquitous access” of Netflix’s marketing model, or the scale of Amazon’s existing model, I am struggling to see how these streaming services will be able to scale to reach the audience size necessary for recoupment.
The future of sports may not be in linear. But, if it is going to be in streaming, as a reference point Fubo TV’s marketing expenses tell us it is going to be expensive for the linear networks to broadcast NFL games via streaming, but it will be unusually cost-effective for Amazon.
Must-Read Monday AM Articles
Fubo TV also disclosed that it spent $45MM on California-based technology startup Balto Sports to enter the sports betting market by end of 2021, and says it could be taking bets in three states by the end of the year. Reader Frank Rinaldi wrote a good piece breaking down the sports betting market through the lenses of two factors: unit economics and regulatory considerations
After Sinclair Broadcast Group framed its poor results for its regional sports networks and broader business as reflecting a year “remarkable for its hardships”, journalist Matthew Keys reports customers of both Dish Network and Sling TV will lose access to a half-dozen regional sports channels operated by Comcast under the NBC Sports brand on April 1 when the company’s re-transmission agreement with Comcast comes to an end.
Bloomberg’s Gerry Smith dove into NBCU’s decision to pull “hockey, soccer and auto racing from the faltering NBCSN sports channel and handing that programming to USA Network”. Bloomberg also offers its own helpful deep dive into the NFL’s TV negotiations.
Former Disney DTCI Chairman Kevin Mayer joined sports streaming service DAZN as chairman.
Rob Shaw, Facebook’s director of sports league and media partnerships, argued in Sportico that the future of free-to-air distribution is rapidly approaching. Axios reports that Scripps is planning to create new national lifestyle networks that will leverage its recent $2.65 billion acquisition of free-to-air national broadcast company ION.
Former ESPN personality Jemele Hill argues that the pandemic proved that the American public’s emotional connection to big-money athletics “has been grossly overestimated”. John Koblin wrote in The New York Times about “How the Pandemic Stalled Peak TV”.
A similar question looming in streaming economics is in the recent shift of Hollywood betting on streaming over blockbuster box office movies. Forbes’ Scott Mendelson asks a terrific question: “if you have a choice between reporting comparatively underwhelming theatrical grosses or comparatively underwhelming viewership and subscription figures for your streaming service, well, which do you prefer?”
Julia Alexander writes in The Verge that with Apple TV’s opacity around its recent Billie Eilish documentary (which I found quite good), “figuring out what’s a hit and what isn’t is getting much harder to determine”.
“Raya and the Last Dragon” collected just $8.4 million in China over its first three days, and, lower-than-expected box office sales of $8.6 million in North America. This is roughly half of what non-franchise Disney films like “Zootopia” and “Moana” managed before the pandemic. Disney CEO Bob Chapek told the Morgan Stanley media and technology conference that “he believes there have been fundamental changes in people’s attitudes toward moviegoing, trends that will probably continue after the global pandemic passes.” Chapek also shed more light on the first 10 locally made “Star Originals” for Disney+, and Disney+’s local original content strategy
A few other media CEOs spoke at the Morgan Stanley media and technology conference: Comcast chairman and CEO Brian Roberts, who suggested Peacock could reach a distribution agreement with Amazon Fire TV soon; WarnerMedia CEO Jason Kilar, who told the conference that WarnerMedia and the movie business are still in “experimentation mode” with theatrical windowing; Starz CEO Jeffrey Hirsch, who revealed that “mid-budget films play better on our service than anything else”; and, ViacomCBS CEO Bob Bakish, who shared that Showtime’s edgier content is "more coastal" than the broader-based Paramount+ (which is why they remain separate).
The Financial Times had a terrific piece on Fox Chairman Rupert Murdoch ($ - subscription required), and the future of the Fox Corporation under his son, Lachlan.
We have been getting more transparency into HBO Max. Streaming Media Blog’s Dan Rayburn summarized all the upgraded User Experience elements that HBO Max has shared since launch. Executive VP of growth and revenue Brad Wilson, poached from Disney+, shared some details on marketing to HBO Max target audiences. Hannes Heyelmann, head of programming for EMEA at WarnerMedia shared details on HBO Max’s international strategy.
Recode Media does the math and asks, “Is Paramount+ worth it?” Julia Alexander of The Verge writes, Paramount+ “doesn’t feel necessary yet”. AllYourScreens Rick Ellis asks, “why use [Paramount] as branding if you're not going to lean into it?” Variety VIP’s Andrew Wallenstein predicts that after Paramount+’s debut, the field of top tier streaming services “is going to winnow”. ($ - paywalled)
Elizabeth Elkin of Bloomberg writes about how Paramount+ is putting the SpongeBob SquarePants “meme empire… to the test". Variety’s Brian Steinberg has a must-read article about Brian Robbins asking a simple question to Nickelodeon executives: “With so many characters populating the underwater city of Bikini Bottom, how come the network had never created any spin-offs?”
Discovery+ got a bunch of positive press last week: Tara LaChappelle of Bloomberg argued “Netflix Needs Its Own 90 Day Fiancé”, and The New York Times’ Ben Smith argues “You Can Watch 90 Day Fiancé for 100 Hours Straight”. This Verge piece argues “Discovery Plus is the perfect background noise streaming service”.
Alex Weprin of The Hollywood Reporter asked, “Where Do Niche Streamers Fit in a Sea of Services?”
Sara Fischer of Axios broke down Roku’s acquisition of Nielsen's advanced TV advertising division. Meanwhile, Madison Avenue “is cheering for the streaming wars”. This Media Radar blog post shares some data on “how OTT Companies are advertising themselves”.
Disney plans to automate half its ad business within five years, leveraging Hulu’s ad server as the initial building block. Hulu released its Generation Stream report last week, highlighting what it learned about streaming audiences in 2021.
AT&T’s announcement it would be spinning off its TV business — including DirecTV, AT&T TV, and U-verse - highlights how its TV strategy turned into “a giant mess”.
YouTube is beta-testing a new option that will allow parents to create supervised YouTube accounts for their kids, with special settings, digital well-being and privacy protections, and other controls. Meanwhile, a group of 20 advocacy groups alleged Tik Tok is still violating COPPA.
This piece from Jordan Guiao, a research fellow at The Australia Institute's Centre for Responsible Technology, argues that YouTube is going to navigate “a watershed year for regulating Big Tech”.
Patience Haggin of The Wall Street Journal dove into how The Trade Desk emerged as the one rival to Google with “the best hope to challenge the tech giant—if it manages to keep up its momentum”.
Last, it’s worth reading this interview with YouTube Music’s Tuma Basa on the changes in the music industry he’s witnessing across platforms.