The Netflix Of Sport
Simon Jordan - former owner of Crystal Palace - argued this year that the Premier League should aim to be the ‘Netflix of football”. Could it be?
As the new Premier League season approaches, it’s also the start of a new broadcast rights cycle and Amazon Prime will make their UK debut with 2 rounds of matches over the winter. OTT sports services are clearly A Thing Right Now and very likely also A Thing That Is Here To Stay; there’s no shortage of analysts who feel we’ve reached the top of the rights market.
“If you had 100m subscribers on Premier League TV, like you’ve got with Netflix, at £8 per month, you’d be bringing in £10bn per year, not £8.7bn [globally] every three years like the current [2015-19 broadcast] deal does”
Netflix Of Sports, innit. Why not. Obvious.
Well, the fun thing about Netflix and them being a publicly listed company is that their balance sheet and subscriber numbers are extremely easy to find and examine. So, let’s have a look at how the numbers might work...
Jordan’s figures would be extremely appealing to fans, who in the UK would have to pay up to £900 per year (£100pcm for nine months) for the 3 broadcaster packages they’d need to cover every single televised game (it’s hard to believe any individual would do this, solely to get All The Football. But either way, £72 for nine months in total sounds good by comparison).
This somewhat ignores what ‘Premier League TV’ would cost to build, market and maintain, however.
It took Netflix just over 10 years from their domestic OTT launch in February 2007 to reach 100m subscribers.
In Q3 2017 when they hit that milestone, Netflix took $3bn in revenue and had a net income of $185m. In the whole of 2017 (during which they grew from ~90m to ~110m subscribers), they took $11.7bn in revenue and had a net income of $559m (approx £414m GBP).
If you think there’s a big gap between the revenue and income figures there, you’re right: Jordan makes the point that Netflix have to buy/ create their content and indeed, during 2017 they spent $8bn on content acquisition/ production. Four episodes of Friends and exclusive rights to Uncle Buck, apparently.
Currently Premier League Productions - a partnership between the Premier League and IMG - handles productions for all 380 matches per season, including 40hrs of live content and 40hrs of magazine shows per week (amongst other output).
We don’t see much of that magazine content in the UK because Sky and BT Sports produce their own as well. Take those broadcasters away and arguably Premier League Productions would have to increase their output to meet fan expectations - not least during the off-season.
Removing broadcasters from the equation would have further consequences: they spend large amounts promoting their live output, which in turn helps to market the Premier League in the UK and internationally.
Additionally, as host-country broadcasters, Sky and BT Sport bring their own cameras to matches and have been instrumental in driving up the quality of coverage with new perspectives on the game. Would PLP as the sole broadcaster in the stadium have the same incentives to invest in new approaches?
So, if we generously assume that...
1. Production costs would remain neutral for an OTT service vs the current broadcaster model
2. Premier League TV would have similar costs to Netflix around marketing, technology and administration of the service ($2.8bn for Netflix in 2017 aka ~£2.2bn)
3. The FA and English Football League would agree to lift a 50+ year ban on domestic broadcast of matches on a Saturday afternoon, to enable a subscription service that’s cheaper than a season ticket for a League 2 club fans would churn out during the 3 month off-season
… then, at the point where Premier League TV hit 100m subscribers at £8 per month (for nine months a year, so £72pa), they would be taking £7.2bn in revenue and £5bn net income.
Not quite Jordan’s £10bn per year, but over 3 seasons that would be £15bn: more than the outgoing £8.7bn global deal, or indeed the £9.2bn that the 2019-2022 cycle will be worth.
The risk involved in reaching that point would be... high, however.
Building to 100m subscribers would take several years, inevitably with some missteps along the way (because this stuff is not easy to get right all the time; plenty of big names are bad at OTT user experience).
Parity with the 2019-2022 deal would require 42m subscribers at £72 per year. That took Netflix almost 6 years. And Netflix offer something for every taste, more or less. Certainly more than a single sport. Premier League clubs would have to vote for a short-term (but multi-year) drop in revenues, on the promise of a more lucrative long-term future.
The product could of course be priced higher than £8 per month and still feel good value (to core fans at least). The Premier League already has a substantial global brand and would hit the ground running faster than Netflix did. Off-season churn would not be total. A highly affordable package for fans would wipe out most piracy at a stroke, just as Spotify and Netflix (and others) have more or less done for their sectors. In the grand scheme of things, sacrificing some broadcast income for up to six years if it meant controlling their own product afterwards would make sense.
But… which six years would clubs vote for? The ones when they’re sure they won’t have any £350k per-week contracts to pay? Which generation of players would sign lower contracts in the Premier League for the future benfit of their younger teammates? And if the league doesn’t have the players, how easy will subscriber acquisition be outside the UK?
In my previous life at a record company in the 00s, we were often criticised for not moving with the digital times fast enough, for trying to protect revenues by clinging on to outdated models of physical distribution. Well, yeah. No-one was dead keen to take a 6-year break from making any money while investing enough in server space to have a crack at inventing YouTube or Spotify on our own.
Entering the OTT market is not a binary option, of course; rights-holders can and do dip their toes in the water; F1, NBA, NFL, UFC and other sports all have services active in some markets. At Seven League we’ve supported UEFA’s strategy around the launch of their OTT platform, which debuts this season. UEFA.tv is not replacing broadcast deals but is positioned as a complementary service, and includes non-UEFA competitions (e.g. Bundesliga content at launch).
As for going all-in on OTT though: if Netflix themselves can’t easily afford to be the Netflix of Sports - spending £9.2bn just for the Premier League would mean a ~40% increase on their 3yr content budget - can any league really take that chance?