Buyer’s remorse is the sense of regret after making an expensive purchase.
Realising a mistake, but too late.
Often, one of the main sources of buyer’s remorse is having knowingly overpaid for something, just to stop your rival getting the asset. This competitive tension is the essence of any good auction process, but it’s a lose/lose for the bidders. Even if you win, the regret of overpaying will be very real, as you likely know that it will cost you eventually.
Sports rights are always at their most expensive when the competitive auction is fully committed, and all participants really fear losing a cornerstone of their entire business. Think about Sky and the EPL, and map out when BT Sport came onto the scene to bid aggressively. Then, look when BT (now part of TNT) and Sky came up with a pact of non-belligerence and carriage deals. Values have plateaued. Receded on a per-game basis.
This auction dynamic is what determines the market price of sports rights, and it has little to do with underlying economic value of subscribers or implied ad revenues. Auctions just make people pay too much.
Big Media has been sports’ main client for over 30 years, and the engine of its exponential growth, so one should have concern if that engine looks to be showing signs of spluttering, or blowing altogether. And it wouldn’t be super-smart to put extra stress on the pistons right now.
And yet!
This is the context of today’s Sunday Column. It is really a diary entry about the media sector and the pain it’s about to endure.
Spoiler: (premium) sport comes out of this story just fine, for now.
Adam Silver is holding a pair of Aces.
Silver (the NBA Commissioner) is getting close to concluding the new rights deals that will materially determine the sport and media landscape in America for a decade, and it is as good a datapoint as you will get.
The insider gossip is that it’s going to be a great result for the NBA.
Perhaps less so for the media companies?
All this really really matters, and analysing big business deals like this is always about understanding the motivations of those who find themselves around the table. Play the Player.
The Three Interested Parties.
The sport’s rights holder (Adam Silver and the NBA)
The bidding broadcasters
The customer (sports fan)
The sport’s rights holder.
The NBA is one of those sports properties absolutely entitled to call itself “premium”. This is true even when the league is short of the superstar player rivalry of the Magic, Bird, MJ, Kobe, Curry, LeBron eras. It’s still true when much of the regular season has so very little sporting jeopardy. On that, here is one of the actual teams, the Bucks, letting that particular cat out of the bag. Oops.
The NBA is still premium sport, because like the NFL, like the EPL, it is culturally existential to the country’s way of life. Basketball is played in every town and city, central as much in ghetto bounce courts as in Ivy League colleges, and equally important on the coasts as it is in the fly-over heartlands of the MidWest.
In a country, now utterly polarised by culture wars, throwing hoops is still one of the few currencies accepted by all and sundry.
That’s insanely valuable. And rare.
With most of the other big sports rights deals in America now inked for many years to come, Adam Silver finds himself serendipitously at the centre of a corporate media death match, holding the plum asset of which everyone wants a piece. He has a strong hand.
Sport leagues aren’t difficult to understand, and the best CEOs and commissioners have gotten very good at what they call rights windowing: splitting their games over different packages to be offered to as many potential broadcaster bidders as possible, with one clear objective of maximising revenues and global distribution.
That’s always the simple mandate from their franchise/club owners.
Bring me money!
The NBA is looking at increasing its game packages on offer from the current two, to three, maybe four, ramping up to the max the FOMO of the media and tech companies.
Fear of Missing Out is the most powerful drug of all, everywhere.
The bidding broadcasters.
The rights to the NBA are currently held by ESPN (part of Disney) and TNT (part of Warner Bros Discovery) and both have had first dibs again this time. But the entire sector has moved on tremendously since the last deal was struck a decade ago, and that needs some thought.
Previously on “Media is Screwed”……..
The plot of the third season of AppleTV’’s “Morning Show” is anchored around the financial troubles of one such legacy media company being hunted down for acquisition by a Tech mogul (loosely based on Elon Musk). The fictional UBA launches a new streaming service around COVID time but it is losing money, serious money, and the share price has collapsed. The solvency of the whole UBA empire, and indeed its competitors in the same boat, is the leitmotiv shadow cast across the whole season 3.
The old very profitable cable bundle is disintegrating, with cut-the-cord, and younger kids preferring short-form content on their phones. All media conglomerates see the answer as some sort of direct-to-consumer (DTC) streaming platform, but these famous “+” businesses are actually bankrupting themselves investing in content to land-grab viewers/subscribers. It’s a bad model, and frankly the whole industry is thrashing around looking for a life raft.
As the season finale approaches, the faux-Musk decides it’s not even worth the bother to try and fix UBA, preferring to break it up into pieces, including its sports division, to capture more return on his investment.
Like all good fiction, e.g. “Succession“, it is not far from the truth.
In the real world, streaming businesses do indeed lose spectacular amounts of money.
Peacock, part of NBC/Comcast, has 34 million subscribers, thanks in large part to sport (NFL wild card), but its losses were $639 million in the last quarter. Analyst Rich Greenfield noted that it has lost $8.3 billion since its launch in 2020, and has an arithmetic CoCA (cost of customer acquisition) of about $244 for those 34 million subscribers.
Disney+, (HBO)Max and Paramount+, (and let’s add in DAZN), are all swimming upstream trying valiantly to at least break even. In the world of piracy, is that even possible?
Not if the price of sports rights are sold by auction to ensure they are eye-wateringly high!
You can see where this is going.
None of this is really fresh insight, and these excellent reports from my Altman mates up the road in Zurich are particularly sharp on Big Media and consumption. As noted, it’s not new, but always worth another dose of reality.
Simply put, there is now a content glut, (over)paid for by all these new platforms desperate for stuff to attract the audience; and to prevent churn.
In old money this was always called the “overcapacity” phase of the business cycle, and a clear signal to recession. Jerry Seinfeld, who got very rich on the legacy media model, and who knows something about content and American broadcasters, calls it a hosepipe that is doing nothing but confuse the customer. Yikes.
This is why this auction of the NBA is much more important, on all kinds of macro levels.
There are now just too many streamers, with too much content, and too much red ink. The wounded will need to be bayoneted, or merged. The average home and customer can’t or won’t subscribe to everyone, and most people think three is the maximum number. If one of those is Netflix, another often comes free as Amazon Prime Video, then the last is likely going to be ESPN/Disney. So what happens to Peacock (part of NBC Comcast), Paramount (Viacom/Redstone) or Max (Warner Bros Discovery)?
May you live in interesting times.
We are, in fact, now in the era of inevitable consolidation or rebundling, in truth a battle of rising/falling empires and alliances, analogous perhaps to the run-up to 1914. We all know what happened there.
War. It’s already started.
Make a mental note for now of who is NOT in this “cartel”. Comcast/NBC/Peacock. And that’s important on the Risk board.
The “Morning Show” plot is in fact bang on. Throw in the old traditional networks like ABC, CBS, FOX, NBC, aggregators like FuboTV above, and now Big Tech like AppleTV and Amazon Prime, and it is all frankly very messy and confusing. Even more for sport, in-market, out-of-market, its regional networks (all withering on the vine). The Bally Sports RSN went dark on Comcast this week. Imagine that.
Did I say that Big Media is not healthy?
The stock/bond markets have been telling this sobering story for a while, shorting companies that are all ex-cash and ex-profits, and who should be rationalising more for margins than for market share.
But this is a sector of celebrity CEOs with outsized egos. They all get off on a big deal, screwing their rivals, and hanging out with J-Lo. Or maybe that’s the other way around 🤷♂️.
In all this, the accepted wisdom is that they all absolutely need top sport content like the NBA, at whatever cost.
Why?
Because broadcasting is about the cheapest way to attract and retain eyeballs, and programming strategy has always been around some kind of belief in the inertia in the coach potato.
Come for the sport, come for “Friends“, come for “Thrones“, and stay for the catalogue of
the other crapeverything else we have.
This was also the thinking of the old music bundle called the LP. You bought 10 songs on the back of a couple of singles.
Sport is today considered the only “event programming” that still drags all the rest, and hence can command huge rights values. It is the only thing keeping people from definitively cutting the cord.
In all this 3D chess, younger generations, digital natives, are the complete opposite. They don’t play by these old rules, zapping impatiently on their phones among the short-form offerings of YouTube, IG and TikTok. How sport as entertainment content finds a product/market fit and revenue model for these generations is rightly the most worrying challenge in our industry, but frankly it isn’t even today’s problem for media executives. Sport rights are what matter right now, and the decisions around that investment are still all about millennials and older. So they are all trying to come up with a plan to make money on the legacy cash cow audience. And for good reason.
As Richard Desmond proved during 20 lucrative years with the Daily Express, habitual legacy customer bases take longer to die off than most imagine. – Charlie Methven Sports and Media Investor. AYNE.
Many very smart commentators focus exclusively and deeply on all this media strategy analysis, and our Column is modest enough to know that it can’t compete with that kind of hard vertical knowledge, especially when discussing the American broadcast market.
But, sometimes, the superficial outsider has the advantage of simpler Lt Colombo eyes.
Oh, one more thing… Does anyone think about the person who is expected to pay for all this? The subscriber? The sports fan?
In all those analysis pieces, they seldom get a mention. Listen to all the podcasts and read all the articles. It’s never mentioned.
The Customer (sports fan).
Sport’s greatest sin is without doubt in taking its fans for granted, thinking that they will always come back.
Sure they bitch a lot, but they will always buy, because they are fan(atic)s. Addicts even. So, to hell with the convenience, discoverability, and value-for-money of the fan.
This complacency will eventually do us all in, and is what all those wonky media strategists always forget. That somewhere, at the end of all their fancy value chains and flywheels, there is a customer who needs to feel that they are getting value for money.
Today, instead, they are getting mighty pissed off. The tickets for sports stadia in America are already prohibitively expensive, and fans have resigned themselves to watching the ballgame on TV. So be careful if you now mess with that.
Experts are underestimating how the American sports fan will react when their games are distributed across three or four different platforms that need to be paid for separately. The old cable bundle was a simple one-stop shop in comparison.
Europe has been like this for a while, where, even for a small sport like Scottish football, fans need to pay for myriad subscriptions. In Italy, equally, you will be marketed that Sky Italy has the Champions league rights, but imagine the shock when one realises that key quarter and semi finals are in fact on Amazon Prime.
People get angry and frustrated, and they will find the piracy solution.
Sports rights holders, and their media partners, are underpricing this piracy risk, in their rush to fragment their games for the auction. It is rampant even among people who feel bad doing it, because their conscience is cleared when their team’s games are on four different platforms. They feel they are getting taken for a ride. Firestick all day long.
…
Sporting gambling in America is exploding, so let’s have a little fun bet as to how all this plays out, as Silver watches on.
There will for sure be at least three packages. The market expects ESPN to retain its rights in reduced form, and Amazon Prime Video will secure another one (as its international distribution is very attractive).
That leaves one more up for grabs, in play.
Warners Bros Discovery (WBD) is the incumbent, and watching what it does will be hugely educational. This is where we will read very clearly the tealeaves on the entire future of Big Media.
Its new CEO, David Zaslav, has publicly stated that his mandate is to cost-cut across the board, and get to profitability. A year ago, this Column put a very red flag on his appointment for this specific reason.
The NBA auction was always going to be Zaslav’s acid test, and he actually had the chance to negotiate exclusively with Silver, but chose to let the clock run down on that.
Two possible reasons:
He is more of a finance hard nut than media egomaniac. He is committed to running a profitable business and has discipline.
Maybe.
More convincing an argument for me is that he is personally bonused on free cashflow, and not having that burdened by expensive sports rights will boost the bottom-line. And his bonus.
Always follow the money, and understand the individual incentives.
If Zaslav (Zaz) passes on the NBA, where does that leave his WBD, which would be at that point basically a sport-lite pure play entertainment conglomerate with very low morale? HBO and CNN are two of their brands also not currently feeling the love. If TNT follows suit, WBD and its CEO are in trouble. Their share price action in recent days points to traders seeing exactly this lose/lose.
Peacock/NBC will most likely be an aggressive bidder, doubling down on those horrendous losses, twinning the NBA with its EPL rights. Historically, they have always been associated with the NBA glory days and they want them back.
Here’s where you remember them being excluded from that “cartel”. Peacock having the NBA changes the dynamic entirely.
Google/YouTube, Netflix and Apple will all be sniffing around opportunistically, particularly keen on NBA League pass. and whatever the local rights market looks like.
…
So this Column’s prediction is for 3 packages won respectively by ESPN, Amazon, and Peacock. And some kind of local DTC solution with Google/YouTube. Maybe Amazon takes League Pass.
All of these people will, in my humble opinion, overpay in some way.
Zaslav will pass, saying that he can’t make the numbers work. He will then merge Max with Paramount +, if he keeps his job, but he will be pilloried in Hollywood as the person who lost TNT the NBA. Charles, Shaq and Kenny will be merciless.
Adam Silver will triumph all this with “an amazing top line number for its rights, and great distribution globally”. The sports industry will comfort itself in general that their product is still so special and all is smelling of roses.
That would be a very wrong take by very stupid people.
Firstly, the top line rights fees need to be considered in the light of 10 years of inflation and the similar amount of games. Apples for Apples.
Secondly, the media companies are already weak, and making them pay top dollar minimum guarantees in an auction is not intelligent long-term partnership thinking.
Most importantly, the fan of basketball will get the raw deal of having to pay for various packages, a clunky user experience around discoverability, disjointed storytelling across different narrators, and subsidising regular season games that many just won’t care about, to quote those Milwaukee Bucks.
The ancient world gives us a better summary of all this.
The winning bidders for the NBA will eventually educate themselves about a Greek leader called Pyrrhus. He beat off the Roman challengers in 279 BC at the Battle of Asculum, but bled his army to death in the process, and his whole campaign against Rome just couldn’t be continued. He himself had an old-world version of Buyer’s Remorse.
If we are victorious in one more battle with the Romans, we shall be utterly ruined.
Winning in Asculum became known as a Pyrrhic victory, and this is the destiny of all those who win the NBA rights. But also for Silver.
Sport can’t save Big Media’s broken monetisation model, but it shouldn’t hasten its demise. Better to keep your main client alive and healthy.
Bleeding them dry today isn’t smart.
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