Linear vs D2C: The Future Of Sports Media & Fan Engagement - Part 1

This is a story about the COO of a media business, that shines a light on the thinking underway at the leading edge of the media industry, where the balance shift from Linear Broadcasting to D2C Streaming is firmly underway.

As the media industry transforms to offer more personalised entertainment experiences, the business focus is to cross over from being a pure content company to being a customer engagement business that can serve audiences and partners in a new way.

This particular COO is driving a relatively rare type of media business, due to the combination of its characteristics. It combines linear TV and D2C streaming, is truly global, is focused on live & non-live sports content only, and has a mix of businesses across territories including linear-only, D2C-only, blended Linear-D2C, and a network of marketing, studio and technology services for rights owners and brands.

It is this balanced combination of linear and D2C, and the firm focus on the fast-paced and emotive world of sports that creates an intense crucible of experience to give this COO a particularly deep insight into the thinking required to succeed as a media business. Starting from this type of business, these thoughts can cross over to many types of different media companies to apply in their own domains.

A Content Business At Its Core

The core of the media business is content. In the linear domain, the business is to package content into a proposition for the consumer and deliver it through as many consumer-facing platforms as possible. In the D2C domain, the business is to provide a choice of on-demand, live and non-live and scheduled content that gives the customers a choice of what to watch.

New technology has enabled this transition to D2C delivery for live and on-demand content, which has created a much larger range of consumer choices. It has enabled the channel providers, and even the original rights owners, to be their own D2C businesses rather than relying on channel aggregators.

But now the media industry has produced such a large number of D2C propositions that consumers need to subscribe to many more services to see all the content they want. Because this becomes inconvenient and expensive, and is not always in the consumer’s interest, this in turn has opened opportunities for the re-bundling of D2C Apps and linear content offers by the incumbent aggregators (e.g., Sky, Comcast) and created new aggregators (e.g., Amazon, Roku, Smart TV brands).

From the perspective of a media business that previously just packaged content into channels, and now also offers D2C content services, the commercial choices to make between bundling and not bundling become business critical, because each business model is very different. But the first principle for a media business, is that content is the core product around which everything else revolves.

The Business Model Transformation From B2B To D2C

As our featured COO emphasises, the transition from selling content to content aggregators (B2B, business to business) to selling content directly to consumers (D2C, direct to consumer) requires a fundamental business transformation for a media business.

From a P&L perspective, content aggregators have had the power of the content bundle – bundling sports, entertainment, movies, kids’, news, and education shows. Different bundles can be created that appeal to different consumers, and the diversified business model has worked. In Europe, Sky’s 27 million subscribers across 3 countries is a prime example of the success of the bundle.

Multi-channel media companies have an advantage based on the variety of content they have. The media company with a single type of content, such as sports, often has the most appealing content on the market but also needs to find new innovative business models to succeed. The business model, at a high level, involves paying for content rights (that continue to be one of the highest costs). D2C distribution results in higher gross margins than linear distribution (because almost 100% of the revenue is returned to the Content Provider), but customer acquisition and customer management add new costs (which are not present in the content aggregator model). There is also a change to the revenue level, which can be lower compared to distribution through content aggregators unless customer subscriber levels are high enough. In the end, the break-even point is high in terms of the number of subscribers, and to achieve the right ROI is difficult without the bundle, but it is true that the D2C route also comes with huge opportunities.

Transitioning from B2B to D2C is therefore an entrepreneurial move to the world of potentially higher profits, in which the best companies could win big. But the risks are high as well.

Figure 1: comparison between B2B and D2C business models for a media business

Figure 1: comparison between B2B and D2C business models for a media business

For the COO of our featured media business, the current revenue mix is still significantly skewed towards the B2B model but with a growing D2C revenue line. In the coming years the business plan foresees a revolution in the revenue mix, as D2C revenue lines are developed for advertising, in-app purchases, in-app betting, in-app gaming, and new sponsorship deals for different pieces of content. The overarching goal is to diversify away from a simple reliance on the subscription fee by creating more ways to engage with customers inside the content platform that builds revenues in other areas, and ultimately by creating a more comprehensive experience for the fan.

Sports, arguably more than almost every other form of content, creates this opportunity to engage customers in multiple ways. Customers are generally fans, and fans want to engage deeply with their chosen sport, team, or athlete. A sports fan who subscribes to a streaming service could also be interested in buying a ticket to be at the next game in person or purchasing team merchandise. Their allegiances and deep connection with their sport also make them a key audience for rights owners and brands to engage with.

As this COO states, it’s important to be ready to experiment with what fans will value and participate in and understand how the business models can evolve, because fans will want to engage with content in different ways at different times and on different platforms. For example, they might watch the live game on the main platform/channel and then watch highlights in their preferred social media app. The media business must be ready to reach customers wherever they are. And in terms of engaging in new transactions with fans like shopping or betting, it is not necessary for the platform to build every environment, such as online merchandising or ticketing stores. Instead, partnering with expert suppliers to integrate their platforms into the media company’s app environment will be the way forwards.

For a single media company, this multi-faceted approach is in fact the all-important bundle that will help them succeed. It’s about being more than just a content company – it’s about being a customer engagement hub. For a sports media company, we could say this is about creating a fan universe. But as this COO points out, the core of the value proposition is always the live sport content itself. Therefore, a natural second focus is to produce non-live content such as sports lifestyle documentaries which is popular with fans and adds new value to the live offering. All the other peripheral elements should be created to increase the experience of the final viewer in the platform and give them more reasons to stay on the platform. The ultimate goal is to earn “engagement time” from the consumer, which leads to different ways to monetize the content, engage partners, and build the business.

The Half-time Break

Moving from a B2B to a D2C business model presents a big opportunity to media businesses, but also some significant risks. In the second half of our article our COO reflects on how media businesses need to think and operate in order to take advantage of this opportunity.

Access To Content

While the D2C business requires this new fan engagement bundle as described in Part 1, as a content business it is important to remain fully engaged with the various content aggregators in the industry. This COO spends a lot of time considering this point. To be a D2C business only is risky – if a consumer is not happy managing multiple apps, with their separate interfaces and payment arrangements, as well as a cross-platform content search challenge, then it is important to still be part of their content line-up when they make the personal choice to take a content package from a content aggregator. The important principle for this COO is to deliver content to the fans wherever they are and however they want it – whether that means a linear TV channel, as part of a content aggregator’s line-up, or in their own App.

From this COO’s perspective, there are a range of players positioned to be aggregators – cloud service providers, Smart TV manufacturers, incumbent pay-TV operators with broadband networks, and broadband & mobile service providers without pay-TV services. Any business with a broad relationship with consumers that facilitates aggregating content, offering a unified search function, and providing a one-stop payment gateway are positioned well.

A key consideration for D2C is the data that comes with it. One of the great advantages of establishing D2C relationships is the huge amount of information that can be gathered from audiences. When responsibly utilised – and there are many legal complexities to ensure personal information remains protected – this data allows media platforms to better serve their users, make smarter choices on content acquisitions, and much more.

Ultimately - when it comes to B2B versus D2C - it is currently unclear which model will win out for most media businesses. Big global brands like Disney will be able to aggressively pursue a D2C strategy because they have such strong brands and their content travels well internationally. They can more easily attract viewers and subscribers to their proposition because it is so recognisable. Other large players like Netflix and Amazon have a similar ability to operate on a global basis.

Sports is different, primarily due to the nature of sports rights and the more localised/national nature of interest in the content. It is also the case that sports are mostly watched live, which is a different dynamic compared to VOD viewership. What this does is create a natural partnership rationale for sports media businesses and broadband service providers to, together, deliver an excellent fan experience. Broadband providers could operate as aggregators of sports content or at least do commercial deals that help this live content reach audiences at the highest possible quality and lowest latency, which is particularly important for live content and audience satisfaction. It doesn’t mean that Telcos would buy sports rights themselves. This has happened and will still happen of course where Telcos want to participate in this type of business, but recent experiences indicate that there are more entertainment-centric businesses that are willing to invest heavily in sports content with the aim to monetise the content in ways that are more natural to them as media and entertainment companies. But as a minimum, the nature of D2C sports streaming could mean that Telcos continue to participate heavily in the successful delivery of live sports because of their vested interest in winning broadband and mobile customers.

Attracting Different Viewers

This COO is acutely aware that making sport attractive to a younger generation requires some changes to the traditional linear TV production and delivery methods. While older sports fans are generally happy to watch the full game or match on a big screen, the younger viewer is more “social media native” and, partly because of this, is more likely to value short form content. In fact, it could prove that to the younger generation the 10-second, 30-second and 60-second clips are the most important aspect of following their sport. Or perhaps a more immersive experience within a community of fans will be more attractive. Other theories are that younger language should be used in production for maximum appeal. It is easy to over-generalise – live sports still have a massive pull for fans of all ages - so the important point is to measure and prove the popularity of different formats with different audiences.

Another important idea for driving engagement is to use different monetization methods for each type of content delivery. Sponsor-supported, in-game purchases, and in-game betting could all be layered in differently depending on the viewer. But there is a recognition of the danger of ‘innovating’ the fan experience for its own sake. This COO stresses that the key is to introduce services that add real, tangible value to fans’ viewing experience.

A Content-powered Fan Experience Universe

With the D2C streaming model, sports media companies now have the opportunity to become Fan Experience Universes. Not many media companies have this opportunity – sports content is different from mainstream entertainment content because the level of engagement, emotion and passion is generally much higher. For this reason, in media businesses that have a range of content the customers are often called viewers. In a sports media business, they are called fans. With fans, the impulse to engage in subjects outside of the content itself is, by definition, higher.

It is therefore vital to focus on creating engaging experiences on multiple levels with fans. The media business does not need to replicate existing functionality and fan environments that exist elsewhere. What is most important is to create the opportunity for the fan to engage in that experience from inside the sports media business’s platform. And while consuming the sports content itself, the opportunity to engage is at its peak.

So, will a D2C streamer change its own self-definition to become a fan experience business? This COO thinks yes and no. No, because at the core of the value proposition must remain the sport itself and this is all about content production and delivery. Yes, because the importance of the peripheral elements that enhance the content is growing all the time.

Finally, it is time to reveal our COO, Alessandro Tucci of the ELEVEN Group which is often mentioned alongside the likes of DAZN and other sports media businesses with streaming at their core. So how does Alessandro summarise where the industry has been and how D2C changes things?

“The traditional media companies have content as King. Content is created and distributed via channel packagers and that’s been it basically. For the channel packager – the job has been to build a strong channel brand (“the Castle”) around the content offering. So the brand becomes synonymous with great content and is no longer reliant on any one programme. Viewers’ allegiances are with the brand, not any one show.

“The growing D2C model brings everything together in one place, with the fan at the centre of things. Content and brand are still key, but D2C also comes with many more ways to engage with the user and earn their time. So it is no longer a one directional service – the relationship between media platform and user becomes much more interactive and engaged. The D2C model also changes the P&L model. It brings together the revenues and costs (marketing, etc.) in one place and places more responsibility on the media platform to do it all. So, more risk, but big opportunities too.”

And how does Alessandro summarise the work ELEVEN is doing to build a sports media platform fit for the future?

“Ultimately ELEVEN is about connecting fans with the sport they love wherever and whenever they want it. By offering fans a ‘one stop shop’ for sport, we build deeper relationships with them and earn more of their time.

“While D2C is key to our business we don’t want to be limited by that. We want to make great sport content available to fans across all platforms in the most accessible ways and that means partnering with all players in the market to distribute our content to everyone. This ‘platform agnostic’ approach has been a cornerstone of our business since we launched in 2015.

“Live sport is the central hub of our offering – we deliver over 65,000 hours of live sport a season - but we also work to enhance it with top social content and long form programming. In NEO Studios, we are fortunate to have a fantastic studio arm that creates award winning sports documentaries and other content for ELEVEN and also third-party platforms.

“More than our content, we want to give fans a brilliant home to engage in their passion for sport. We are developing new services to engage fans in a deeper way all the time – whether that’s via ecommerce, or betting, or NFTs. Or by introducing new features on our D2C platform to enhance the live experience – like the Watch Together tool we launched a couple of seasons ago – which allows fans to follow games together from a virtual ‘living room’ and share the emotions of a game together.

“Building this deeper relationship with fans powers our core distribution business and also opens up interesting opportunities to service our rights holder and brand partners. Through our marketing arm Team Whistle, we can help our partners capitalise on the highly engaged audience we have built and communicate with fans in a really impactful way.”

The Final Whistle

The ultimate commercial goal of a D2C streaming business is to win more of their customer’s time. We all know that each person has a finite amount of time for entertainment, and in the media industry we are all competing for that time with each other and with other forms of entertainment like social media, reading, outdoor activities, sports, music, concerts, etc.

For our featured COO in this article, the overarching point is that once you can connect with a fan through live sport, the key is to offer more and more experiences that keep them on your platform, to entertain, inform, educate, and be as big a part as possible of their spending behaviour. At the final whistle, this is how success will be measured.

With contributions from Alessandro Tucci, Eleven Group COO.

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