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.

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