Tag: Fortnite

Most Important Story of the Week – 19 June 20: Live Sports Rights Get Another Big Bump

Does anyone else watch Penn and Teller’s Fool Us? Probably, though it’s not cool to admit it with all the great peak TV shows to watch. In my defense, if you have a four year old, it makes for good family co-viewing. (Narcos does not.) Anyways, I love the magic analogy for how business leaders should use the entertainment biz news.

Your eyes will be drawn to the shiny object, where the magician wants you to look, but the real action is happening elsewhere.

Take this week. You may have your eyes gazing at the AMC mask controversy. It’s buzzy and everyone’s talking about it. (I’ll mention this story with the bigger news, which was the Tenet date move.) Same for new email service Hey and their fight with Apple. (Which in fairness was inches from being the biggest story this week.)

If you’re looking for the story that really is important, shift your gaze to lowly cable channels TNT/TBS…

Most Important Story of the Week – Turner Sports nearing (another) record MLB deal 

Before I started writing this week’s column, I was thinking there was a chance that I’d finally update my series on “How Coronavirus will Impact…” on sports. Alas, there is too much to cover to fit in this column.

However, I can tell you that this little nugget of news will make that column. This Sports Biz Journal headline says it all

Screen Shot 2020-06-19 at 10.57.33 AM

Now first the caveat. The headline is that the average value of the baseball deal increased 40% for the average price per year. This is “true”, but also a bit misleading. And I’m here for nothing else but to take headlines and put them into a more precise context. So the raw numbers are that the previous deal cost $325 million per year and the new deal is $470 per year. A 40% increase.

However, the previous deal was 8 years long. The new deal is 7 years long. What this means is that in practice, year over year, the growth rate for sports media rights is about 5%. Here’s how this looks in a chart if you assume a 5% increase in sports rights year over year:

Screen Shot 2020-06-19 at 12.20.33 PMIs 5% a good growth rate? Absolutely. Many businesses would kill for their revenue to increase that much year over year. Is it much less than 40%? Yes. Be careful out their when reading big numbers.

Besides quibbling over context, what else does this mean for the business of entertainment?

First, we keep waiting for the big tech giant to make a splash…

Another major deal without a M-FAANG plunking down for sports rights. The biggest barrier to me seems to be reach. The worry is if you go exclusively with Amazon or Apple, for example, you’re artificially cutting off a big chunk of your potential customers. Sure, lots of folks have Prime, but many less know how to watch Prime Video. So the wait continues.

..And linear channels are NOT abandoning sports rights.

Most likely, because we live in times of huge uncertainty, the sports leagues continue to go back to their current partners. And they are continuing to spend the same amount even as always. Which is notable because there are definite signs of reckoning for both advertising spends and affiliate fees as customers cut the cord. If you revenues go down while your costs go up–which seems to be the case for TNT/TBS–that’s bad. (The likely thing to give is scripted programming at both.)

Second, for now, the market sees the impact of coronavirus limited to this year.

This is the first deal of the coronavirus era and it looks shockingly like the old deals. (See my next point.) If Covid-19 cancels the next MLB season, then this deal wouldn’t make any sense. Clearly the buyers of sports rights are assuming it won’t. Even then, it seems to me that most sports leagues are assuming business as usual when it comes to live sports. (More on this in a future article.)

Fourth, prices keep going up at a steady rate. 

At the end of last year the PGA extended its deal with CBS/NBC in a deal very similar to the MLB deal. (An announced 60% increase, but spread out over 9 years.) This point is worth repeating since the common sense seems to be that rights are increasing, when I’d say they are holding steady. Meanwhile, I have wondered before if we’ll see the sports media rights bubble pop. Instead, sports rights are fairly resilient. As such, I’d expect 4-5% combined average growth rates to continue.

(If you want to read my deep dive on sports rights, I’d send you to Athletic Director’s U where I went fairly deep on the subject. You can also download my data here.)

Runner-Up for Story of the Week – Apple vs Hey (and the streaming wars)

This week I happened to be rereading Deep Work by Cal Newport and he mentioned David Heinemeier Hansson, one of the partners of Basecamp and the inventor of Ruby on Rails programming language. I happen to follow the Basecamp folks on Twitter and I hadn’t made this explicit connection yet. (And yes, rereading Deep Work is a reminder that I need to “quit social media” and spend less time on Twitter.)

If you follow the Basecamp folks, though, you know that this week they launched their solution to email called Hey. They let users pay on their website, and of course the application is downloadable to iPhones–since likely most of their new users have iPhones and iPads. This is where the problem comes in. Apple objected to Basecamp, telling them that unless they authorize payments through their app store they’ll blacklist their application.

As others have laid out better, the core of this fight is over the fact that Apple controls the gateway, and Basecamp isn’t big enough to hurt Apple’s business on paper. (For example, Apple does not enforce this rule with Netflix.) But since they are a gateway, they can charge a 30% fee to essentially offer very little ongoing value. (Setting up the app store added value; maintaining it much less so.) What do we call a 30% fee for little value? Rents. Or taxes. 

We’ll see where this goes as for the anti-monopolist energy rising across America. In the meantime, I see two insights for entertainment:

Insight 1: Apple’s Service Revenue May Be Rising for Non-Entertainment Related Reasons

I’ve been fairly skeptical of Apple TV+’s performance since before it launched. (See here or here.) Yet, last quarter, when they had record services revenue, many analysts and observers credited this to their new multimedia efforts. Yet, take a gander at this quote from Stratechery’s Ben Thompson:

Screen Shot 2020-06-19 at 10.00.33 AM

The challenge for us as analysts trying to determine how Apple TV+ is doing is that it’s the blackest of black boxes in streaming right now. Well, Prime Video is pretty unknown too. But with Apple TV+, we don’t know how much revenue, subscriber or viewership they have. And given that Apple bundles everything from insurance to payments to music in “services”, untangling that knot will be impossible. 

This Thompson quote speaks to the idea that it is much more likely that other service revenue (think Apple Care or App Store) is driving the business instead of the multimedia stuff (think Arcade, News, TV+ and Music). That’s going to be my position until I see good data otherwise.

Insight 2: Any Decrease in In-app Purchases Would be Great for Streamers

In other words, this fight between Hey and Apple is just an extension of the AT&T and Roku/Amazon fights. Indeed, the terms are fairly similar. Roku, Amazon and Apple are hardware/operating system owners that allow third party apps. And they charge a 30% tax to work on their system.

If the antitrust authorities get involved, it could be a game changer for the streamers. Imagine a ruling in the EU that Apple is capped at 5% rents on in-app purchases. At 5%, the streamers would likely all allow in-app purchases. That’s much more reasonable fee. That would mean they could also potentially lower prices and still make the same revenue.

Is this likely? Not in the United States, but maybe in the EU. So it’s worth monitoring to see how these fees evolve.

Data of the Week – Xfinity VOD From Vulture’s Buffering Newsletter

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Most Important Story of the Week and Other Good Reads – 2 August 2019: Sprint & T-Mobile Clear Another Hurdle

Talk about an easy choice. I told you last Friday’s news about Sprint/T-Mobile would be the most important story of the week and nothing has stepped up to replace it.

The Most Important Story of the Week – Sprint & T-Mobile is Now Very Close

The merger of a German telecom giant’s US cellular operation (T-Mobile) with a Japanese tech-telecommunications giant US cellular operation (Sprint) is almost complete. It got the Federal government’s blessing via the antitrust division of the Department of Justice not moving to block it. This merger would fundamentally reshape cellular communications in the United States. Moreover, the deal would produce some strange winners and loses. But instead of recycling the “winners and losers” conceit, let’s try “who does this help, hurt or hinder?”

Help: AT&T and Verizon

And don’t let them tell you different. As the number of companies in an industry shifts, the amount of competition decreases and hence prices (and profits) rise. Eventually, if you get to one single company, well it becomes the monopolist pricing situation. In this situation, they extract all the value they can from customers. If you imagine this as a timeline of possible cell phone concentration, well we’re two notches from complete monopoly. 

Even if AT&T and Verizon have a stronger new competitor (and don’t forget AT&T tried to buy T-Mobile this decade), going from four to three competitors is good for all the incumbents.

Help: Dish (and its new mobile provider)

Dish is probably in the most trouble of the MVPDs as they face declining video subscribers, but don’t have the ability–like cable companies–to just raise the prices on internet access. (Better margins on that business too for cable companies.) As a solution, Dish has been buying up wireless spectrum with the now revealed plan to launch their own cellular network. If this merger had been blocked, Dish would have lacked that pivot ability and would have had to spend much more to get in the cellular game. Whether Dish can truly pull this off remains to be seen, but this merger will help.

Help: Softbank

Read Bloomberg’s Tara Lachappelle for this one:

Image 2 - Softbank

And that last sentence helps reinforce that this deal helps all the incumbents as well as Sprint/T-Mobile.

Hold: 5G Implementation

The biggest explanation for “why let them merge?” seems to be “for faster 5G implementation”. The challenge is that no matter what companies say to get approval for a merger, they don’t have to really do any of it. This line from Matt Yglesias’ article on the merger stuck with me, referencing Comcast’s merger with NBC-Universal:

IMAGE 3 Vox Quote

Even if the company’s promise 5G implementation, if they fail and they’re already merged, what is the government going to do? Break them up? When was the last time that happened? Under an Elizabeth Warren administration, maybe her Department of Justice would. Under everyone else? Probably nothing would happen.

Meanwhile, the easiest way to advance giant infrastructure projects is government spending on infrastructure. If you want 5G, you just pay cellular phone companies to build it. We could debate the method (direct government spending, low interest loans, tax rebates) but government spending gets things built faster than the private sector using capital markets. This merger may accelerate 5G investment but could just as easily not because of the lack of a competition motive.

Hinder: Antitrust Enforcement

Antitrust enforcement in the Trump Presidency (and this isn’t political, but about forecasting) has been very uneven. The Department of Justice sued to stop AT&T’s merger, even though Disney’s merger with Fox was arguably larger. Then Trump’s DoJ supports the T-Mobile/Sprint merger, even as it launches investigations into big tech for monopoly power. Overall, there is just a level of incoherence that a lot of smart people have pointed out.

Hinder: Giant Tech Companies

More consolidation means more control over mobile access to the internet, with potential restrictions on the big players from Netflix to Amazon to Google, depending on the service and need to access the cloud. At least that’s my near term take. Longer term, I’m intrigued by the theory that 5G will strengthen the cloud based companies, which could benefit Amazon, Microsoft and Google. Still, consolidation in one industry increases that specific industry’s buying and selling power, which hurts the businesses that have to use that platform. Fortunately for them, the tech giants are huge.

Hinder: Regulatory Certainty

Before the Department of Justice blessed the merger, many state Attorney Generals had sued to block the merger. That lawsuit may not start until December. So this merger may go through, or may still be blocked or in limbo for years. That’s uncertainty for everyone which is bad for business.

Hurt: Either Hulu or Netflix

Both T-Mobile and Sprint have deals offering free Netflix and Hulu respectively to their customers. Invariably, this flood of subsidized customers helps boost overall subscriber numbers. Will the new T-Mobile keep both deals? Unlikely, so inevitably one side will lose those subscribers from the mobile deal.

Hurt: The Unaffiliated Streamers

Related to the subscribers is one of the next “carriage wars” I described a few weeks back. Even with 5G, mobile data and bandwidth will be a weapon mobile carriers can use against streaming companies. In other words, if you only have three mobile carriers, they can demand extra fees to carry your streaming content over it’s airwaves. In economics, that’s called rent seeking. Given their leverage, it’s hard for me to see how that doesn’t happen. Which leads to our last point…

Hurt: Customers

I already told you this above, but some combination of increased prices or decreased quality is in the offing for customers. My most likely guess is a hypothetical roll out of 5G, but at much higher prices than in a competitive industry.

Other Contenders for Most Important Story

BritBox Plans to Launch in UK

Thanks to Twitter reader Jack Genovese for this suggestion. And even though I had Tweeted out the Axios Media newsletter on this last week, I somehow ignored it myself for last week’s column. The news is that BritBox, an ITV/BBC joint streaming platform that launched in North America will launch in the UK. Which feels slightly odd that the British are now in a territory where by definition all their shows are already, but in a cord-cutting world it all works out.

Tthe update this week is that all that good BBC back catalogue–the type of stuff that helped grow Netflix early on–is going to HBO Max. Which seems weird that it wouldn’t go to BritBox itself. My guess is that AT&T just had deeper pockets and is willing to spend a la Netflix in the early days. Meanwhile, Digiday says that while everyone goes Millennial, they’ve gone older to strong results.

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