Can sports broadcasting and virtualization continue to advance the value chain?

Oliver Suard, VP Marketing, Nevion.

As with many other industries in this day and age, the broadcast sector is constantly in a state of flux — regularly adapting and redefining itself to keep up with the times. There a number of different factors behind these changes — rapid advances in technology, the emergence of new competitors on the scene and the ever-changing demands and expectations of viewers, to name but a few — and each of them must be considered if broadcasters want to remain relevant.

To do this, broadcasters must focus on adapting not just their offerings, but also their operations, and by extension their value chain as well. Given the industry in which these businesses are operating, this makes perfect and logical sense, but putting everything into practice is much easier said than done. So, how can broadcasters ensure they succeed in achieving this?

At this point, it helps to look toward an area of the industry that is arguably advancing at a faster rate than others: sports broadcasting. Broadcasters in this field have been quicker than most to understand their audience’s expectations and implement the necessary technologies and/or innovations to keep them satisfied, and there have been numerous stories in the press across this year that reinforces this.

The first story is that 54% of millennials take advantage of illegal streams to watch live sports, which came in the wake of the Premier League’s crackdown on piracy. The second is the news that, in the UK, top-tier cricket is returning to the BBC for the first time since 1999, meaning that audiences will no longer have to pay a subscription fee to watch their favourite matches. And the third and final story is regarding Formula 1’s intention to develop its own OTT platform for viewers to access over the Internet.

At first glance, these three stories seemingly have nothing in common. But in fact, they are all disruptions to the established value chain of sports broadcasting.

This broadcast value chain has been in place for numerous decades now, and forms a major part of the modern broadcast industry. In a nutshell, it involves content owners selling the rights for the coverage of the sport to the highest-bidding broadcaster, who in turn charges viewers — via subscription or pay-per-view) for the pleasure of viewing the sport. This has become a lucrative business arrangement for both content owners and broadcasters.

However, as the first story we’ve mentioned makes clear, there are many viewers that don’t want to have to pay to watch their favourite sports, or at least not pay as much as the broadcasters are charging. This means that the battle against piracy has become a key concern for broadcasters both big and small, but the real impact is felt in the declining audience numbers.

Another reason for a sharp decrease in audience figures among broadcasters is the overwhelming volume of content that is constantly vying for viewers’ attentions. This content takes various forms, from sports broadcasts and video-on-demand services to short-form user-generated videos on YouTube, gaming live streams or social media activity.

However, there is evidence that points to the fact that the real reason for the decline in sports viewing is primarily due to the move away from free-to-air broadcasting.

For example, when the British Golf Open moved from the free-to-air BBC to the subscription-based Sky Sports channel in the UK last year, the viewing figures dropped by a huge 75%. This is a pattern that is repeated across a number of different sports as they continue their move towards subscription-based channels. Even the viewing figures of the hugely popular Premier League hit a seven-year low earlier this year.

Of course, the industry might argue that it doesn’t matter, so long as the remaining viewers can be made to pay even more money. But in the long-term, this approach can have a significant negative impact on the number of young people actually participating in sports. In 2014, the number of people playing cricket at grass roots level dropped from approximately 908,000 to around 844,000. Therefore, the announcement of cricket returning to a free-to-air channel in the UK should very much be seen in that context: a sport fighting to maintain its mass appeal.

F1 is another sport that is losing viewers. According to reports in 2015 when it switched to pay-per-view, it lost 25 million viewers. So far, the governing body doesn’t appear to have any plans to change its strategy per se, though it is interesting that it is looking into providing its own OTT service to reach viewers directly, especially those younger viewers who are watching less and less traditional TV.

Therefore, with the long-term popularity (and in turn the overall financial value) of their sport at stake, content providers will need to take note of the shifting strategy of sports content providers. Simply having the deepest pockets may no longer guarantee acquiring the broadcasting rights of popular sports. Revenue models based on free-to-air broadcasting may need to be expanded, potentially affecting the broadcasters’ bottom line.

The most worrying thing of all for broadcasters, however, would be the prospect of content owners bypassing them altogether and developing their own separate distribution strategy based on the Internet, targeting the growing number of cord cutters. This would signal a move away from traditional TV subscriptions and lead to a ‘disintermediation’, a term which will no doubt be used a lot within the broadcasting industry in the months and years to come.

When it comes to the value chain, sports broadcasting is just a single component of the wider broadcast content ecosystem that could witness a revolution. It is hard to predict exactly what could happen, particularly as we start look further and further into the future, but this could be the beginning of something big within broadcasting. The future might be uncertain, but it certainly isn’t boring.