August 20, 2012 by dannybishopcreative
An article in the Fairfax papers today flagged the possibility of the AFL selling digital vision of matches directly to consumers.
While the article uses the NBN to form the turning point of what appears initially to be a massive shift, in reality this has been coming for a long time. And far from being the massive change the article suggests, what we’re looking at is an evolutionary step that may finally provide AFL fans with the ability to consume their favourite game in a manner that is more 21st century than digital dark age.
It’s important in this discussion to understand the current lay of the land. The “broadcasting rights” for the 2012-2016 AFL seasons were signed off in 2011 and lumped a lot of things under the one banner. For $1.25 Billion the AFL sold their broadcast rights to three main companies; Channel 7, Foxtel and Telstra. The free-to-air will cost Channel 7 about $475 Million for 5 games a week, while Foxtel are handing over an extra $150 Million above that for the whole set of 9 games. Almost hidden off to the side was the reported $153 Million Telstra have agreed to pay for the digital rights over the 5 year contract.
$150 Million might seem like a lot to be allowed to host afl.com.au and the various club sites. It would require significant advertising revenue to cover this sort of outlay. In previous years Telstra have used the AFL rights as a flagship product, aiming to lure people to their ISP and mobile phone business arms. As a business model, it would have been a significant challenge to properly measure the impact of afl.com.au being unmetred for bigpond customers to Bigpond’s bottom line!
This year has been different. As of this round of rights, Telstra were provided with the digital rights to broadcast live games via mobile, tablet and their bespoke digital hub, T-Box. For $50 per year fans can purchase a digital subscription to watch games as they sit in a Taxi, walk the dog or their partner watches a chick flick (or perhaps another game) on TV at home. While there are significant issues with Telstra’s subscription service, there’s no doubt it is a potential game changer.
It’s into this landscape, where Free-To-Air, Cable TV and Digital Rights are regularly viewed by mainstream media as one big basket that today’s article comes to light.
Reading the piece by Lucy Battersby underlines this, especially the reaction of Foxtel’s spokesperson Bruce Meagher who responded with “Why would someone who is a sports body suddenly want to turn themselves into a media company? You would have to seriously question whether it is a smart move” (emphasis mine).
In quick response Mr. Meagher, you’d have to be as dumb as a bag of hammers not to look at this. However it’s the next quote from Bruce that makes me really wonder if his office is decorated in hessian and tools from Bunnings.
“That has been speculated on a lot. Nobody has actually done it yet anywhere in the world. There would be a very, very difficult transition to get over in order to achieve that .”
No one? No one anywhere? Not anywhere in the world? Ever heard of MLB.tv Bruce?
MLB.tv, the digital subscription arm that forms the backbone of MLB Advanced Media, is the best (but not only) example of the business model I assume the AFL will look to emulate. And before Foxtel sends a spokesperson off to shout “Whatareya? Stupid!?” at the AFL for exploring digital rights, they should probably have a closer look at something other than what they can see navel gazing.
MLB.tv offers a number of subscription options, from ball-by-ball data though to device agnostic vision subscriptions. It’s the vision subscription package here that’s most interesting. For $150~ per season you can watch all “out of market” games. Not only that, you can watch it on your iPhone, your iPad, your Apple TV and even some “Smart” TV’s, all from the one subscription.
And what’s this worth to MLB? Somewhere between $620 Million and $1B annually. (The numbers are not released officially. $620m is the figure speculated on in this review of MLBAM, my sources close to the matter have informally suggested its closer to the $1B figure).
In order to make sense of those sorts of numbers, the MLB broadcast rights (excluding internet) are currently worth a shade more than $700M per season. That figure, set in 2006, is expected to ballon to somewhere between $900M and $1B when the next rights deal is signed soon. Using the more current (if only approximate) value, that means that MLB will raise at least 38% of its broadcast revenue from its own Advanced Media division, and perhaps more than 50%.
Compare that with the AFL, who currently secure just 12% of their broadcast income from its internet rights.
When you look at those numbers, you’d have to question if repeating the same bidding process in three years will help the AFL raise that percentage. In my opinion it won’t. While Telstra is doing its best to improve its income from AFL by selling vision packages, they are a long way off the pace still. And while Telstra may see increased revenue and as a result bid more the next time round, the biggest question remains is there another bidder to bump the price?
And therein lies the crux of the issue for the AFL. Optus will no doubt be happy to make sure Telstra is forced to bid at least market value for the internet rights, but the one player in the game who stands to reap the greatest income from the digital rights is the AFL itself… and up till now they’ve been happy to hand the keys to the kingdom over without raising a fuss.
So what are the options for the AFL?
The first; sit back and hope that Telstra provide decent internet options for the millions of fans across the country. And in doing so simply cross its fingers that the value of internet rights increases.
The second; build a team that, come the next rights, could at least compete with Telstra’s product offering. And in doing so ensure that if the value of internet rights doesn’t reflect what they feel it is worth they can take them back.
To paraphrase Bruce Meagher, to rely on the former isn’t a very smart move.
Will the AFL look to the latter? With AFL media growing in size, numbering somewhere around 100 staff according to reports, it wouldn’t be a long bow to draw to suggest they’ve already started to build the team to give Tesltra a run for their money the next time round.
Are the AFL looking to replace Channel 7 and Foxtel? I don’t see that happening next time round. Maybe in 10 years the infrastructure and viewing habits will be different enough that internet rights come first and TV comes second, but not next time round.
So what then, of this meeting between the AFL the NBN? Well, that’s just due diligence when you’re gambling with more than $100M of income… especially when the incumbent currently owns the pipes your product travels on.