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Financial Times
Financial Times
Business
Murad Ahmed and David Bond and Matthew Garrahan

Sports rights: The fight to keep the fans on side

By day Steve Grant is a web developer. The rest of the time he is devoted to football. The 33-year-old lives in south London and is a season-ticket holder at Southampton, the English Premier League club. When craving "real football", he attends matches at a local lower-division team. To feed his habit further, he watches matches on television. Yet Mr Grant is tuning in less as it becomes easier to follow the action via his smartphone. Sheepishly he also admits to watching unauthorised livestreams over the web.

He justifies this with reference to the "outrageous cost" of his Sky TV package. "People are paying £40-£50 a month, you can go and watch your home team for that price," he adds, explaining that he tried to cancel his subscription. The broadcaster - which has built its UK pay-TV business on exclusive football - halved the cost to convince him to stay. Even so, he is increasingly ambivalent about watching games on TV.

He is not alone in switching off. In the first 10 weeks of this season, TV viewership for live Premier League games on Sky fell 12 per cent year on year. A similar trend has occurred in the US with the National Football League, where for some American football matches viewing figures have been down by as much as 20 per cent.

It is a startling reversal for the two most-watched sport franchises in their domestic markets and among the most valuable leagues in the world. If the trend is sustained, it could be a critical blow to TV networks and sport groups on both sides of the Atlantic. Broadcasters are already under pressure as audiences drift to internet-based rivals such as Netflix and Amazon Prime Video.

Sarah Simon, an analyst at Berenberg, says that in an era of so much choice for TV viewers sport remains the one big driver of audience for pay TV operators like Sky. "If you take the view that this is a permanent diminution of sport on television, it would be very damaging," she says.

Last year, the Premier League secured a £5.1bn broadcasting deal with Sky and BTSport for the next three seasons, an increase of £600m compared with the previous contract. The NFL receives an estimated $5bn a year under its broadcast deals with Disney-owned ESPN, Comcast-owned NBC, Fox and CBS. Advertisers and corporate sponsors still spend heavily on both sports. The leagues are awash with cash - a bounty shared among clubs, players, agents and coaches. All parties are happy with the mutually beneficial model. But it can only survive if armchair supporters continue to tune in.

One US sport industry executive argues live sport on TV is suffering "death by a thousand cuts". The slashes are being inflicted by "cord-cutters" - subscribers who are ditching pay-TV for on-demand services, fans watching pirated streams and a millennial audience distracted by social media.

At the same time the media industry is set to be transformed by AT&T's $85.4bn offer for Time Warner, a deal that still needs US regulatory approval. The US telecoms group is betting that it can marry Time Warner's trove of content with its vast network of customers to sell entertainment direct to them. The deal could further change the way live sport is shown and analysts predict that it could spark a wave of consolidation. Sky is a potential target for 21st Century Fox, which already owns 40 per cent of the broadcaster.

TV companies and sports leagues are preparing for a post-television era. They are experimenting with shows transmitted over the web and watched on smartphones. Internet companies such as YouTube, Facebook and Twitter hope to lure rights owners to feature matches on their platforms. But it remains to be seen if live sport will be as profitable on the web as it has been on TV.

Sky Sports blames the decline in viewing on fewer big-name clashes at the start of the season. Sky says it registered a 3.5m peak audience during Liverpool's clash with Manchester United on October 17, its highest-rated Premier League game in three years.

"Premier League football has never been more popular in this country," says Richard Scudamore, the league's executive chairman. "It is way too early and there are far too many variables at play such as the timing, context and nature of the matches."

In August, viewing figures were down by as much as 28 per cent compared with 2015, as football clashed with the Olympics Games from Rio de Janeiro. However, Sky claims audiences have recovered, with October showing a more modest 2 per cent decline.

By contrast BT's viewing figures have risen by seven per cent for the first 13 matches of this season compared with the same period last year, largely due to a scheduling shift to a more attractive time.

"Let's see how this pans out," says Barney Francis, managing director of Sky Sports. "Evidently it's coming back and to suggest football is at a critical point is just wrong."

In the US, shrinking TV audiences for marquee sport events is causing concern. According to Nielsen, which measures TV audiences, ESPN lost an estimated 621,000 subscribers in October out of a total of more than 88m - the worst decline in the network's history. ESPN disputed the figures when they were leaked two weeks ago, saying they represented "a dramatic, unexplainable variation over prior months' reporting, affecting all cable networks". (Nielsen has reviewed its methodology and sticks by its figures.)

NBC lavished billions of dollars on the US rights to the Rio Olympics, but the games attracted 9 per cent fewer viewers than London 2012. Viewing for the opening ceremony was down close to 28 per cent, according to Nielsen.

The biggest surprise has been American football. For years this has been the most dependable televised sport, regularly attracting audiences of 24m and major advertising interest.

"NFL viewership continues to be in the doldrums," Barclays analysts wrote last week, pointing to a recent game between Indianapolis Colts and Houston Texans, which was said to be the least watched Sunday night NFL fixture in five years.

The sidelining of some top stars and competition for airtime from a tight US presidential election have dented interest. The decline is "primarily happening in primetime [on weekday evenings]," says Artie Bulgrin, senior vice-president of global research and analytics at ESPN. "Primetime ratings for cable channels like CNN and Fox News are up well over 200 per cent." In other words, viewers are coming home from work and catching up on politics rather than the NFL.

A leaked internal memo written by senior NFL executives Brian Rolapp and Howard Katz in October warned against panic, saying similar falls happened during the presidential contest between George W Bush and Al Gore in 2000.

Broadcasters and executives at sports leagues accept there are areas of long-term concern. Not least how to keep young people focused on the action amid so many digital distractions.

Ampere Analysis, a research group, found that interest in sport among the 18-24 age group is sliding. It interviewed 32,000 people in nine European countries and the US. Of those who chose sport as their favourite media genre, only 11 per cent were aged 18-24 - a figure the researchers judged to be 17 percentage points lower than expected.

Another issue is fans watching via unauthorised livestreams. "Piracy [is] basically a romanticised word for theft," says Mr Scudamore. "If someone walked into a shop, took something off the shelf and left without paying, that would be deemed socially unacceptable as well as illegal." The Premier League's chief says it is combating this "activity through a mixture of legislation, enforcement and education".

The rhetoric will be familiar to those in the music and movie industries, which made similar proclamations during their existential battle with online pirates in the 1990s and 2000s. Eventually, the sectors abandoned lawsuits against millions of potential customers in favour of deals with online providers such as Netflix and Spotify.

These industries accepted that customers would be charged less overall for entertainment. Having paid so much for sports rights, however, there is no sign that TV networks are willing to reduce their prices. In March 2015, Sky increased subscriptions just weeks after it agreed to pay £4.2bn for its share of the EPL rights.

"There is a point at which people decide between paying for convenience versus using some of the technology, such as streaming or using boxes or devices that people can get hold of these days, which are presumably illegal," says Duncan Drasdo, chief executive of the Manchester United supporters' trust. "I think there's a tipping point where people say, I'll rather use that than pay for the full package."

The disruption has left sports rights holders scrambling to make the shift to digital viewing, to offer fans other ways to keep up with the action. As well as giving customers the chance to stream games on mobile devices, Sky is releasing some highlights on its Facebook page and via Sky Sports' dedicated app. BT says it has seen a spike in viewers following games on their mobile phones, a trend it attributes to an offer it made to customers of EE, the network it bought in 2015.

"It used to be around 10 per cent of the audience watching online, now it can go up to 20 per cent," says Simon Green, head of BTSport. "Slowly but surely the proportion of online viewers is growing."

For sports broadcasters the question is whether technology groups will follow the disruptive lead set by telecoms group BT by challenging Sky and forcing it to pay what some saw as "over the odds". Bidding wars could be spurred by the strategies of YouTube, Twitter and Facebook which all see live video as central to their effort to increase their users.

So far, the internet groups have only made tentative steps. In April, Twitter signed a deal with the NFL to stream live Thursday night football games. Facebook also considered bidding for the contract. Twitter's deal was worth a reported $10m for 10 games, a pittance compared with what the TV broadcasters are paying.

Vishal Shah, a senior vice-president at the NFL in charge of its digital strategy, says the Twitter deal was an attempt to reach younger audiences and would not "cannibalise" TV viewership.

"I think you will see more 'over the top distribution' [online streaming] in the future and certainly with live sports," says Mr Shah. "[But] it is a relatively small audience from a viewership perspective versus television." Twitter reported that more than 2m users watched at least two of the games it broadcast in September. The same games attracted TV audiences of 17.5m to 48.1m, Nielsen says.

For the Premier League and the NFL, the entry of the tech companies could signal another boom. Japan's domestic football competition, the J-League, may provide a clue to the future.

Last year, Perform, the digital sport group acquired by US billionaire Len Blavatnik's Access Industries in 2014, bought the J-League's live online rights for the next 10 years in a $2bn deal. The matches will be streamed over the web via a new channel called DAZN. Taking a lead from the Netflix model, DAZN says it is not looking to lock fans into expensive, long-term contracts and will instead offer one-month packages that can be cancelled at any time. "We don't want to hold fans to ransom," says James Rushton, DAZN chief executive.

Rather than battling for sports rights, internet platforms say they seek co-operation with broadcasters. BT screened football's Champions League and Europa League finals on YouTube as well as TV, gaining 2.2m viewers. US networks such as Fox have created pre-match online-only shows.

Dan Reed, global head of sports partnerships at Facebook,says the company sees itself as a "partner" with traditional networks, sparking online conversations that push audiences towards the live TV broadcast. He suggests TV networks must change and adapt their broadcasts for smaller screens.

Compelling live sport will continue to capture attention. Major League Baseball has enjoyed one of the most popular World Series in decades, with the Chicago Cubs surging to victory over the Cleveland Indians last week in the team's first win in the tournament for 108 years. More than 40m people watched the games on Fox Sports, the highest for a World Series since 1991.

But as viewers become accustomed to watching sport in a variety of ways - on phones and tablets, in bite-size clips and over longer sittings - the TV and sport industry will have to become less reliant on millions paying to plug set-top boxes into their flat screens.

"Whether you think that is a good thing or a bad thing, there is infinite choice," says Stephen Nuttall, a former commercial director at Sky, now handling YouTube's media partnerships in Europe and Asia. "There is no going back to a world of restricted choice."

Copyright The Financial Times Limited 2016

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