YouTube, Hulu Highlight Value Of Sports Content
BY ADAM GROSSMAN
Media rights deals have been the main engine that has driven the revenue values of sports leagues and teams for much of the past decade. The main reason that broadcast and cable networks, including ESPN, CBS, ABC, NBC, and TNT, have spent billions primarily for the rights to broadcast games is that sports represents the most valuable entertainment content. In particular, games are one of the last types of broadcasts that can consistently attract large audiences watching live content. One could look at the year-over-year increases in the most recent NBA regular season ratings as a proof-of-concept of the value of sports content.
The NBA, however, seems to be the exception to a troubling trend in sports. Last year saw ratings drop for “many sports on most networks,” while this year has seen Comcast drop the Big Ten Network from all but nine “home markets.” Even this year’s Super Bowl saw a significant decline in year-over-year ratings despite having teams playing from large television markets (Philadelphia and Boston).
That is why “YouTube TV, Hulu Engaged in Sports Sponsorship Arms Race” is a headline that should grab the sports industry’s attention for numerous reasons. YouTube TV’s current deals include being the presenting sponsor of the NBA Finals, WNBA Finals, NBA G-League, and World Series while also securing streaming rights deals with Los Angeles FC and the Seattle Sounders. Hulu’s current deals including being an official Partner of the NHL and NHLPA while being a presenting sponsor of NBA playoff games on TNT.
Why are YouTube TV and Hulu making increasingly large bets on sports given the seemingly declining viewership? Both companies are looking to diversify revenue streams to be not primarily dependent on advertising to generate revenue. While ESPN has struggled with subscriber losses recently, it still made $7.57 billion in subscriber (or carriage) fees in 2017. Other national and regional sports networks including FS1, NBC Sports Network and Golf Channel generate hundreds of millions of dollars in subscription revenue.
These subscriber fees demonstrate the significant demand for people wanting to pay for sports content, but the declining television ratings indicate that sports fans want to consume content in different channels. In particular, streaming services that deliver content through digital or mobile channels are growing in popularity.
That is the bet that YouTube TV and Hulu are making by acquiring streaming sports content now. Despite being well known brands, YouTube TV and Hulu actually have only the fifth and fourth highest amount of subscribers to their channels, respectively. YouTube TV (300,000 subscribers) and Hulu (450,000 subscribers) trail Sling TV (2.22 million subscribers), DIRECTV NOW (1.2 million subscribers), and Sony PlayStation Vue (500,000 subscribers). Both YouTube TV and Hulu are using exclusive rights to sports content as one of the biggest ways to increase subscribers and close the gap with their competitors.
Increasing the number of subscribers is not the only reason to acquire sports content. ESPN makes billions of dollars in subscriber fees because of the amount it charges each subscriber. YouTube TV recently increased its fees from $5 to $40 per month for new subscribers for all of its content. ESPN charges $7.21 per subscriber per month just for its flagship channel. Sports content is a big reason why YouTube TV felt confident that it could acquire new subscribers while still increasing fees.
The fact that YouTube TV and Hulu already face significant competition in the streaming space is particularly good news for the sports industry. Both ESPN and Bleacher Report recently released new sports streaming services. Facebook, Twitter, and Amazon have already streamed live games on their platforms, spending millions of dollars in the process. These are all positive signs that sports content will remain valuable even if the distribution channels change.
The new YouTube TV and Hulu deals also highlight an important lesson in sports sponsorship. Both companies signed these deals because acquiring these rights solve a specific business problem and enable them to directly generate revenue. Both the buyer and seller benefit directly from this relationship in ways that are easy to communicate. Teams, leagues, events, athletes, and other rights holders, however, do not always present sponsorship in these terms. In addition, buyers of sports sponsorship do not always seek deals with this direct business impact. Not every sponsorship agreement will have as clear cut of a financial impact as the YouTube and Hulu deals. However, these can serve as the goal to which buyers and sellers of sports sponsorship work towards when evaluating a potential partnership.