Event Horizon: Australian Sport and the Digital Age

Sports consumption in Australia is undergoing a transformation. ‘Streaming’ of sport through the internet and other non-traditional platforms are becoming more prevalent, changing the way we enjoy sport. However, Australia is markedly behind other nations in producing online content for its major sports. Why is this so and what are the potential consequences?

Why we have poor online services.

If you’re a fan of American sports, you know you can pay the NBA League Pass or its MLB and NFL equivalents, get access to live games as they happen as well as replays, all in splendid High Definition. You can plug your computer into your television and watch this on your big screen if you like. If it’s not a nationally televised game, you can choose to listen to either the home or away side’s commentary team. You can access this across all platforms – PC, IPad, or phone.

In Australia, similar applications exist for the National Rugby League, Cricket, the Australian Football League and the National Basketball League. However they lack the reliability, quality and flexibility provided by their American equivalents. Rugby League’s app doesn’t allow you to play games on devices bigger than your IPad – nor does the AFL’s app. The Cricket Australia application doesn’t give you access to all of the Australian cricket games. All of the apps are hamstrung by the slow internet speeds, and the quality remains noticeably inferior to television.

This unique combination of slow internet speeds, poor designed and developed apps, and issues with television rights has meant that Australian sport appears years behind the rest of the world when it comes to digital and online content.

The causes of these obstacles are many. Some claim the Australian Government failed in restack of digital services – a project that has stretched over multiple governments. The commercial channels were given free rein to dilute their bandwidth, which severely limited the space and will to develop High Definition content. OneHD were the only outfit that genuinely tried to produce this content for the free-to-air television market, and they fell victim to the financial troubles of the Ten Network.

Others suggest that the loss of the Australian Labor Party in the 2013 election has also been an obstacle. The development of the National Broadband Network, bringing optic fibre internet to the homes of over 90 per cent of Australians has halted under the new government.

To be honest, Tones is not that interested in communications infrastructure
To be honest, Tones is not that interested in communications infrastructure

The current government are instead they are pursuing the less ambitious target of attaching a fibre optic network to Telstra’s existing copper network.

It’s potentially cheaper, but will limit the capacity for the expansion of high-bandwidth products. Considering that the demand for development of online sport consumption is already outpacing the existing network, a lack of proper development will surely constrict development of online content.

Finally, the other issue is the influence of television rights on the development of online content. Unlike in the United States – where the NBA, NFL and MLB all sell their content directly to the consumer as well as to the big television companies – in Australia the NRL and AFL appear to have put in place deals with Foxtel and their free-to-air counterparts that severely limits the ability of the leagues to show their content on their terms. We noted earlier the restriction of showing online content to IPads and smartphones. The impact of this is significant for many who prefer to watch sports in groups on larger screens. It exists purely to protect Foxtel’s property right, not to grow the game.

The major competitions currently seek the safe money that comes from selling exclusive rights to Foxtel and the free-to-air stations. This ensures them exposure – you cannot grow your game without access to free-to-air – and allows them a certain monetary baseline over the life of the rights agreement.

Seeking to sell the product directly to the consumer through proper online production may reduce the growth of the sale of television rights. The NRL’s broadcast rights deal has grown from $500m in 2005, to over $1bn in 2012. The AFL’s rights deal, also reached in 2012 was for $1.2bn. Does the NRL want to risk a deal that will bring presumably substantially over $1bn? Does the AFL want to risk $1.5bn? It’s understandable that these organisations seek refuge in the certainty of television’s money, particularly given the unwillingness by governments to upgrade infrastructure properly.

Should ‘mixed’ rights packages be developed?

‘Mixed’ rights need not be a mixed blessing. An opportunity exists for these organisations to sell directly to the consumer – to properly develop apps that deliver an experience equivalent to traditional platforms. Given the increasing fragmentation of the media landscape, not doing so may actually be significant risk to the future growth of Australian sporting codes.

It has been noted that there hasn’t been ratings increases to sustain the ongoing growth of these rights. This ignores a new reality of advertising – there is no event television anymore; the market has fragmented. Sport remains the only entertainment with a captured market – it can only be watched live and thus is one of the few remaining areas of television where people have to watch the ads.

This moment was watched by over 4 million Australians. And within seconds: Ads!
This moment was watched by over 4 million Australians. And within seconds: Ads!

Depending on your metric, either the AFL Grand Final or the NRL’s State of Origin was the biggest rating event on Australian television last year. The World Cup Final will be the biggest rating event of 2015. Advertisers can book these events well ahead of time, safe in the knowledge that it is certain to be in demand. The risk is almost non-existent.

In America this has brought astronomical rights packages. The NBA rights package was recently extended at over US$2.6bn a year, more than doubling the roughly US$900m a year it was under the current agreement. It continues to rate strongly. The NFL rights package is in excess of US3bn a year, nearly double the previous rate, reflecting the already historical levels of popularity that league has engendered.

This is all despite the rights being ‘mixed’, allowing varying degrees of exclusivity, including direct sale to the consumer on online platforms. This all suggests a ‘mixed’ array of platforms could be pursued in Australia. The major sports do not need to choose between online and traditional models. Which begs the question, why are we so far behind?

The future.

The next broadcasting deals will present a fulcrum for the major sports in Australia. Some claim that there is no more money in free-to-air television to buy the major sports. For the reasons stated above, it remains to be seen if those concerns are indeed valid. Conversely, Foxtel’s entire business model relies on selling access to sport that cannot be watched elsewhere. If Foxtel doesn’t pay out for these rights it will lose many of its subscribers and struggle to survive. For Foxtel, maintaining a monopoly on as much Australian sport as possible is vital for it survival.

For the sports, free-to-air remains critical to growth. The number of Australians who will watch “Friday Night Football” just because it is on television is significant; and it remains the central platform to advertise the game. The number of Australians who are resistant to the idea of pay television but who are also resistant to new technology as well as watching sport on smaller devices at an inferior quality is also significant. While Foxtel provides a lot of money to the major sporting codes, in the short to medium term free-to-air continues to be very important for the big sporting codes.

Having said that it would be foolish not to recognise that digital and online consumption is the way of the future. And, just like in many industries before it, digital distribution potentially threatens the entrenched business models, such as Foxtel, that Australian sports rely on. For the health of Australian sport it is vital that the transition is managed effectively, so that future earnings and growth are not put at risk.

Given that the below 35 market is increasingly relying on non-traditional methods to consume all manner of things, a viable streaming service will provide choice in a more fractured, diffuse market than ever before. This will be necessary to keep young consumers “connected” and engaged with sporting codes as more and more of them move away from traditional forms of media. The risk is that if the transition is not managed effectively, a large percentage of potential fans could be “lost”.

For the foreseeable future, Foxtel, free-to-air and streaming all need to be part of the mix. Doing any of these things poorly will result in lost growth opportunities for all of the major codes. Abandoning one – as seen in the Super Rugby broadcasting deal – could significantly reduce the status and amount of money available to the sport.

Streaming is only a “new” kid on the block, but will become an increasingly important market. The obstacles – poor designed applications, a third world broadband network, and competing interests in broadcasting – remain.

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