The future of sports broadcasts is changing. New channels and viewer preferences will shift to more customized, higher engagement formats.
Current Context
Broadcast sports are facing an inflection point. Streaming has surpassed both cable and broadcast and is now the leader in share of TV (Nielsen). The shift away from the cable bundle to streaming platforms is stressing existing business models as evidenced by the fact that Diamond Sports Group, the largest regional sports network, filed for bankruptcy this past March (CNBC).
Source: Nielsen
The shift away from the cable bundle is driven largely by cost. Historically, cable bundles forced consumers to buy packages that included several channels they really wanted, but also many more channels that they didn’t for a set fee. Contracts were often at least a year long. By contrast, purchasing streaming services is an a la carte experience, as consumers can more surgically opt into their preferred television programming and for a much lower fee than cable. Streaming services also have a lower switching cost, as consumers are billed monthly and can easily opt out of services they no longer want.
Source: CordCutting, CableTV.com
Despite all of these benefits, consumers still are financially limited in how many streamers they are willing to pay for. One-third of all cancellations are due to price, the second most common reason behind content quality (CordCutting).
Additionally, trends show that younger generations of fans are less interested in sports, and the ones who are interested are less likely to consume live broadcasts - opting for more bite-size options like highlight clips on social media. This threatens the dominance sports have had on television.
Gen Z, the oldest of whom are 26 years old, is becoming increasingly valuable as consumers. They are 9% less likely than all adults to like sports. And those who do like sports have significantly different viewing habits. Gen Z is 13% more likely to not have a favorite team, and are 15% less likely to have watched any of their favorite team’s games. Gen Z’s top 3 sources for sports news are YouTube, Instagram, and TikTok, compared to ESPN, Facebook, and YouTube for all other adults (Morning Consult).
Source: Morning Consult
The shift to streaming combined with the emergence of Gen Z and its sports viewing habits could severely impact sports properties’ media rights fees - their largest revenue stream.
The Future of Sports Entertainment is Live Engagement
Firms need to consider a holistic view of fan engagement as they evaluate strategies in revenue and media rights monetization going forward. In this discussion, we take a broad lens of firms that have a stake in fan viewership and engagement such as leagues, teams, franchises, media & streaming providers, and sportsbooks.
As a simplified explanation, leagues and teams generate revenue by selling broadcast rights to a season or a specific subset of games. Broadcasters evaluate streaming rights based on their potential to generate revenue through viewer subscriptions and advertising purchases. Advertisers, in turn, pay broadcasters for advertising slots valued upon the expected number of viewers. Similarly, subscribers pay the streaming service for access to view content available from the provider. The value of broadcast rights increases with higher viewership, creating a mutually beneficial relationship between leagues, teams, broadcasters, advertisers, and viewers.
To determine how best to increase viewership, firms should evaluate the fan engagement experience as cyclical engagements that can be broken down into distinct stages. The Fan Engagement Cycle framework is comprised of four stages: Awareness, Activation, Retention, and Referral as illustrated below. We suggest using this framework to optimize distinct but related strategies for each stage of a fan’s engagement.
The value of a fan increases as they move further to the right on the chart. Conceptually, any person in today’s digital world has a finite amount of attention over which firms compete. Those that can capture more of that attention have a more engaged user or fan. Value is created by converting that attention to increased mindshare and engagement as fans will devote more effort to watch sports and have a higher appetite for sports content. Fans further in the cycle should have a higher sports-related mindshare. We position the vertical axis as value rather than just revenue since the value can also be created via network effects, increased word of mouth, and greater awareness. Using this framework helps a firm to not only evaluate fan engagement but also develop strategies to nurture new fans across the cycle thereby growing the overall potential fanbase. It is worth noting that it may not be possible to move all fans completely up the curve. This does not eliminate the value that can be extracted from these fans, though. Firms will still be able to leverage engagement strategies that keep fans' value at a desired level even if maintained and not increasing.
Awareness
Awareness focuses on building knowledge for and piquing the interest of new fans. It involves strategies and channels such as advertising and marketing, social media, and campaigns to create familiarity in a fan's mind. This is essentially the top of the funnel in a classic marketing sense. Increased competition for consumer views and a fragmented media market have made it harder to capture attention, particularly for younger viewers. Firms need to stay on top of trends that best target current and future fans - particularly in the social media landscape. Social channels provide an opportunity for firms to engage directly with consumers but also the ability to deliver tailored content that will better resonate with a specific user. Similarly, younger generations often prefer personal or “real” content which can be seen in the rise of new platforms such as BeReal. Delivering short, engaging content through social media channels will continue to be a key tool in driving engagement with new or casual audiences.
A second tool firms can leverage are items we refer to as Sports Derivatives. These, in short, are assets such as shows and exhibitions that are rooted in a sport but expand to include additional entertainment value. Sports documentary series have seen massive success in recent times with Netflix’s “Formula 1: Drive to Survive'' series arguably being the strongest example. These series take a fly-on-the-wall approach to give a behind-the-scenes look at daily life in sports. They humanize athletes to a casual viewer making them feel closer to people in the sport. In the case of Formula 1, the series drew large interest. They converted many people from viewers of the series to fans of the sport culminating in a 10-year deal for the Miami Grand Prix, driven largely by the increasing fanbase in North America. However, the potential use of these tools is not limitless. The number of sports docu-series has increased over the last few years which may fatigue viewers to the concept.
Source: Statista
Sports firms can leverage the increased connectivity and an appetite for more “real” connections of younger generations to continue to drive awareness outside of traditional channels. Take, for example, the content streaming platform Twitch which is often used to watch esports. A recent study by Statista found that the time spent streaming on Twitch worldwide has jumped nearly 4x since 2017. Twitch provides an example of live, relatable content since viewers are able to interact with content providers directly and resonate with the activity being streamed. Twitch may not be the medium suited for sports in the future but it does provide strong evidence that leveraging interaction and relatable content can provide a good tool for acquiring user attention in the future.
Activation
In this framework, Activation is about getting individuals to watch sports. The primary driver will continue to be how entertaining the sport is. Is it filled with action? Do we get to see the athletes’ elite athleticism?
The secondary driver will be a sport’s presentation. It will have to keep up with consumers’ shifting interests. The shift to streaming and Gen Z’s preferences are going to necessitate further gamification of the broadcast. Over the past 10 years, ages 15 to 24 years old have swapped watching television for playing games. According to the Bureau of Labor Statistics, they have both the largest decline in hours spent watching TV and the largest increase in hours spent playing games.
Source: Bureau of Labor Statistics
Models for addressing this shift already exist. Fan Controlled Sports & Entertainment has launched a football league and will launch a basketball league in which fans control the action. In Fan Controlled Football, fans vote on who their team should draft and what plays the team runs. Based on their engagement, fans receive FanIQ points that increase their voting power.
Fan Controlled Football has experienced strong growth going from 375,000 fans per game at the start of season 1 to 1.39 million fans in the championship game of season 2, proving that there is appetite for this type of entertainment (HBR). It builds on the things that make fantasy football entertaining - testing fans’ strategic understanding of the sport - and could be a template for how major sports leagues and streamers reimagine how they engage their audiences. However, the competitive integrity of the game would need to be preserved. It would be too large of a departure to let fans actually control the decision-making and would face major backlash from coaches and players.
One could imagine that within a streaming app there’s an NFL-licensed game in which fans could pick the play they think their team should run. Once the play occurs, historical data could be used to determine how successful that play would’ve been against the opponent. Based on the likelihood of success, fans are awarded credits that could be used to buy NFL merchandise, game tickets, or access to other events. This way, the gaming experience serves as a gateway to the broader NFL fan experience. A game like this would need to leverage the technology that Fan Controlled Football uses to gather fan input with the AWS Next Gen Stats machine learning technology that can determine expected outcomes based on the gameplay. There are likely a few other technological hurdles, but the foundation could be based on technologies that are already in use.
Retention
Once a fan has watched a game, the real value comes from getting them to come back and watch again and again. MLS’ move to Apple TV was partially motivated by the data it could capture about its viewers, and that data can be used to curate a unique experience that allows viewers to start, nurture, and express their fanhood, and allows leagues and streamers to monetize it.
Companies like WSC Sports are already using artificial intelligence to automatically create custom highlight packages for clients to publicize in near-real time. The continued evolution of AI will shorten the time needed to produce Sports Derivative content and will allow for seemingly endless amounts of tailored content.
In the future, it’s possible that the leagues’ and streamers’ apps become a centralized hub for all of the ways in which fanhood is expressed. You might be able to purchase merchandise from Fanatics, place wagers through FanDuel, listen to podcasts on Spotify, follow your favorite athlete on Tik Tok, post your thoughts on Reddit, and play unique games all from the same app used to watch games. Streamers and leagues that are able to integrate as many of these outlets to fans as possible without disrupting the fan viewing experience could be at an advantage. The launch of FanDuel TV is a move in creating an entertainment ecosystem that uses television programming to drive sports wagering and, in some cases, uses its sports wagering platform to drive interest in other sports (SportsProMedia).
Referral
Ask an American fan of Premier League soccer who their favorite team is and how they became a supporter. Very commonly, they’ll tell you they had a friend or family member who was a fan. They may also tell you they watched a match at a supporters' pub and fell in love with the atmosphere. You can repeat this exercise for almost any sport around the world and you’ll likely find some kind of fan-driven effect. Fans are a powerful motivator in creating new fans. To that end, firms should capitalize on their biggest supporters and consider strategies that will drive existing fans to bring others on board.
The key to generating fan referral lies in creating an environment where fans get more enjoyment by involving others. Tactics and strategies discussed in the earlier sections of the engagement cycle lean towards creating an enjoyable personal experience for an individual to move them further up the curve. This is necessary to drive a base level of enjoyment that is leveraged to create referral interest. Referral strategies, by contrast, should focus on making the individual experience better and more enjoyable by sharing or involving others. Gamification is one powerful tool in developing referral behavior. The Fan Controlled Football concept discussed previously could be enabled for cooperative or even head-to-head participation. Similarly, a cooperative betting platform could challenge betters to pool resources and place bets in a “survivor” style series throughout a live event such as next play or next to score. We believe the best outcomes are achieved by developing strategies that socialize the sport and increase enjoyment by increasing the number of fans involved. Advancements in Virtual Reality such as Apple’s Vision Pro announcement also present opportunities to create engagement in alternate reality such as virtual watch parties or even taking on a position on the field against friends in new ways to gamify the watching experience.
Firms do need to use discretion in developing referral strategies, though. Users are quick to turn off to the idea of referrals if they come across as bad taste or without a reciprocating benefit. In general, most successful referral actions tend to be those that require little effort from fans while offering some kind of value in either monetary or social credits.