• How a $300 million eSports Deal Could Change Traditional Sports Distribution
• Snap Inc.’s Effect on Digital Video
• The Evolution of MCNs and Rise of Digital-First Studios

How a $300 million eSports Deal Could Change Traditional Sports Distribution

By Jacob Carlson

In December, Riot Games agreed to a seven year, $300 million deal with BAMTech, giving the digital distribution company exclusive rights to build and monetize a PC and smartphone streaming application for Riot’s massively popular eSports title League of Legends. BAMTech will sell ads against the events and tournament broadcasts similar to a network selling ads for traditional sporting events. BAMTech also retains the rights to distribute the streaming content on other platforms such as Twitch and YouTube, allowing them to work out their own licensing deals with competing companies. The ramifications of this deal could be wide-ranging, but one of the more interesting effects could be a canary-in-the-coal-mine scenario for the major sports leagues and teams.

Live sports programming is extremely lucrative for networks and cable companies. It is one of the main reasons that networks are paying the National Football League a reported $4.6 billion this year for the rights to broadcast their games. The National Basketball Association signed a nine-year, $24 billion pact with ESPN and Turner just a little over two years ago. Live events drive significant ad dollars for these networks because the majority of the audience is not time-shifting as much as they are with regular programming, giving the advertisers better ROI and reach. Cable companies rely on these events to keep subscribers coming back every month.

However, the Riot deal with BAMTech gives the major leagues an opportunity to see if a digital-first distribution deal for a livestreaming service will pay off. Major League Baseball’s TV rights are up in 2021, the NFL’s rights are up in 2022 and the NBA’s are up in 2025. None of these leagues will want to disrupt the large cash flows derived from their current deals, but they will all have an eye on the future of content distribution. Considering the length of the agreement with Riot, the growing eSports market opportunity and the comparable rights deals for other sports, BAMTech is continuing to position itself as the premier partner for digital video live streaming and OTT distribution.

The risk for the leagues is that the market will shift before their current agreements expire. According to Parks and Associates, 63% of all U.S.-based broadband households subscribe to at least one OTT service and traditional pay-TV subscriptions continue to fall. Seeing these trends, owner Steve Ballmer and the Los Angeles Clippers purposely held back some of their digital streaming rights to experiment with new direct-to-consumer opportunities. The NFL has also been experimenting with various digital distribution partners, such as Yahoo, Twitter (who farmed out the backend video to BAMTech), Verizon and CBS All-Access. The leagues currently offer full-season digital subscription services, but the costs are prohibitive for many consumers, as opposed to the current ad-supported model that attracts millions of viewers per event.

Digital video providers are looking for ways to attract new viewers and subscribers. Netflix and Amazon invested $6 billion and an estimated $3 billion, respectively, on content alone in 2016. By the time league rights become available in the early 2020s, digital streaming services will be even more ubiquitous than they are today, creating a comfortable environment for the leagues to distribute their product without fear of losing the masses. Other deep-pocketed digital companies like Facebook and Google will also be in the mix bidding on the rights, as well as the future digital distribution platforms that have yet to be defined—2021 is still four years away, which is an eternity in the digital industry.

BAMTech’s strategy to maximize the value of the LoL rights will be important to validate the digital-first market, while creating a compelling consumer-facing product that keeps them coming back for more. One advantage is that LoL is a natively digital-first community, so there is no significant shift in viewing habits for an online streaming application. The other leagues will no doubt be watching and waiting to see if BAMTech can succeed in this new digital ecosystem. In the end, they may be vetting their next long-term distribution partner.

Snap Inc.’s Effect on Digital Video

By Jordan Pritchett

Since 2011, Snapchat has been an omnipresent force in the world of digital media for its meteoric rise in popularity as a multimedia application. In just five short years, the messaging app has grown to become a mainstay communication platform, particularly among tech savvy Millennials and Generation Z, through an innovative platform approach of self-deletion to encourage more proactive content creation and enable a more natural flow of digital interactions.

Ironically enough, when Evan Spiegel (Snapchat’s CEO) initially pitched the idea to his Product Design class at Stanford it was panned as a “terrible” idea that would fail to attract any sort of meaningful user base. Fortunately for Spiegel, in the time since, his peers couldn’t have been more wrong as the app users have flocked in droves, catapulting the company to the center stage of social media stardom that it currently enjoys today.

Snapchat has made a habit of proving its detractors incorrect. Not long after its initial success, Facebook came calling with an acquisition offer to the tune of $3 billion in 2013—hardly “chump change” by anyone’s standard, though it was ultimately refused by the Snapchat co-founders who felt that the offer was undervalued. This decision immediately became the subject of significant criticism. Yet, despite the mounting doubts regarding the company’s ability to effectively monetize, it continued to compound its success by spearheading several innovative features that have had a significant impact on the realm of digital video.

From its “Stories” concept (unabashedly copied by Instagram) to its use of augmented reality filters in its “Lense” feature, Snapchat has demonstrated a consistent and layered approach of building its following in a manner that has helped to reshape digital communication as a video-centric endeavor. And that strategy has paid off in spades. The app currently boasts roughly 150 million daily users, is reportedly on track to reach nearly $1 billion in ad revenue this year and is currently valued at $25 billion (8.33x greater than Facebook’s 2013 offer). The company is also rumored to be targeting Q1 for its 2017 IPO. Strange to think that arguably their best decision as a company was to turn down $3 billion! With hindsight being 20/20, I sure do admire their foresight.

Yet, amid all of this action, there is another strategic development that I believe has somewhat flown under the radar in terms of garnering the fanfare that it fully deserves. One that, to me, signals the company’s broader ambitions in the years to come.

In September the company announced that it had rebranded to Snap Inc., repositioning itself as a camera company, and concurrently released its first product “Spectacles” into the marketplace. These simplistic, blender-esque “smartglasses” stand in stark contrast to Google Glass (likely by design), but they are not without their own hardware. Spectacles are equipped with two separate camera lenses capable of capturing a 115-degree field of view that can then automatically sync with user “Memories”.

This move from mobile app to wearable device is a pivotal product extension that I believe will serve as a catalyst for the company’s trajectory in the years to come. Most habitual Snapchat users can sympathize with the unfortunate truth that impromptu moments have a tendency to go undocumented when it entails the cumbersome process of opening your mobile device and logging into the app—#2017problems. However, the introduction of Spectacles alleviates this pain point. Hands free snaps anyone? As such, Spectacles and its future iterations will not only expedite the users recording process but also bolster Snap Inc.’s content generation capabilities, and by extension grow the volume of its overall content library significantly.

This is by no means intended to be some earth-shattering revelation; however, I don’t think people have fully contemplated how critical it will end up being for Snap Inc.’s long-term growth within the content universe. As these wearable devices become more ubiquitous, it is very likely that vast quantities of people’s lives will soon be recorded and stored on the company’s platform along with whatever sporting event, concert or other experience they may happen to indulge in. Consider this in tandem with the growth of immersive experiences like AR and VR and the trend line begins to emerge. What we are witnessing is the evolution of an entirely new frontier for digital content—I’ll dub it “Social Reality Entertainment” (working title). The new content tier that crowdsources its production from the POV vantage of its users and where content discovery mechanisms become even more critical. Implications on privacy, licensing rights etc.? Yeah let’s not even go down that road. And while “SRE” is still in its infancy, I believe it could grow to become a viable alternative to traditional programming in the not-so-distant future. Certainly Snap Inc.’s rebrand has been remarkably subtle, but make no mistake about it, the long-run repercussions of this move will be anything but.

The Evolution of MCNs and Rise of Digital-First Studios

By Mary Ermitanio

In 2012, the first wave of investments into multichannel networks (MCNs) began with Discovery’s $30 million acquisition of Revision3. By 2014, the media and advertising industry spotlight was shining on MCNs, who were reaching the millions of viewers that were increasingly spending less time on traditional TV. Since the wave of investments that year (most notably Disney’s $500 million+ acquisition of Maker, Otter Media’s acquisition of Fullscreen and RTL’s $107 million acquisition of StyleHaul), MCNs have evolved from YouTube channel aggregators to digital-first studios and multi-platform media companies. They expanded their footprints across niches, geographies and formats, and diversified their revenue streams to include talent management, advertising, branded content, subscriptions and licensing.

Representative developments include StyleHaul’s launch of a new male lifestyle video destination Hauk, and AwesomenessTV’s new vertical, Awesomeness Music. Tastemade plans to expand its global footprint by creating localized channels in ten international markets.

MCNs have also expanded into film. AwesomenessTV and Fullscreen both have released films and have announced new ones in production. Studio71 (owned by Germany’s ProSiebenSat.1) inked a distribution deal with Paramount for many of its films.

MCNs continue to collaborate with traditional media giants, bringing in viewership and fresh content while the media giants bring the infrastructure and big-brand dollars. Whistle Sports and the NFL established a content partnership in which they would co-produce a variety of video formats across social platforms. Maker Studios has been folded into Disney’s Consumer Products and Interactive Media (DCPI) division, which is in charge of creating short-form content on digital platforms.

Across all initiatives, the most critical shift in the MCN model is the increased focus in producing and owning IP, which creates new monetization opportunities. Fullscreen launched its $4.99-per-month SVOD service—fullscreen—last April featuring a mix of originals, social media and licensed content. AwesomenessTV, in partnership with Verizon, also announced plans to launch a new content venture.

During the same period of the MCN evolution, dozens of new ventures positioned as digital-first or multiplatform studios were launched (New Form Digital, Gunpowder and Sky/Supergravity, Legion of Creatives, and Canvas Media—to name a few). In addition to these, digital publishers such as Woven and Buzzfeed, have turned up their video operations to hypermode. These new digital studios co-exist with MCNs in creating short-form and long-form content, some leveraging digital influencers, that can be consumed on all channels, especially social and mobile.

Many forces drove the evolution of MCNs and the rise of digital-first studios. First, social media platforms made video central to their growth strategies. The viewers followed and increasingly spent more of their video viewing time across social media platforms. Mobile viewers now watch videos on Facebook as much as they do on YouTube and Snapchat is not far behind, eMarketer reports. Facebook launched its livestreaming feature and Instagram Stories, and recently announced testing midroll ads. Tastemade and Mitu both have dedicated channels on Snapchat Discover. These video-centric developments provide content creators (and advertisers) with more options to reach and engage viewers and monetize their content.

The influencer channel aggregation model has also been challenged with the rise of marketing platforms and agencies who facilitate brand-influencer connections. Without exclusivities and other contractual flags, these make attractive options for many individual creators dissatisfied with MCN relationships. Marketers have also opted to go do directly to influencers, bypassing the MCNs. In response, MCNs have continue to beef up their value proposition to marketers with new services and expansion into coveted, niche demos.

Finally, the launch of dozens of OTT video services in the last few years and the competition among existing services created an increase in demand for content. Verizon’s go90 and Comcast Watchables together have made content deals with almost all major MCNs and digital-first studios. In a previous newsletter, we attempted to capture the drastic change in the number of services made available in recent years. Hungry for quality content, many were paying creators cable-standard licensing fees. Although this has undoubtedly promoted growth of the video ecosystem, acquiring and retaining viewers (and sustaining the level of content acquisition) will continue to be a challenge for these services due to the myriad options available.

These digital-first media companies are far along in the direction of developing and monetizing their own IP, not unlike established media companies. However, the advantages this new breed of media companies has, and the reasons driving acquisitions and partnerships, are their direct relationships with consumers, existing relationships with influencers of significant reach, and access to audience data and insights.