Tag Archives: Business model

Is The End Near For Sports?

I know you might be thinking that my headline is just some outrageous form of click bait and that I can’t seriously think that big time professional sports are heading down the same path as traditional big media. Let me throw a few recent articles at you and maybe you’ll come to a different conclusion (which I do hope you’ll post in the comments).

The sports business is based on a few large revenue streams. One is income from the games themselves: ticket sales, concessions, merchandise, etc. What makes many of those things possible is a nice facility – an arena or stadium. We’ve seen franchises move (and piss off their fans) over the stadium issue, sometimes even before the bonds on the last stadium built for the team are paid off. I urge you to watch the John Oliver piece on the relationship between teams and towns but here is why I suddenly think there is an issue. As reported by Mondaq:

bill has been introduced that would eliminate the availability of federal tax-exempt bonds for stadium financing… The bill would amend the Internal Revenue Code to treat bonds used to finance a “professional sports stadium” as automatically meeting the “private security or payment” test, thus rendering any such bonds taxable irrespective of the source of payment.

In other words, it will make public spending on a private facility way more difficult. That will lead to fewer new facilities and a much harder path to growing that revenue stream. Strike 1.

Then there is the largest revenue stream for most big leagues: TV. Kagen recently reported that the U.S.pay-TV industry will lose 10.8 million subscribers through 2021, according to their latest forecast. You might already know that ESPN has been losing subscribers – May 2017 estimates were 3.3% lower than the year before. For every million subs lost, ESPN takes in roughly $7.75 million less PER MONTH – or $93 million a year, and they have already lost multiple millions of subscribers. Yes, some are being replaced via the sale of OTT services, but that requires spending to sign customers, something ESPN hasn’t had to do before. The same subscriber loss issue is true of every other sports network albeit to a lesser degree since their monthly fees are less than ESPN’s. Smaller subscriber fees mean a diminished ability to pay those large rights fees. Sure, other channels (some would say suckers) will step up – Facebook, Twitter, YouTube, and others. But my guess is that the outrageous increases many entities have secured over the last few rights cycles are gone for good. Strike 2.

Finally, costs are not going to go down, at least not without major disruptions such as the two recent NHL lockouts. Players aren’t going to make less (the downside of the salary cap), team personnel probably won’t, at least not without a lot of turnover, and many of the other costs are either already low (minimum wages) or difficult to cut (food costs in the concessions, etc.).  In an effort to mitigate some of the lower revenue and growing costs, some of the entities involved in sports are beginning to do what the airlines have done and make what was once part of the deal (in-flight meals, free bag check) part of an a la carte menu to grow revenue. Specifically, look, for example, at what NBC has done with their Premier League package. They are doing away in part with their NBC Sports Live streaming coverage in favor of a new premium streaming service called “Premier League Pass” that will be in addition to the matches that are already broadcast on live TV. The stand-alone streaming service will cost $50 in addition to whatever you’re paying for your cable subscription. That will bring in more dough but it will also anger fans. Strike 3?

Don’t misunderstand me. I think interest in sports generally has never been higher, and I think any sports entity that doesn’t rely on a big TV contract and employs athletes as independent contractors (I’m looking at you, LPGA) will be in good shape. I just think there is a major disruption coming in the next few years as we’ve seen in the TV and music businesses. Watch out as the next cycle of TV deals begins and if this bill is passed. It’s going to be a bumpy ride, don’t you think?

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Filed under sports business, Thinking Aloud

Death By 1,000 Cuts

When I was in the TV business, the most sought-after demographic was always young adults. While they often weren’t the key to the heaviest volume of product sales, it’s when we’re young that we build consumption habits and establish brand loyalty. Let’s keep that in mind as we look at some recent trends in media.

You’re probably not surprised to hear that cord-cutting – consumers ditching their cable or satellite TV subscription in favor of streaming and.or over the air services – has continued to accelerate. As the Techdirt blog reported:

MoffettNathanson analyst Craig Moffett has noted that 2016’s 1.7% decline in traditional cable TV viewers was the biggest cord cutting acceleration on record. SNL Kagan agrees, noting that traditional pay-TV providers lost around 1.9 million traditional cable subscribers. That was notably worse than the 1.1 million net subscriber loss seen last year.

They also noted that those numbers don’t tell the entire – and much worse – story. Those numbers report those who canceled an existing subscription. When you take into account the youngsters moving out of their parents’ houses or graduating from college and forming their own household for the first time, there are around another million “cord nevers” who are missed sales by the traditional cable and satellite providers. It really doesn’t matter what business you’re in. When you stop attracting younger consumers, you have a problem.

Why is this happening and how can we learn from it in any business? Techcrunch, reporting on a TiVo study, said that:

The majority of consumers in the U.S. and Canada are no longer interested in hefty pay TV packages filled with channels they don’t watch. According to a new study from TiVo out this morning, 77.3 percent now want “a la carte” TV service – meaning, they want to only pay for the channels they actually watch. And they’re not willing to pay too much for this so-called “skinny bundle,” TiVo found. The average price a U.S. consumer will pay for access to the top 20 channels is $28.31 – a figure that’s dropped by 14 percent over the past two quarters.

There is also the matter of convenience and personalization. Netflix, Amazon, and other streaming services do a great job in making recommendations and offering you programming based on your viewing habits. Has your cable operator done that for you lately?

We can learn from this. Cable operators who focus on broadband and “throw in” the TV offerings aren’t doing much better than those who don’t, since the overall out of pocket is sullied by broadband caps and other, often hidden, price increases that help the bottom line but only prolong the inevitable. It also just makes it easier for a lower-priced competitor to enter the market. I know enough about how the TV business works to recognize the issues with skinny bundles (it’s hard to offer channels on an ala carte basis due to contractual restrictions). We’re seeing more and more offerings that bundle channels outside of the traditional providers and that’s going to exacerbate the aforementioned trends as well.

What’s needed is a rethinking of the business model. Getting local governments to preclude more broadband competition isn’t a long-term solution (look at the wireless business!) nor it is the “free and open market” to which most businesspeople pay homage. Listen to your consumers and give them what they want, especially the young ones. Cord cutting isn’t some far off fantasy that naysayers have dreamt up. It’s here, and it’s killing you by 1,000 cuts. The rest of us can learn from this and, hopefully, not make some of the same mistakes. You agree?

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Filed under digital media, Reality checks

The Coming Vast Wasteland

Back in 1961, a man by the name of Newton Minnow was appointed to run the FCC. He gave a speech soon thereafter called “Television and the Public Interest” in which he coined a phrase with which he described commercial television, calling it a “vast wasteland.” He urged us to tune in our favorite station for a day and watch from sign on until sign off:

You will see a procession of game shows, formula comedies about totally unbelievable families, blood and thunder, mayhem, violence, sadism, murder, western bad men, western good men, private eyes, gangsters, more violence, and cartoons. And endlessly commercials — many screaming, cajoling, and offending. And most of all, boredom. True, you’ll see a few things you will enjoy. But they will be very, very few.

Fast forward 55 years. One can see something similar happening in our new media landscape. The public networks – Facebook, Twitter, Google+, Linkedin and others – are becoming vast wastelands. You might not be aware of it, but in the last year, more content is being posted on private networks such as Snapchat, Messenger, and WhatsApp than on the public networks. That private content tends to be what’s meaningful to people. What’s left is increasingly clickbait, corporate shouting, or, worst of all, content generated by bots. In short, a vast wasteland.

All of this is happening at a time when many companies are pushing hard to create and distribute content yet something like 80% of the content we publish is never seen by the intended audience. We are increasingly reliant as the shift moves to untrackable (by anyone other than the platform owners themselves) places on the folks who run the platforms for data. We can’t listen and respond to things that we can’t hear, and unless the consumer reaches out (vs. complaining to everyone they know in private), we’re deaf and blind with respect to being proactive and customer friendly.

The challenge for all of us is to foster engagement and to be proactively supportive. The expanse of the coming vast wasteland in the public networks is going to make that much harder, and subject to the will (and business models) of the walled garden gatekeepers. How do we address thins? Thoughts?

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Filed under digital media, Reality checks

57 Channels

Anyone with whom I speak these days has a lot to say about competition. Every business seems to have many more players going head to head for customers, and I suspect that nowhere is that more true than in the media business. The Boss wrote about “57 Channels And Nothing On” a couple of decades ago. He characterized it as having been “Shot back in the quaint days of only 57 channels and no flat screen TVs”, and 25 years later the average home can receive nearly 206 channels, according to Nielsen. What is instructive to anyone is business, however, is that they watch fewer than 20, or under 10% (19.8 channels, to be precise).

Obviously, consumers are spending just as much, if not more, time with video content. It’s not a matter of the video business being imperiled. What is a problem, however, is the manner in which the traditional business model operates. Video providers have bundled together dozens (hundreds!) of channels and sold them to consumers who really had very limited choices in breaking the bundle of channels apart. You’re beginning to see “skinny bundles” which focus on a few popular channels. Although I’m not aware of any “roll your own” packages in which a consumer can choose any channels and create their own bundles, they aren’t far off. Rest assured that if the cable and satellite guys don’t offer them, someone will.

Consumers aren’t rejecting TV – they’re rejecting a business model which forces them to pay for TV they don’t watch. That’s something that isn’t unique to cable and satellite. Fast food does it. You might end up paying more for something if you don’t want the fries or soda and, therefore, buy ala carte. Software companies do it. The music business did it (an album was always cheaper than buying the best songs on that album as singles). 5 years ago, researchers found that consumers might actually value a bundle less than they would value the individual component products. There was a “negative synergy” associated with the bundle. The key to successful bundling it seems is to provide an option to buy the individual components or the bundle. When that option isn’t there, sales actually declined significantly.

We can’t sit on existing business models anymore no matter what business we’re in. We certainly can’t force consumers to pay for things they don’t really want to get those things they do want. I’m watching the changes in the video business with great curiosity (and some degree of thanks that I’m no longer in it!). You?

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Filed under Consulting, digital media

Why Apple Improving Privacy Has Marketers Upset

Apple announced a bunch of new stuff yesterday including the release date of the newest version of their mobile operating system, iOS10. You can read about all of the enhancements here (or just about any other place on the interweb) but one thing you probably won’t hear about piqued my interest because it gets to the question with respect to ad blocking that we’ve pondered before here on the screed.

First, a little tech talk. Apple has something called IDFA – Identifier For Advertising – that they use instead of a simple UDID (your device ID) or a cookie (which don’t work well in the mobile space). It’s used to track you, serve you ads, and also for privacy controls. What they’re doing in iOS10 will change how the IDFA behaves. When you opt in to limit ad tracking, the IDFA will return a string of zeros, effectively opting the user out of advertising. It will also prevent the previously permitted “frequency capping, attribution, conversion events, estimating the number of unique users, advertising fraud detection, and debugging” uses of this ID.

Needless to say, many in the ad world are very unhappy. “Ad blocking is stealing” according to the IAB. Pretty harsh, but I get that it’s a reflection of the disruption in the attention/value equation that underpins much of digital commerce. Here is the thing, though. Other media, many of which were built on the same equation, suffer from ad blocking and yet have figured out other business models. One blocks ads on TV either by watching on a delayed basis and skipping through the ads or by changing the channel until the program returns. Way back in the ’70’s, my fellow TV execs cringed at the thought of VCR‘s and felt they would irreparably harm the business. That thinking was repeated when DVR‘s (now at over 70% penetration) came out. Both lines of thinking were wrong.

The same is true of radio. No one is thinking about removing the buttons from your car that make it easy to change channels, nor is anyone thinking taking away your TV remotes would be a good thing. Ad blocking in print is as easy as turning the page. There is research that found people only fast-forward through about half of all ads during playback, and other research has found that even fast-forwarded ads make an impression on viewers. Even so, the business model for TV has changed a lot, and “ad blocking” was part of the impetus for that.

Maybe instead of worrying about Apple (or consumers, for that matter) doing what they can both to improve the web and mobile experience and to protect privacy, those of us involved in the digital marketing ecosystem need to keep refining our business models and whine a lot less? What do you think?

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Filed under digital media, Reality checks

Scum Of The Digital Earth

I read something the other day that made me sad and then angry. It’s the sort of thing that lessens my faith in humanity, although as I describe it you’ll probably just say I’m naive. It concerns the PPI business. What’s that? It stands for pay-per-install and the companies involved in it, some of whom are business names you’d know, are the scum of the digital earth in my book. Why is that?

First, what exactly is PPI? According to the folks at NYU who did some research on this topic with Google, commercial PPI is a monetization scheme wherein third-party applications — often consisting of unwanted software such as adware, scareware, and browser hijacking programs — are bundled with legitimate applications in exchange for payment to the legitimate software company. When users install the package, they get the desired piece of software as well as a stream of unwanted programs riding stowaway. It’s big business, with one outfit reporting $460 million in revenue in 2014 alone.

Ever installed a legitimate piece of software only to find your browser behaving strangely afterward? You get a barrage of advertisements on the screen, or a flashing pop-up warning of the presence of malware, demanding the purchase of what is often fraudulent antivirus software. On other occasions, the system’s default browser is hijacked, redirecting to ad-laden pages. The vendors of this crap will claim that you approved the installation of all the additional malware by clicking through the terms and conditions or forgetting to uncheck a box approving the install. Having had to remove this junk from both my family’s and friends’ computers I can tell you that that simple error can cost you may hours of diagnosis and repair, or a bit of money to purchase an anti-malware package.

But it gets worse. Today it’s just crapware, adware and the like. What happens when someone takes a check from someone who has more sinister intentions? Keyloggers and other spyware could just as easily be installed. As one article on the study pointed out:

The one-year study by Google and NYU Tandon School of Engineering of affiliate networks running pay-per-install programs (PPI) found that nearly 60% of offers bundled with these programs are flagged as unwanted, and that in aggregate drove 60 million weekly download attempts with tens of millions of installs detected in the last year. These sites can run ad injectors.

Tens of millions of installs a week. Hundreds of millions of dollars changing hands, and a conscience nowhere to be found. I’m not one to encourage government intervention in the digital realm but someone needs to shut these scum down before something catastrophic happens. It’s not all “Russian hackers” doing this. These “businesses” are about as close to criminal as one can get without being arrested. What are your thoughts?

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Filed under Huh?

Give Them A Reason

This Foodie Friday comes in the midst of various companies announcing their financial results. One of those companies is Wendy’s, which reported weaker than expected sales growth. That’s not particularly unusual for any company, but I think there’s a business lesson in the thinking behind their reasoning for the weak results. Let’s see what you think.

Foto de una carretera en la cual se destacan a...

(Photo credit: Wikipedia)

According to Wendy’s, people aren’t dining out as much because it has gotten even cheaper to eat at home. Bulletin to the financial folks at the company: it’s generally been cheaper to eat at home. I can’t ever recall anyone I know saying let’s go out to eat and save some money, even when our destination is a fast-food place. In my mind, that’s not why people choose to dine out. It may be more convenient or they might just not feel like cooking. Maybe there is a time crunch (although unless you’re already out and about, you can probably whip up a couple of burgers in the time it would take to get to Wendy’s and eat). Wendy’s isn’t alone in either the weak results or the unusual reasoning, at least according to this article:

The results from Wendy’s follow disappointing sales from other chains including McDonald’s, Burger King, Dunkin’ Donuts and Starbucks. The other chains have cited a variety of reasons, including the political uncertainty created by the presidential election, for their performance.

Let’s accept that their reasoning is sound (hmm). Any of us in business realize that there are always any number factors beyond our control. Commodity prices, which can be strongly influenced by the biggest thing out of our control – the weather – are certainly one factor in the food industry. What we can control is how we give our customers a reason to come patronize us, regardless of the cost. We ought to be selling value. Unfortunately, in the food business “value menu” has become synonymous with “cheap.” That can only work for so long, especially, as in this case, as the costs of making our product or providing our service rise.

Solve consumers’ problems and provide excellent value at a reasonable (but profitable) cost. Give them a reason to turn off the stove and get in the car. Let’s see where that gets us.

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