BREAKINGVIEWS-Super Bowl primes sports to be streaming MVP

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By Jeffrey Goldfarb

NEW YORK, Feb 6 (Reuters Breakingviews) - Streaks shape sports, and the $150 billion business of broadcasting them has been on a hot one for years. As any professional athlete knows, though, it is often hard to adjust when the momentum slows. As the National Football League tees up its 60th Super Bowl, the industry behind the planet’s biggest televised event is heading for its own version of what’s politely known as a rebuilding season.

Interrupting the financial flow is streaming. Sports were the last and best reason to hang onto traditional pay-TV subscriptions. With leading networks ESPN and Fox both rolling out direct-to-consumer services, pretty much every game in almost any field of competition can now be seen, legally, somewhere online in the United States.

Making this new model work will be a struggle for media captains, from Walt Disney's DIS.N incoming boss Josh D’Amaro to Amazon.com AMZN.O CEO Andy Jassy. Like any elite player, TV sports themselves are polarizing, loved by some and loathed by others. During the cable and satellite heyday, for example, more than 100 million U.S. subscribers had little choice but to pay for expensive bundles that included basketball, baseball and more even if they didn’t watch them.

The cost structure subsidized sports fans, who will now have to fork out hefty sums for multiple unbundled services offering disjointed viewing options. Unlike in the traditional television era, however, they're routinely starting and cancelling subscriptions, rather than signing annual contracts. With the corded TV crowd down by about half over the past 15 years or so, keeping online viewers hooked is now the bigger challenge.

The U.S. football championship this Sunday, with the Winter Olympics and FIFA World Cup on deck, epitomizes the juggling act. During the big game two years ago, 120 million people tuned into broadcaster CBS to see the Kansas City Chiefs beat the San Francisco 49ers. Sister streaming site Paramount+ also lured 2.3 million new subscribers, but half of them canceled within two months and three-quarters were gone after eight months, according to estimates from data cruncher Ampere Analysis.

A surge of eyeballs can at least bolster other profit pots. Comcast-owned CMCSA.O Peacock is charging $3 million for a 30-second Super Bowl commercial this year, finding fresh ways to capitalize on a rare event that can pull together a massive audience at the same time. Only about 10% of the ad supply, available for local breaks, is exclusive to Peacock, with the rest airing nationally across the company’s century-old NBC network and Spanish-language Telemundo, too. The average rate across its media options is $8 million for half a minute.

The sustainable value of televised sports, regardless of how it's watched, is therefore clear. Even clearer: the cost involved. Disney-owned ESPN spent about $12.5 billion on programming and production worldwide in the year through September, while generating nearly $18 billion from advertising, streaming and, still most lucratively, cable and satellite operators. It would take, rather implausibly, 28 million subscribers to the standalone $30-a-month ESPN Unlimited service, generously assuming none of them cancel and that ad revenue holds up, to replace the amount harvested from old-school pay-TV. About 1.7 million signed up in the first two months it was available, per Antenna analysts.

These calculations are oversimplistic, ignoring ESPN’s cheaper tiers and that cable, despite its decline, won’t disappear tomorrow. Nonetheless, they speak to the challenges ahead. Fifteen years ago, ESPN was collecting more than $7 billion a year from connected viewers even if they couldn’t tell a volleyball from a cricket bat. Now it must find actual fans and convince them to shell out.

It would cost football lovers at least $60 monthly to broadly replicate what’s available via cable. Adding in the 15 or so NFL games shown exclusively on Amazon’s Prime Video and the Christmas Day contest on Netflix NFLX.O would cost another $16 a month. Subscribers would of course get more than just gridiron, including college basketball, tennis and top-tier British soccer, as well as libraries of films and TV shows. Yet they'd be paying more while hunting harder to find what’s available.

One way to ease the burden on customers will be a great rebundling, already underway. Even heated rivals ESPN and Fox teamed up to offer their athletic packages together at a discount. New and more combos will become available to increase audiences and make services more affordable. Amazon is trying to be a more user-friendly one-stop shop.

Beyond that, streaming’s international reach should expand the viewership of individual sports. European soccer and Formula 1 have enjoyed newfound growth in the United States. Breadth also can help. HBO is attracting new customers with sports while those tuning in for shows like the acclaimed medical drama "The Pitt” might stumble across a game that keeps them from logging out. Even longtime refusenik Netflix struck a big deal for live wrestling and aired some boxing matches.

Advertisers are racing to join the team. U.S. streaming services will sell $35 billion of commercials by 2029, overtaking linear TV, ad agency conglomerate WPP forecasts. Fresh measurement initiatives, like Nielsen’s attempt to count viewers across devices and those watching together on the same screen, are proving controversial, but could help with sponsorship, too. Comcast just reported that Peacock’s ad revenue grew nearly 20% in the latest quarter from a year earlier.

There are additional ways to help make the streaming model work for sports, which generates $150 billion or so of media-related revenue, Morgan Stanley analysts estimate. Catching up to music and movies in technological investment would help improve the apps and lure new viewers. Digitally native younger audiences are prime targets, more willing to pay for sports, a PwC survey found. Fantasy sports and online betting are other promising areas for streaming growth.

It will be a heavy lift to reinvent the sports-TV cash machine. As streamers refine their playbooks, however, they'll get on a roll again soon.

Follow Jeffrey Goldfarb on X and Linkedin.

(Editing by Jonathan Guilford; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))