The NBA should cut ties with linear TV.
The NBA is in the midst of a broadcast partnership with ESPN, ABC, and Turner Sports. The nine-year extension, starting in 2016-2017 and running through the 2024-2025 season, is worth $2.6B per year.
This makes the NBA the second most lucrative media rights property in the world, behind the NFL ($3.0B per year) and on par with the EPL’s expiring deal (£1.7B per year).
A potential renewal for the NBA is still years away. But should they even consider it?
I’d argue no. The league should bail on linear TV and build out their own OTT platform. Or at the very least, take aggressive steps in that direction.
Here’s why.
1. Streaming is inevitability.
Everyone in content wants to be “the Netflix of (fill in the blank)”. And while that carries less weight after Netflix’s recent subscription challenges, the sentiment still holds. It’s the worst kept secret in media: digital streaming is aggressively replacing linear TV.
Live sports have been one of the few pillars keeping broadcast networks alive. But even that trend is shifting, highlighted by the NFL’s 2019 Opening Week where 58% of fans watching at least one game on a streaming service.
Linear TV will still be around in 2025, but it won’t be the same. For a broadcaster to stand a chance in the next bidding war for NBA rights, they’ll need to cater to an audience that is rapidly aging out of cable. And sooner than later, most NBA viewers will watch games exclusively online.
2. The bones are in place.
NBA League Pass has been the home for out-of-market NBA viewers since it was first introduced in 1995. And you can imagine how far it’s come in 25 years. NBA League Pass gives fans access to (basically) any and every regular season and playoff game, including both home and away commentary.
In the 2018-2019 season NBA League Pass also introduced augmented reality features (powered by Steve Balmer’s Second Spectrum) and live dynamic pricing options (offering true consumer flexibility). Both updates clearly reinforce the NBA’s commitment to building and innovating their existing OTT offering.
NBA League Pass is a well established NBA property with a good reputation and current functionality. And the league basically runs it off the side of their desk.
3. It would cut out the middleman.
It’s an oversimplification, but broadcasters basically serve two roles: produce the broadcasts and broker advertising deals.
With advertising deals, broadcasters are literally middlemen. The NBA has an audience, and brands want to reach that audience. The broadcaster buys the rights to show the NBA on their channels, and then turns around to sell advertising against those NBA broadcasts (ad spots, in-game features, etc.).
But middlemen aren’t free. Either the NBA is losing out on revenue, or the brand is paying a premium to advertise through the broadcaster. Regardless of your perspective, it’s more expensive for everyone involved.
Yes, middlemen exist for a reason. There are arguments for efficiencies from expertise and scale. But I’d argue that the NBA is more than capable of taking advertising sales internally. The league already sells plenty of marketing assets - wouldn’t their sales team drool at the idea of hawking the NBA’s most lucrative assets? Commissions abound, and the NBA would easily earn more than $2.6B in revenue.
The broadcast production piece is similar – if you’re cutting out ESPN and TNT, who puts on the games? Is it worth the NBA taking this on this in-house? (Admittedly this is the weakest point of the argument, but let’s think it through anyways.)
The biggest benefit would be how easily the NBA could adapt their product (the gameplay) and their presentation (the broadcast) simultaneously and with less friction. Any tweaks to the NBA’s entertainment experience (new rules, scheduling changes, AR/VR features, etc.) requires collaboration between the league and their broadcast partners. Would the NBA not prefer to modernize with full autonomy?
And it’s not like NBA TV doesn’t already exist. Even some teams produce and publish their own (high quality) content for broadcast and digital. The NBA knows it’s an entertainment product. A jump to producing it’s own game broadcasts seems perfectly realistic.
Another perk would be the ability to carve up and customize advertising for regional audiences, making it easier to integrate brands on a national scale. This could include both in-game placements (on-court logos, courtside LED screens, etc.) as well as your standard ad spots, bumpers, and drop-ins.
Yes, there would be new costs for the league. It takes a lot service the broadcast and advertising needs of a 30-team and (soon-to-be) 30-venue league playing 1,230 games a season and year-round programming. But in an era where content is king, it’s worth the making the investment in that infrastructure. (And even if the appetite isn’t there, you can still contract it out.)
4. The market already exists – and there’s room to grow.
The league doesn’t release NBA League Pass subscriber numbers, but some quick research and deduction makes it clear that platform has a significant audience. NBA League Pass saw 26.7 million game views globally in the 2015-2016 season (a record at the time).
We can work backwards from here to estimate subscribership. Let’s assume the average subscriber watch 20 games per year during the regular season. This is less than one game per week, a quarter of one team’s season, and 1.5% of the 1,230 games played across the league. Seems reasonable.
This would mean over 1.3M subscribers globally in 2016. And the platform has grown considerably since. In 2017/2018 NBA League Pass subscriptions increased by 63% from the previous season. And in 2018/2019 international subscribership (+21%) and total watch time (+16%) saw huge bumps.
This would suggest 2019 NBA League Pass subscribership is at least 2.0M. Not bad for a platform that has all but ignored the US market.
5. It would be hella profitable.
How profitable is hella profitable?
The current revenue model for NBA League Pass is an annual subscription. The cost ranges considerably (from $280 in the UK to $15 in India) but the global average is about $150. This is on par with the most popular Netflix plan at $13 per month.
At that price you’d about 17.5M subscribers to generate the $2.6B that the NBA currently sees from selling their broadcast rights.
This number is VERY realistic.
Nationally broadcast games in the US regularly draw between 1.5M and 3.5M viewers. If the NBA’s OTT platform becomes the go-to for NBA fans, let’s conservatively assume the platform sees an additional 500K US subscribers.
This gives us a floor of 2.5M subscribers. But it’s the international potential that is truly mouth-watering.
The NBA is the most popular sports league in China, where there is an estimated 150M fans on social media - and NBA League Pass doesn’t even exist in China yet. (We’ll skate over the obvious issues of the tenuous NBA-China relationship and state controlled broadcasts, internet platforms, and content more generally).
In the meantime, India has already been identified as the next in line priority for the league - where NBA League Pass has only been available in India for a couple of years.
As internet penetration continues to climb worldwide the potential market grows steadily every year.
Is it crazy for the NBA to increase their global subscribership by 15M? Maybe not in the next 5 years (3M new subscribers per year is a lot to ask). But would it take that much longer if the NBA really tried to make it happen?
There’s one last way to make it to $2.6B in revenue. It would only be short-term, or at least until the NBA’s own digital platform is self-sufficient. But it’s entirely separate from the other newfound revenue already discussed.
The NBA could still sell non-exclusive rights to traditional TV broadcast partners, for whatever they can afford and as long as they manage to stay afloat. And at the same time the NBA would be selling advertising against their own digital broadcasts to their digital audience.
Best of all, the NBA would be the first big professional sports league to cut loose from the sinking ship that is linear TV. Think of it as a farm-to-table approach for live sports.
If I’m Adam Silver, I give this some serious thought.