UP415 The Bundle - Do you know your ENPs from your LMRs?

NBA v TNT – Exclusive Negotiating Periods and Last Matching Rights are central to the big row over NBA rights. But how they work and why does everyone hate them?

Click here to read The Bundle Bulletin for the homework notes from this episode, compiled by regular co-hosts Murray Barnett and Yannick Ramcke.

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Transcript

Murray Barnett: 0:00

I've been on the receiving end or actually writing EMPs and LMRs and ultimately they're not really worth, in my opinion, the paper that they're written on because it's It comes down to a relationship that you have with the rights owner or the broadcaster, depending on which side you're on,

0:17

So do you know your EMPs from your LMRs? Very important to WBD and the NBA. Welcome to The Bundle, the unofficial partner podcast on the sports streaming and broadcast market with my guests, Murray Barnett, you've just heard, And Yannick Ramke.

Richard Gillis, Unofficial Partner: 0:39

First of all, I should say hello. Shouldn't I? Hello, Murray Barnett.

Murray Barnett: 0:42

Hello?

Richard Gillis, Unofficial Partner: 0:42

Yannick Ramke. Hello.

Yannick Ramcke: 0:44

Hello guys,

Richard Gillis, Unofficial Partner: 0:44

In a new extravagant Berlin apartment. Now you're money you're earning Yannick these days from the, from these podcasts, it's unbelievable, you know, listeners should know that we can see you in a brand new apartment. Incredible.

Yannick Ramcke: 0:56

reinvested. It's all reinvested, but I must admit it's significant work in progress over here I'm sitting here amidst a bunch of unpacked boxes and with mobile Wi Fi connection and many many other things or Let's put it better without many many other things. So let's say work in progress. Let's see how much happened I can make until the next episode.

Richard Gillis, Unofficial Partner: 1:20

And bear in mind, if you don't unpack those boxes within about three weeks, I think that the average is they, they remain unpacked. That's the law of moving house. So you've got to be careful that you leave them unpacked because then you think, I sold it.

Yannick Ramcke: 1:31

I mean, you go always with, a good intention to throw out a bunch of things because this is the window of opportunity when you move. But I can tell you it's more of the not end of the complete opposite. When in doubt, you pack it and move it. So you're still sitting on it. So let's see, let's see how it goes. Next month, hopefully there is some progress to be, to be shared.

Richard Gillis, Unofficial Partner: 1:53

We'll we'll bring the news as it appears. Right. So we've got a packed agenda as always, and we should say that all of this is available on the bundle bulletin, which is the sort of notes that go alongside this written by our two esteemed guests. So we'll put those on the newsletter. And I think we start with the NBA because it's such a massive deal, but we've got a particular sort of route into it. So we've got this headline, which is NBA has secured 75. 9 billion for its next round of media rights in the U. S. with Disney, NBC, and Amazon. Amazon Disney 2. 6 billion a year, 2. 5 billion and Amazon 1. 8 billion per year. NBA chose Amazon Prime Video as one of the three main rights holders for NBA games starting with the upcoming season and obviously the ongoing row and it's a massive row. Which is between the NBA and TNT, which was, the incumbent. And they said that we have matched the Amazon offer as we have a contractual right to do and do not believe the NBA can reject it. We think that they have grossly misinterpreted our contractual rights with respect to the 25, 26 season and beyond. And we are, we will take appropriate action. so Warner Brothers Discovery, which is, TNT in other words. we need to just decipher what's happening here and we won't get to an answer because it's, it's such a massive, outcome, but Murray, just do your best to try and take us to introduce this and why we think it's significant.

Murray Barnett: 3:35

Well, let's put the actual deal terms to one side. The key to this route is around ENPs and LMRs, which are Exclusive Negotiating Periods and Last Matching Rights, which both existed in the previous uh, TNT uh, contract. And there's been a sort of game of a war of words, I should say, around what exactly those really mean in the context of the NBA choosing Amazon. And there are lots of sort of different threads to that.

Richard Gillis, Unofficial Partner: 4:10

So what they're a sort of promise, are they? I mean, in terms of what, explain what they are for the, for people like me who are sort of the uninitiated in this world. So ENPs and LMRs. so exclusive negotiating period and last matching right. What are they?

Murray Barnett: 4:26

Okay, so an exclusive negotiating period is exactly what it says, which means that the right owner has to go to their existing partner and offer them the first opportunity. To reach an agreement to renew those rights. And there's some great quotes by Mike Darcy, and his short take on exclusive negotiating periods and here's an excerpt from it is. Everyone cheats and there is no realistic sanction. Everyone knows the process has started and other bidders have enormous incentive to ensure the seller knows their appetite. Can anyone detect a seller receiving an unsolicited text or sanction them for reading it? Meaning, even during that period, if the rights owner has a whiff that other people are interested, they can just set the terms and conditions for a renewal so high that the exclusive negotiating period runs out and, and then has they have an option to go and speak to anybody, but that's when. An existing rights holder will make sure they have an LMR, which is a last matching right, meaning you can go out and talk to anybody else, but we can come in and match those terms and you're obliged to stick with us as a partner.

Richard Gillis, Unofficial Partner: 5:48

So it's a bit like tapping up, isn't it? You know, in the old football parlor, you're not allowed, you're not supposedly not allowed to, but it all happens real life. It's this is sort of real life versus. Lawyers and le the legal framework, isn't it? I mean, that feels like it's so difficult to police.

Murray Barnett: 6:07

Yeah, so, you know, I've been on the receiving end or actually writing EMPs and LMRs and ultimately they're not really worth, in my opinion, the paper that they're written on because it's ultimately. It comes down to a relationship that you have with the rights owner or the broadcaster, depending on which side you're on, because if you're putting in an LMR, it suggests that you do not think you'll ever be in a position to be able to reach a an agreement because the rights holder can always put certain conditions in place, which makes it almost impossible for you to reach an agreement during the exclusive negotiating period, and in any event, it's You can just slow play an exclusive negotiating period where you say at the end of it we just weren't able to come up, come to an agreement meaning I can go out into the marketplace. Now an LMR for something like this is incredibly tricky because It's very difficult to find two deals which are exactly matching and that's for a variety of different reasons. It can be different levels of distribution different payment structures, different types of distribution. Because again, you know, the interesting thing about this particular one is that the definition of television is very undefined. If we believe what we can, what we can find out in terms of how it's been reported, television at the time this was done doesn't really factor in the type of distribution or indeed the demographic that an Amazon can bring. And therefore, how similar is it to what TNT currently offer?

Richard Gillis, Unofficial Partner: 7:52

Mike Darcy, he's got, again, a good quote about, and he's a, you know, Mike was, has been on the podcast recently he, so an LMR, so the last Matching rights Sellers hate them. Why didn't the incumbent put that price down initially? The resentment gives the seller an incentive not to honor the LMR, noting that matching is often about more than price, and there is a considerable potential for finding some dimension on which the incumbent has fallen short. So again, are ways around it. Yannick, what's your, your view on this?

Yannick Ramcke: 8:23

Uh, Overall, I do see the point of such clauses. I also, I'm not opposed to the idea that a last matching right can serve as a price discovery tool. If just the parties completely or significantly disagree on the right mark or the fair market value, then I think it's a tool to discover, okay, what is the market price? And if it turns out that the market price is actually significantly above what the incumbent had been willing to put on the table before, then fair enough. So I do see a point of such Such clauses, whether it's the exclusive negotiation period or the last matching right, but also agree with Murray in the sense of if a rights owner wants to get out or wants to change media partners, they will always come up with something that I think, from a legal perspective, You is tight enough to go through whether it's the reach that a certain programmer can provide, whether it's the payment terms, whether it's the definition of television. I think the rights owner will always be able to come up with a poison pill that makes it effectively not equal to each other. So. I guess ultimately you can say it's not worth the paper it's written on from that perspective, but overall I do see a point in such kind such kind of clauses,

Richard Gillis, Unofficial Partner: 9:53

if that's the sort of scenario that you're faced with, how do you sort of move forward without, you know, breaking the law or appearing to, go against these contractual things, which are in place. What do they do with it? Is it, there seems like that's, that could be an advantage. I as you say, it could reveal price. levels. There's a whole load of things I'm thinking about. Okay. If I'm going to go in and bid for these, right, I want these NBA rights. I haven't got them at the moment. I need to unseat Warner Brothers Discovery to be able to do this. How would you do it in real life?

Murray Barnett: 10:24

You mean if you're Amazon?

Richard Gillis, Unofficial Partner: 10:26

Yeah.

Murray Barnett: 10:27

I'm not sure the issue here is, is Amazon. I think here it's actually NBA and what their intent was, because at the end of the day, I suspect that whatever NBA says, they were largely focused on maximizing price. And so they anticipated that And this is me just speculating is that to have a new player in that was paying them top dollar that would potentially be able to offer them something a little bit different along with incredible payment terms, you know, they said that they pay the first three years up front. That's revenue certainty for everybody. And ultimately they have to answer to the 32 shareholders and in terms of the teams. So I don't think that I don't think this is really Amazon. We're necessarily working out how to get round an LMR or an EMP. I think it was just that they were willing to pay top dollar.

Yannick Ramcke: 11:25

and I think ultimately and you refer to it more in the sense of the NBA did make up their minds in terms of what kind of set up they want to end up with, which roster of media partners they want to move forward with, but this intention is not shaped in a silent manner. I think we should not underestimate. How relationship driven and on informal communication channels, this whole industry is made up off. So I think ultimately then to come up with clauses and everything that It makes it legally speaking airtight that this goes through in terms of this is not this is not equal. I think we have seen or we have observed that this process has dragged on. And I think at least a bit of this delay was a result on having an airtight agreement that is good enough to clear any legal challenges.

Murray Barnett: 12:20

It's worth also mentioning that the package you can argue was somewhat designed For Amazon in the first place. Cause Amazon is the lead partner for the in season competition, which happens in November, December. So that gives them a very high profile package in a key sales period for them. So certainly you could argue that it was somewhat constructed with Amazon in mind already.

Yannick Ramcke: 12:48

Yes, and I think it has been reported that actually assumption on everyone's mind was that if One of what the discovery would match any given package It wouldn't have been the Amazon package, but the NBC which is much more similar in nature Still different with over the air broadcast reach and all of those kind of things, but I think it was ultimately Just a function of the price point and the value for money that Amazon secured as part of its package. And we have discussed before how cautious or cost conscious big tech is when they get into deals. They are more often than not get a discount because leaks want to get into business with them to future proof their distribution strategy and everything. So I think that they ultimately went after or match the Amazon package was. To a large extent, a function of the value for money that they would have gotten with it, given also what what NBC or Comcast put on the table in order to secure the much more similar package to what Warner Brothers Discovery has as of today.

Richard Gillis, Unofficial Partner: 13:57

So what does this mean for, for Warner Brothers Discovery? So you've got, you know, David Zaslaff is a name I can never pronounce. He said previously, this is going back, you know, a year or two years, November 20. Two at the investor conference. Don't Warner Brothers don't have to have the NBA once the current deal expires, and now as you've put it Murray, it appears they do want it at any price. So where does this leave Warner Brothers? If this doesn't, if they don't have the NBA, they've had the NBA since the mid eighties, so it's a, it is a shock, but just from their point of view, and I wonder what it also means for the rest of the market is this money that if they don't get to spend it. Is this our rights holders rubbing their hands and saying, okay, they're going to spend it elsewhere or just, is there no replacement for the NBA? What do you think about the Warner Brothers? Where it leaves them?

Murray Barnett: 14:52

To a certain extent, they've already tried to shore it up by acquiring French Open tennis. They got NASCAR coming in 2025. They got a college football series. So they, they're sort of taking a view that they, whatever the outcome is with the NBA, that they needed some stuff to kind of keep them kind of ticking over. But it's also coming at a difficult time because although we've talked about the dwindling sort of cable services and cord cutting, they're certainly going into negotiations with those. And I mean, those still represent more than 50 million households in the U. S., which is, you, easy money, if you like, in the sense of, once you sign the deal, that's non variable revenue. So. They're very mindful of the fact that they need stuff, but it's really difficult to see how they can find anything which makes up the prestige or volume of the NBA if they're left out of it. And then that has a knock on impact potentially for venue as well.

Yannick Ramcke: 15:51

And I think if you want to, or if you ask the question, did, One of the discovery and their lead negotiators dropped the ball. I think that's fair to say. And I think back to exclusive negotiation period, I think there was a bit of opportunity where an agreement, including Amazon, because this is really what the NBA wanted to get into business to, where an agreement with this tri party of ESPN Warner Brother Discovery and Amazon could have been reached. If you want to fight over a few million here and there, that's probably where and how you end up where we are today. Even though I still think there is a face saving settlement amidst all of this, because what I'm getting back to all the time is, I think in the public discussion, the one thing that is a bit under the radar is the whole, National package carried by NBA TV, the in house channel of the NBA, which has a bunch of game inventory that is nationally Televised as of as of today. If you do the math I think NBA TV as of today, it is only also available untethered and as a standalone OTT, but it's in 37 million households let's say they make, I don't know, 50 cents per subscriber per month, you make roughly 200 million per per year in affiliate revenue. Plus some advertising, let's say 250. through NBA TV per annum on a much lower margin basis, given that you have all the operations, the talent, et cetera, et cetera. So I think the only point that is that may forbid or prevents this face saving settlement that they cost into the NBA TV match or game inventory is, If it would need to open up the existing agreement with ESPN, NDC and Amazon again. Other than that, I think it's a bit of an under the radar thing what happens to NBA TV, given that Warner Bros. Discovery was also involved in the digital operations, NBA League Pass, NBA. com and everything. So there have been more lines of business between Warner Bros. Discovery and NBA, but that might be something as more news trickle out to discuss in one of the next episode. How NBA TV is solved ultimately, but I do see a path to one of what the discovery is staying in business with the NBA, including some nationally televised games.

Murray Barnett: 18:28

I don't know. I'm not, I'm not as bullish because I think that, the tenders were pretty clear in terms of what the nationally available packages were. So I can't see how it wouldn't open up the existing agreements that they have with NBC and Disney and Amazon if they were awarding a fourth package. I don't know. I think there's also something else, which is that it's got somewhat sort of vitriolic in terms of some of the filings that they have made. And, I guess in the States, people are a little bit more used to going to lawyers, but, you know, WBD has claimed that the NBA never intended to allow them a competitive opt to match the Amazon offer in a competitive way and accuses them of, deliberately trying to undermine their ability to activate their LMR and, whether those are lawyers words or whether those are, the reality is it strikes me that it's a relationship that's broken down. And again, you know, I argue this from a very sort of European standpoint where perhaps relationships have always been much more important than the sort of, it's just business relationship that leaks have in the U S, but it doesn't seem very very nice words about each other,

Richard Gillis, Unofficial Partner: 19:49

well it's interesting the, quotes that are now coming around, obviously him personally, Zaslav, he was, and this is from Sportico, Zaslav's famously hard nosed approach to negotiations has alienated important contributors to WBD's Cashflow, advertisers, sports leagues, and Hollywood talent, a cloud of ill will can be a detriment to the long term health of a company where the main asset is creativity, not the TV networks or digital properties that display it. So there's a, there's a sense of, they, this is a personalized thing. But he is the CEO, so he's the face of the thing. Yeah, Yannick.

Yannick Ramcke: 20:28

I mean, I just had a few minutes ago that it is a relationship driven business. At the same time, I think our industry. It's super well versed into or in compartmentalizing things. I think it does not, or it's not exclusive of each other that it's a hard business driven decisions. And if that includes going to court, it includes going to court while keep doing business with each other. So I would not make the fact that the one party is doing the other one as as a cause or as a reason for not being in business at all anymore. And the second one is this whole topic of encircling back to how we started the this section on exclusive negotiation period and matching, right? It was a bit of a reminder or reminded me of how the false majority clauses were treated amidst COVID. All of a sudden, there's like big scrutiny and a spotlight on it. And probably going forward, instead of, I think it were it were five pages this time around, how much paper was used to define the last matching right, probably will be ten papers going forward, just know that there's a prominent case shedding significant light on it.

Richard Gillis, Unofficial Partner: 21:42

Thank goodness. The lawyers will be okay. So that takes us to the next story really, which is, you know, it's a natural jump to the, we're talking about court cases, but the court case at the moment is, is Fubo versus Venu. Is it Venu or Venue? I'm assuming it's, it's a really strange name,

Murray Barnett: 22:02

ask the consultants.

Richard Gillis, Unofficial Partner: 22:04

Yeah,

Yannick Ramcke: 22:05

I actually think it's venue and it's more like a SEO topic by you call it venue or spell it venue instead of venue, because if you probably type in venue sports, then you will end up in much different pages than you intended to get to. So I think it's rather SEO, but I think in terms of how to pronounce it, it might be venue.

Richard Gillis, Unofficial Partner: 22:28

Now this is complicated. I don't want to go through the whole law. Daniel Kaplan on recently talking about, a number of cases that are going through the American courts, but the significance of this is pretty undeniable. And Murray, I'm going to ask you just sort of just a summary. And we're going to get to quite quickly here, why it's important. This is, I think this is more about, cause it's ongoing and we'll come back to this, this story. There is something in this about streaming and the viability of streaming and the marketplace for streaming, which is obviously something we touch on a lot, but, and so that I think is why this is interesting and it's got broader. Implications beyond the courtroom between these two companies, but just summarize for us what what's happening,

Murray Barnett: 23:14

So Venue is a new, is a new JV among some of the biggest sports streamers in the U. S. So Disney, Fox, Warner Brothers, and Fubo is a sports OTT broadcaster, and they are claiming effectively that Venue is not in the interests of consumers. Basically it's anti competitive and even more so that if Venue's allowed to go ahead, it will make sports more expensive for people in the U. S., provide less alternatives in terms of ways to view. And on a more personal level for, for Fubo, they're claiming it would push them out of business completely.

Richard Gillis, Unofficial Partner: 23:56

what happens next? Yannick.

Yannick Ramcke: 23:58

I remember that I said when we last spoke about it, that venue or at this point in time, I think it was still Spoolo, would be just another virtual MVPD. I didn't think that it would be that distinguished or, different than other offerings that are already in the marketplace, not only in the form of Fugu, but also uh, Sling TV, YouTube TV, or any other streaming TV provider. I think the one point that I underestimated was how aggressive the price point would be. And I think the price point is really what added further. Of FUBU Price point 49 upon this is effectively less than what FUBU or any other third party distributor pays as input to have actually access and the rights to carry those channels. And I think this is really where antitrust comes in because I think also the definition of antitrust. Is changing a little bit. I think in the past it was really narrowed down to impact on consumers. And I don't think you can make a viable argument that this isn't a good consumer offering at this price point, but it's rather on collusion between the market players. I think this is where also the legal argument legal argument comes in and we must remember now that. The injunction that was granted. After, I think, also when you communicated the launch date of August 23rd, this launch is effectively put on pause until further notice through this injunction that has been granted by the jury. This has a high bar. I mean, this is not done with, okay, look, we need to further investigate or whatever. This is a high bar to clear to get a touch, touch in in that injunction. And I think one requirement is that it is. That it does create irreparable harm to the business of Dugout. And I think This is rather the point, it's not, or it's less about the consumer, it's more about the collusion between market players and making certain things available at certain rates to certain market players than anything else.

Richard Gillis, Unofficial Partner: 26:22

So this is the, the price is interesting in this because the streaming, this is all sort of the DAZN question from a few years ago, which is the, you know, the, the Netflix for sport argument is it's, you can't balance these two things on the supply side. You've got to pay these enormous fees for rights. And on the other hand, the market will only bear for a sport specific. Streamer, the Netflix price levels. So you've got this very difficult imbalance, which unless something seismic happens, I don't, it's very hard to see the economics of sports streamers stand up unless you then move to become a sort of different version of the bundle where you are sort of attributing costs in different ways, or you are looking at ways of, of spreading, you know, spreading that problem out. Murray, just first of all, what do you think?

Murray Barnett: 27:16

Well, I think you've hit the, the core of the question here, which is that, Sports fees only make sense if you're able to amortize them across a very wide group of subscribers. As soon as you start targeting it and saying, for argument's sake, only French football fans are going to now have the opportunity to access French football, The amount that you're able to monetize that reduced constituency is a lot lower, and none of the rights holders want to see their fees go down, and so they're welcoming anything which helps them to shore up those fees. that's happening amongst their competitors. So for example, venue, you know, with, with three main participants sort of clubbing together and willing to try and keep rights fees high by trying something sort of different rather than an a la carte offering or in addition to a la carte offerings that helps them keep rights fees high is going to be welcomed by rights owners.

Richard Gillis, Unofficial Partner: 28:26

It's really difficult to see this. What I don't understand about the venue thing is the cannibalization question because,

Murray Barnett: 28:33

a cannibalization because they're still offering the channels a la carte outside of it. It's a, it's a, it's, you know, it's a multiple different ways of receiving the same kind of content or variations on the same kind of content.

Richard Gillis, Unofficial Partner: 28:47

well, they're arguing this sort of called nevers are the target marketplace, aren't they? They're saying, well, there's this, there's this audience out there that isn't going to pay for the big sub, so we'll give them a skinny bundle. Essentially. Well, that's, that's the game that's being played. Is it, or am I wrong there?

Yannick Ramcke: 29:02

I think that gets to the core of the argument. Is it about downselling existing pay to be customers? Or is it about acquiring incremental customers that have not been signed up to the pay to be universe? I think this is the fundamentally different two perspectives and we talked about cost base. I mean, this JV is artificially lowering the cost base of its operation, given the internal transfer pricing politics or what they came up with. And imagine Fubo's argument is that to have those channels, which they have as part of the offering, to have those channels, we are paying more out to the channel owners than 43 bucks. So in order to compete, They would have to offer at the the, the product at the rate, it isn't even like be far from positive distribution margin.

Richard Gillis, Unofficial Partner: 30:01

what would a venue for the UK or for Europe look like? Would that, I'm just trying to sort of make the jump because, so this is what, this is Sky, TNT and Amazon getting to, or whoever, getting to get, I, I'm trying to work out how this is working because if I'm, people are bringing the NFL, the whole story was that, you know, Warner Brothers were going to bring the NBA into this, that, that was their ticket to the party. Fox have got NFL, is that right? And then you've got, you know, a more other big ticket sort of prime with no pun intended rights, and they're sort of sharing them across this new Outlet, based on this idea that the, the Cord Nevers will come in at a lower price point, which again is the sort of key bit, I wouldn't want to be an analyst at this point, whose numbers they're basing this, this decision on, they hope they hope they're robust.

Murray Barnett: 31:00

I think that Fubo is just trying to argue for a level playing field. They're just saying, look, you know, we want to be able to offer to resell content from other channels in any way that we like. And what they're actually saying is that you, Fox, Disney, WBD, are putting terms and conditions on how we redistribute your channels as part of our service, which puts us at a higher cost Than you're offering through venue. That's, that's the, that's the simple nub of it, and it seemed to be unclear as to whether they would even license to FUBU or, or, or not, because some reports are, say, saying that they wouldn't license a tool to FUBU and others are saying that they just weren't, weren't licensed to them on, on the same terms and conditions that, that it has within venue.

Yannick Ramcke: 31:52

I think the one thing that FUBU wants is less that this JV never sees the light of the day rather than that they are also allowed to, and based on same terms and condition offering the same thing. This is what they have said, not only they, but many, many others. We would love to offer a much more relevant, streamlined bundle to the end consumer because we know this is what the end consumer wants. And now the channel owners do effectively what the distributors always wanted to do. And I think this is where the legal argument comes in, this collusion. Because these are terms and conditions that I guess are not subject to most favorite nation clauses. So that FUBU and any other third party distributor has to license those channels on existing terms while they have internal prices that effectively, Undercut the market rate for the channels that the JV is now working on.

Murray Barnett: 32:45

What's interesting is that DirecTV signed a letter that Fubo sent in May to several U. S. senators, who are looking at anti competitive behavior in this, which kind of was the precursor to triggering this legal case. And DirecTV has traditionally been one that's been forced to take at risk. top rates, the various channels provided by the various leagues or broadcasters that have the core driver content that they want. So I wonder if some of it is also DirecTV pointing to the fact that this has been happening for them for a long time, and actually Fubo have kind of, you know, got the guts to take, take them on.

Richard Gillis, Unofficial Partner: 33:33

What's the nearest company to Fubo over here that I would recognize in terms of model?

Murray Barnett: 33:39

I'm not sure that there is a real analogous model. I guess you could argue, in a very minor way, DAZN is quite similar to them. Because DAZN does carry third party channels, but they tend to be league channels rather than, you know, Sky, sports, or, or, or those. You know, most of the smaller distributors in, in a market like the UK have fallen by the wayside.

Yannick Ramcke: 34:03

isn't it just a virtual tech company that is consolidating a bunch of third party offerings in one package, sell it at one price to an end consumer? I don't know to which extent now TV. It's actually carrying third party content, the streaming service from, from Sky, but I think that might be a reference.

Richard Gillis, Unofficial Partner: 34:23

Okay, right. Let's move on to the, the third sort of major story that we're going to look at, which is with Dizon in France. So they have finally, this has been going, you know, right to the wire. Under the quite nice headline of is the juice worth the squeeze to his own conclusion to an ongoing 10 year saga of media rights in France stretching back to BN's, BN's entry into the market and media pros failed Telefoot project. The league had publicly demanded a billion euros and threatened the launch of their own direct to consumer product. And there was a damning summary in sports business, political miscalculation, conflicts of interest, inflated egos, resignations, confused governance, poor market research, reverse engineering evaluations, constant leaks to the press and global corporate strategies were all factors which shaped the outcome of Ligon's recent media rights process. Sounds like just another day at Unofficial Partner, that does. What do we know now? This is beginning to look like it's settled. Well, they're going into this new season with this, with DAZN at the helm. What do we know?

Murray Barnett: 35:36

So the zone are probably the big winners with eight out of the nine Liga matches per week for five seasons with being getting one with Alternating with the zone as the first pick each week, and then there are a couple of other sort of smaller deals which get them to something which is around 652 million euros a season, which is a slight decrease on where they were previously, but you know, well below what they had hoped to get. And indeed, even only just slightly above their reserve prices. I

Richard Gillis, Unofficial Partner: 36:14

So again, one of the legacies of this is the, the reputation or the, argument about. single sport director fan sort of channels, because that was, the alternative They had a fallback that they said was going to be 2 million subscribers.

Murray Barnett: 36:32

well, I think it's interesting. In the sense that it's an example of where there's such a symbiotic relationship between rights owners and broadcasters. And if we've talked about this before, about how Premier League and Sky have been sort of, working very closely together to sort of maximize the benefit for, for each other. And, you know, The alienation of Canal Plus throughout this whole process in a variety of different ways has been at the detriment of competition for the league. And, you know, if you want to take a positive from it, it's great that they've got to zone in. It's great that they've been able to keep being still very interested. But the outcome has not been half as strong as they had hoped.

Yannick Ramcke: 37:17

I mean, let's, let's first state how crazy this is that the domestic media rights agreement is effectively signed off and agreed upon a couple of weeks before the start of the season. This might be something that we have seen before in select international markets where I'm not saying that is common practice, but actually occurs frequently. I think for domestic media rights agreements, best practice is at least like one season of lead time because given the amount of money that broadcasters commit to such a corporation, you also must be fair and put them in a good position to actually earn a return on their investment. So having this in place like a couple of weeks before season start probably is complete madness,

Richard Gillis, Unofficial Partner: 38:04

what are the Implications on that. So we're talking here about, so DAZN won't have marketed this in the same way. They won't be warming up the audience in the same way. And, there's an advertising question in the French market. There's a confusion, presumably on the part of football fans who are just waiting about which sub they need to. Buy. It's quite interesting. The ripple of this does, it just gets beyond the deal into the real world of trying to sell stuff at the retail end, doesn't it?

Yannick Ramcke: 38:35

Absolutely, even though I would make the argument that the net effect, the net impact on the zone and on the position of the zone to make it a sustainable business is actually positive, given just the significantly reduced cost base that the zone now has to work with. Yes, short term, I mean, I can imagine how hectic the past couple of weeks have been for the zone The Zone friends, a team that as far as I know doesn't really exist yet, since now all the operations, both commercially and editorially and everything is just about to build up and create it. So probably a bunch of people from other, the Zone, including HQ London, but also other operations have shipped in into the process. But I think ultimately the fact that, A direct to consumer, leak operated channel has turned out to be nothing more than a more or less viable bargaining chip, but not a serious alternative. Even though the opportunity cost, and I have read that for a few teams, we are talking about single digit millions, which they get from this agreement. Even though these opportunity costs to launch an own channel have been reduced significantly, it's still not a viable option.

Richard Gillis, Unofficial Partner: 39:55

Can you imagine, imagine you go into the zone on Monday morning in London, they say, right, you're going to, you've got to go to the Paris office and basically your job is to start a channel and market it and get it out there. And we need this to hit this number of subscribers. Buy. Well, I don't know what their targets would be, but that's a heck of a thing, isn't it? It's like a, there's this assumption that just because you've got football, you can turn the tap on and people will, will turn up, but it's, I don't know. I can't think of an example where it's gone so late on a major domestic deal. Quite a, it's a huge

Murray Barnett: 40:35

We have some indications that, you know, You know, design is looking at one and a half million plus because there is a bonus clause which is triggered when, when design gets to that number. So, you know, I think that sort of tally somewhat with the LFPs direct to consumer projections where they were. optimistic of getting to two million. I would suspect that one and a half was probably or even 1. 2 is probably more the right range. And so that probably suggests that that's where the zone is expecting to get is somewhere just north of that, that one and a half million. You know,

Richard Gillis, Unofficial Partner: 41:12

And that's over five years. That's the, that's over the period of the contract. And they

Murray Barnett: 41:16

well, there's, there's an automatic bonus of allegedly if the zone reaches one and a half million subscribers, but there are also various exit clauses during the term of the agreement. If the zone do not reach and the DB and don't reach certain, distribution obligations. You know, it's a little bit vague from what we've been able to find as to exactly what those are, but those smack of a deal that was done very late that needed to be papered quickly.

Richard Gillis, Unofficial Partner: 41:46

mitigations in there just to give them a way out. Yeah.

Yannick Ramcke: 41:50

And I think it's fair enough. I mean, it has been a major opportunity to jump on and if this asks for some overtime, some shipping in left and right for a certain amount of time, I think that's, that's fair enough. And looking at all the things that they have gotten in place now ahead of last week and season start, including a full set of distributors, I Including the 800 pound gorilla in the market with kennel plus, which effectively still acts as somewhat of a gatekeeper to the end consumer. Seems like, as I said before, I think they are well positioned to turn this into a sustainable business case, including and primarily driven by the fact back to The content costs, but we just had this venue, which is the main input cost. And this is just significantly lower than the elevated cost levels that we have seen over the past, I would say decade, let's remember, we are talking about the main broadcasting partner of the domestic league. Of one of the five big European football leagues. So I'm actually quite quite bullish about it. And I think also the agreement, yes, there are exit clauses and a few other bits and pieces, but I think the agreement reflects. The superior bargaining position that the zone was in given just a short timeline to season start and I think it's a, it's a good base for the zone to spin up another main market which has a path toward profitability rather sooner than later.

Murray Barnett: 43:31

The thing which I thought was interesting, Yannick, was that if you look at their other revenue streams, so, International rights have more than doubled and arguably some of that is due to the relationship of PSG owner, QSI, Qatar Inc, etc, etc. But then you're looking at the data streaming value has doubled. The title sponsorship has doubled. So it does point to the fact that the brand of LFP have, is actually pretty. Strong. And I wonder how much of that is a legacy of the recent sort of, you know, Neymar and Mbappe days and how much of that is a pointer to that this is a correction in the league fees and in, in a few years time when they're going back to market that actually we should see. a good increase on top of the money that that's currently being paid because especially when you consider you've got, Amazon apparently came in quite late in the process and still wanted to renew their package that you've got new, a new person interested in DaZone, you perhaps these are all pointing to, a strong opportunity in a few years time.

Yannick Ramcke: 44:41

I think the challenge here is that the teams don't care about in a few years time. I think it's about budgeting the very next season, and I think everything that comes along with the revenue decrease is a challenge for, for European football leagues. I think there's Having flat revenues is one thing. I think having decreasing revenues and a net impact is decreasing revenues. Yes, international media rights grew on a relative basis tremendously. It's just the absolute base was already far below comparable leagues. So I think the challenge is that ultimately the budget is smaller than before and football leagues And most prominently salaries are fixed cost expenses, which need to adjust if no alternative revenue sources can be found. And the interesting thing is that the French league already untapped one of the most potential or likely alternative revenue or cash sources, which was private equity, but they use this to fund revenue gaps during COVID. And now they actually pay for it. So we haven't even touched on. The 10 plus percent that must is, or is taken off the top from CBC. So the net money available to the clubs is even far lower, but I think this is a true challenge for the French football game, that budgets, even though there are a few revenue streams that increase, that on an overall basis, budgets need to be right sized, and that might trickle down into international competitiveness or attractiveness of the domestic product, that may or may not impact the future. Valuations or the next time they go to market with their domestic media rights.

Murray Barnett: 46:33

Well, I think that the CVC point is a really interesting one because CVC are buying on a certain potential future income. And so it could well be that CVC are entitled to increase their stake in LFP media or potentially take a bigger share of this on the basis that they bought with a certain revenue assumed going forward.

Yannick Ramcke: 46:57

I think the one thing we can be sure of is that those companies have built in certain safeguards to secure their return on their investment. Even though I can also imagine that CVC actually has pushed for the in house channel, because if you look at the CVC investments that have been done over the past two, three years. What's been the difference? I mean, I think most of them, whether it's La Liga or certain other leagues, have done business as usual. It wasn't this transformative private equity, getting into sports and now all the things are done differently. So I think they would have liked one such case where there is more volatility in the outcome, both to the up and to the downside with an in house channel. But I think ultimately the numbers and the forecast. That have been put out by the league. We are not deemed robust or realistic enough that they defaulted back to the B2B licensing, but as said, I'm pretty sure that CBC has certain clauses in their investment. Which makes sure that they are compensated one way or the other.

Murray Barnett: 48:07

Well, it's interesting that LFP Media were advised by Peak, who are made up of ex Designers.

Richard Gillis, Unofficial Partner: 48:16

Hmm. Nice work if you can get it. okay, well, let's, let's get to, we'll finish off with some sort of shorter stories. We'll just go through these quite rapidly, some of which we'll develop in later episodes. We won't be trying to be too clever here. We're trying to sort of, Link them all together. Let's take them in isolation. But there are obvious links here. There are two women's sport stories that I think we should focus on. WNBA. Now, they have been, it seems to be a big beneficiary of the NBA deal. Murray, what's happened? If you just explain what the link is and how, how that's worked. And then there's an argument about actually, they, should they be unbundled, et cetera. But let's just take that

Murray Barnett: 48:58

Yes, so the NBA negotiates WNBA rights as part of their overall rights deals and have allocated, allocated in inverted commas 2. 2 billion as part of the sort of 76 billion odds that have been negotiated, which represents a six fold increase for WNBA. At roughly 200 million a year, there's another package that could go out, which will add maybe about 60 million onto that. And, you know, this is being hailed as a sort of a, a real turning point for the, for the WNBA, even to the extent that there are some people that are saying, well, that's not enough of an allocation. But what, to put it into context. It's putting it in a territory where it's making more than MLS, which I think, you know, arguably would be the fifth major sport in the US if you discount college sports or fifth major league. And so it's kind of getting to a a tipping point in terms of its level of popularity, obviously driven by the draft class this year, which included Caitlin Clark. But I think the argument has always been that because. The NBA and its owners along with external investors have been, have put so much into it being lost leading up to now that some of that money is being taken out by the NBA in advance.

Richard Gillis, Unofficial Partner: 50:19

So I've been talking about, you know, talk about peak and CVC and analysts and numbers that fly around before these negotiations. The interesting quote there from the media consulting team at Endeavor Group valued the WNBA at just 125 million per year, whereas the NBA said no, and it's, they've actually, they've come in at 200 million per year, which. I'm always interested in, analysts numbers and how robust they are. Yes. Yannick.

Yannick Ramcke: 50:48

I mean, ultimately, I think you can come up with arguments for each side of the fence or of the argument, whether you bundle or unbundle from the NBA. I did consider the arguments made. By the NBA for why they kept those two properties as a single process. Quite reasonable given the year round calendar and everything it made sense to me, I think the one thing that can be argued is the allocation that you mentioned, Maui, which effectively stayed the same cycle over cycle and ultimately probably it's good that we have never made. It's a big five officially, but the big four, given all that MLS might not be number five anyway,

Richard Gillis, Unofficial Partner: 51:29

yeah, I mean, we talked, we did a separate podcast with Sam Sadie of LiveScore and James Liddy of Jeffrey's Bank. And we were talking specifically about that increase, the NBA's increase from 25 billion to 75 billion. You know, talking about the role of. The betting markets or the opening up of the betting markets in the U S on. Those TV rights, which I think is, again, it's a whole different podcast, but there's an interesting area there. But the other bit to that was how little money is spent on women's sport generally in terms of betting and advertising around betting. So again, it's a sort of, it's, it's when you get to those second stage elements of this. I think again, there's a, there's a distinction there, but on the face of it, I mean, I looked at this and thought they've got to be happy they were bundled into that deal. So that it's just a massive. deal that they, we can argue the toss about attribution and how many percentage points they should have, but you would think that they were better off within rather than separated. Surely.

Murray Barnett: 52:30

for sure, and there is an opt out in four years time to re evaluate the fee. Well, not an opt out, but a price re evaluation in four years time, so I guess that there's some detail around that as to, you know, average ratings and so on and so forth, but it's not that they're locked in at this price for the next 11 years, which I think is the, is the bit that's got, uh, proponents of women's sport hot under the collar that, you know, not that they shouldn't be fixed in at that price for 11 years.

Richard Gillis, Unofficial Partner: 52:59

Yeah. Similar to the I remember the PGA tour and LPGA relationship is quite, again, it's massively loaded in favor of the, the men's game. And then, you know, I think it came out in court. It was sort of less than 5%. Let's talk about another big women's property, the WSL, where in terms of media there's a YouTube story here, Yannick

Yannick Ramcke: 53:20

yeah. So for me, it uh, underlined the point made before here that in terms of pay value from the consumer's perspective women's sports is just struggling. I don't think that women's sports. Is driving subscribers at the rate that the men's game does, especially in football, but also, I think similar can be said about basketball, and I think they are, or the approach that we can observe across multiple women's properties right now is to take a look Reach first approach because it's not a proven subscription driver yet and rather make up the money on the sponsorship side because brands certainly consider this an attractive environment. It's sports, it's emotions, it's positive image transfer and everything. And now moving from a Paid model being bundled into the FA player subscription to a free to air mass reach approach with YouTube. I think it's a sign of that circumstance that especially the mid to long tail of the WSL game inventory is not a subscription driver, but rather should embrace the reach first approach, which then can monetize through advertising and

Richard Gillis, Unofficial Partner: 54:35

And we should clarify that of all 66 games not broadcast by Sky Sports or the BBC will be live streamed globally. On the league's YouTube channel. Also they will show regular content dedicated to each division, including highlights, post match interviews, and shoulder content. FA player will continue to stream live women's FA cup fixtures and content. So again, I think we sort of mentioned. Previously about the role of YouTube and, this ongoing conversation about build your own, or do you sort of go where the people are and that, that is always at play. And it feels like there's just another version of that story, presumably.

Murray Barnett: 55:16

Well, I think it's just a quite a pragmatic approach. The new management structure of the WSL is just being formulated. I think it was only announced last week. I think that they. want to be masters of their own destiny rather than just relying on what the FA had done in the past. And potentially the competitive dynamics aren't exactly right this year for them to look at it. So they're kind of rolling for another year, adding in YouTube and using a sort of pragmatic approach to see what happens next year, which makes perfect sense to me.

Richard Gillis, Unofficial Partner: 55:50

Right. Next short one which is the Olympics. We should mention the Olympics. So we, again, talked to Dan Kaplan about sort of NBC's, Olympics, and everyone appears to be very chipper. According to the final ratings tally for the 2024 summer games in Paris the NBCU platforms averaged 30. 7 million viewers per day, a composite figure that includes live coverage in the afternoons, two till five. Eastern time and the traditional prime time windows. That combined delivery marked an 82 percent improvement compared to the long delayed Tokyo games in 2021, which had 16. 9 million viewers and Paris now stands as the biggest turnout since London Olympics. A dozen years ago. Now we always say the numbers always wrong on this podcast and on unofficial partner newsletters, but I'm always skeptical about numbers because they can be sort of hashed and rehashed and put into various different places, but it does appear that NBC have had a good games. Is that right?

Murray Barnett: 56:51

Yeah, I think they had a very good games. For a number of different reasons. Obviously, you can't compare Tokyo and Paris, both because of COVID, but also because of time zones. I think they also went all in on a different approach around this games. Plus, you had a few really high profile, Successes and athletes at the games, be that the basketball team or the U. S. basketball team will be that, you know, Simone Biles and a few others that really helped to create those stars, which drove it a bit further. And that's without even getting into sort of their new approach around the coverage with people like Snoop Dogg. And I think that. Whether that was just noise or not, it certainly has created an increased interest which is coming at a perfect time for them with, you know, L. A. being the next games after Paris. So that's a really interesting inflection point.

Yannick Ramcke: 57:48

I agree that if you control for a time zones for actually having an atmosphere and full stadiums, as well as opening up the life coverage across all of their channels, instead of holding it back until twilight time, if you control for all of those variables, it's still a positive message that they can bring out, but it may not make the relative increase in consumption less impressive than it looks at first glance. And I guess the last point from my side on this one would be, if you compare to where consumption actually took place, I think it has been another or more proof that the traditional distribution system still rules. I think 80 percent of minutes watched. They're actually on the linear cable and over the air channels and 20 percent on Peacock, which really provided this wall to wall and super serving the consumer.

Richard Gillis, Unofficial Partner: 58:49

I imagine the IOC are thrilled with that feedback because obviously the NBC deal, I think goes to 2032, is the one of the big central planks of their revenue model. So. Again, interesting to see what happens beyond that and see where that goes, but that's for another time. So next up first streaming profit for Disney ESPN question mark the media giants combined streaming business, which consists of Disney plus Hulu and ESPN plus was profitable for the first time. They generated a profit in the third quarter of the financial year, primarily due to ESPN. PN plus platform for three months ending 29th of June. Disney posted a revenue of 23. 1 billion and profit of almost 3. 1 billion.

Yannick Ramcke: 59:36

I think the message in the news that Disney put front and center here is a streaming profitability for ESPN plus in the most recent quarter. But I think this goes back to, you already touched on internal transfer pricing and everything. I think it's fair to say that ESPN plus has been the main beneficiary of the Disney bundle. It has effectively driven growth on its own for ESPN plus. And I think the numbers that they communicated this quarter where the lowest subscriber count as 24. 8 million since 2022, but all of a sudden it turned profitable. And I think this has to do a little bit with some financial engineering, how much revenue of the. Bundle is allocated to ESPN plus which might be a disproportionate amount compared to why people sign up actually in the first place. And I think on the cost side, there's also some financial engineering ongoing because it's effectively up to their discretion, how they allocate costs from. ESPN plus and a flagship linear ESPN if programming is shared. So I think the, they wanted to get out the news, ESPN plus is profitable, but there might have been some financial engineering needed in order to make this happen.

Murray Barnett: 1:00:55

I agree with that. And as a former Disney cast member, I must say that I do think that however they've engineered the numbers, that they do have the most comprehensive and thought out approach to direct to consumer and are the most likely, I agree. to be successful going forward because combination of Disney and ESPN is pretty formidable in terms of creating a bundle and you know as I said some of the smartest people I've ever worked with so I'm sure that they are going to be successful no matter how manipulated the numbers are.

Richard Gillis, Unofficial Partner: 1:01:33

when you were a cast member for Disney, did that come with a uniform of some sort or I know they call it, I know they call employees cast members, but I'd love to see you in a Mickey Mouse outfit.

Murray Barnett: 1:01:45

You have to do special training even for the very minor characters of which I was never deemed worthy.

Richard Gillis, Unofficial Partner: 1:01:56

Imagine that training day.

Murray Barnett: 1:02:00

That's for a different podcast.

Richard Gillis, Unofficial Partner: 1:02:02

Okay. And we're going to finish on Netflix, is Netflix ever going to get into sports properly? Brackets. So Netflix released their quarter two earnings subscribers at 277 million up 3%. On the last quarter up 16 percent from a year ago and revenue to grow 2024 to 14 by 14 percent from last year. So that all seems good. There's no reason for them to get into live sport, presumably.

Murray Barnett: 1:02:32

I think that there's a couple of things that they're only going to get involved in a minor way. I thought the interesting aspect here was that they, ad supported plans have grown by 34%. And obviously, sports delivers the big audiences, which helps them not only reduce touch and tends to be a slightly younger demographic but also tends to happen at times when they might encourage signups. So, you look at what they've already got, WWE, very regularly scheduled stuff the most successful sort of sport related program has been the, the Roast of Tom Brady, which Americans will be very familiar with what roasts are not something not the same meaning in England, um, and that receipt, that got to 20. 2. 6 million views. So, you know, very important for advertisers. And Ted Sandros said, our members love live content. It drives tons of engagement. It drives a ton of excitement. These things are very valuable. So the good thing is that advertisers like that. And I thought that this is the key reason why they've obviously gone in on the NFL Christmas package. But I still don't see any appetite for them to buy sort of traditional sports rights like a big NBA package or indeed the often discussed uh, F1 rights. The only

Yannick Ramcke: 1:03:54

It's further proof of what we said before. There's probably a significant. Diminishing return on their investment, the more programming they would acquire. So I think it will remain selective. Second also the two strategic benefits of it. One is. Subscribe acquisition and saturated market, given that sports programming is probably the most or the least substitutable programming that you can have. And then certainly scaling advertiser demand, which for the long term outlook of the company is essential that advertisers start to adopt and embrace Netflix as a advertising platform. And finally, just looking at your question, whether Netflix ever goes all in and full into live sports programming. I think it's a matter of definition, because there's much more than the content portfolio. And what stuck out to me as part of the announcement was that CBS is actually producing. The NSL games on behalf of Netflix. So I guess they're going to build up an in house production or talent unit that would handle those events due to the fact that they don't want to go actually all in and having like, daily or weekly inventory. And I must say TV has got a quite nice deal in exchange to it, including local market Right for the home team. So and for the away team. So I think a lot to be said here, but most of it is in line with how Netflix has acted in sports over the past, I would say 12 to 18 years. I

Murray Barnett: 1:05:37

you know, they've got an ad funded tier. So who's to say at some point in the future, they wouldn't consider adding a premium tier, which had a couple of anchor sports rights. But that's for another discussion another time, I suspect. All

Yannick Ramcke: 1:05:50

mean, the good thing is that when it comes to live sports programming you get the ads regardless of the tier given the, just the natives built in of advertising. So I guess that's the one ad that you can't get out of even though you are willing to pay whatever, since as far as I understand, even the premium ad free tier has advertising when it comes to WWE. NFL and similar life sports program.

Richard Gillis, Unofficial Partner: 1:06:16

Okay. Well, as someone who's just joined YouTube premium and took it rid of the ads I'm,

Yannick Ramcke: 1:06:20

I mean, I must admit I'm close. I'm close. Every single

Richard Gillis, Unofficial Partner: 1:06:23

it was

Yannick Ramcke: 1:06:24

I'm thinking about it. I mean, they're doing a good job in putting it front and center, but they're also doing a good job of identifying the most engaged users who are probably then willing to pay and retarget them on a daily basis.

Richard Gillis, Unofficial Partner: 1:06:38

If I can persuade my daughter to switch from Spotify to YouTube music, then it's, I'm quids in, but the danger is she won't do that. And. So I ended up paying two subscriptions, which I've done in the past, but and we'll continue to do so. I want an app that tells me when my subscriptions are not worth it. And it just pings me and I can just take them off. I just lose track. I'm not a big spreadsheet man like you, Yannick. I just keep trying to keep them all in my head and then grow an ulcer. Right. Thank you very much for your time as ever. Until next time we have Murray Barnett and Yannick Ramke. Thank you.

Murray Barnett: 1:07:13

Thank you.

Yannick Ramcke: 1:07:14

Thanks guys. Thanks for having me.