Happy New Year!
A reminder I wrote three essays before the holidays:
I also offered five predictions for 2023 in this month’s opinion essay for The Information “2023 Will Be Another Difficult Year for Traditional Media”.
Some housekeeping for the next two weeks:
I will publish PARQOR's three to four trends for Q1 2023 either Friday or next Monday.
I will be traveling the latter half of the week of January 9th, and plan on mailing on Monday and Wednesday. If something notable happens in the news cycle on Thursday/Friday, I will publish a short essay then.
I intentionally did not offer a prediction for sports streaming in 2023 among my five predictions for 2023. As I wrote back in August, I have learned not to focus too much on sports streaming primarily because “streaming has made sports distribution deals highly technical and somewhat convoluted”.
But then, the day after I posted the essay and wrote you all to wish you a Happy Holidays and Happy New Year, YouTube announced that it had reached a deal for the NFL’s Sunday Ticket:
Starting next season, NFL Sunday Ticket will be available on two of YouTube's growing subscription businesses as an add-on package on YouTube TV and standalone a-la-carte on YouTube Primetime Channels.
Consisting of all out-of-market Sunday regular-season NFL games (based on viewer's location) broadcast on FOX and CBS, NFL Sunday Ticket allows fans in the United States the ability to follow all their favorite teams and players no matter where they live. Updated NFL Sunday Ticket product features and functionality will be announced ahead of the 2023 NFL season.
This is a “seismic deal”, as former ESPN and NBA executive John Kosner told The New York Times’ Ben Mullin, because it signifies that “the three major sleeping giants have all woken up” (He’s referring to Apple, Amazon and Google, all of whom bid for Sunday Ticket). It is a seven-year deal rumored to be be worth as much as $2.5 billion annually, including payments from YouTube and separate agreements to license the package to businesses including bars and restaurants.
I think YouTube winning this deal is seismic for an additional reason, one reflected in the mention of YouTube Shorts in separate media interviews with Dhruv Prasad, senior vp media strategy and strategic investments for the NFL, and Neal Mohan, YouTube’s chief product officer.
Key Takeaway
YouTube's deal with the NFL has changed the future of sports distribution only six months after Amazon Prime Video Thursday Night Football debuted alternate streams.
Total words: 1,400
Total time reading: 6 minutes
YouTube Shorts is the version of YouTube that hosts and distributes videos with a maximum length of 60 seconds. Prasad highlighted it as an example of the “tremendous amount coming in terms of innovation and new features around football.”
Mohan highlighted YouTube Shorts while discussing the creator economy aspect of the deal to The Verge’s Nilay Patel:
I’m particularly excited about it because I know how important that is for sports fans on YouTube. Part of this is everything that we can do with creators, both in terms of formal arrangements like the one that I described [and also the] enormous amount of shoulder content on YouTube. There’s an enormous amount of commentary. The way [my son] consumes NFL content is not just the live games but all the creator commentary around it as well. I expect this to really be an investment in doubling down on that type of creativity on YouTube.
He added “a lot of Shorts content is already NFL-related content” and creators will be able to work with NFL content, “whether it’s game content, whether it’s behind-the-scenes access". They will be able to produce for the NFL channel, and remix highlights, clips, interviews, and commentary (“whatever our creators can do in that shortform format”). As for livestreaming, he told The Verge’s Patel that the specifics have yet to be worked out.
“Aggregate Audience”
The deal reminds me of a favorite quote of mine from NBA owner Mark Cuban (which I wrote about last in March 2021) is from an interview he gave to SportsTechie in April 2020. It is worth re-reading whenever a new sports distribution rights deal is announced:
One of the things that’s changed dramatically in terms of making our games available is that we’ve gone from a bandwidth-constrained environment on paid TV to a non-bandwidth-constrained environment. … With the Mavericks, we’re having conversations: Can we have three, four, five streams of the same game that’s going on traditional TV? You might have one where you have Twitch-like announcers; you might have two of your favorite YouTubers that are doing another stream; you might have your traditional broadcasters doing another stream; you might have a players-only doing another stream. We don’t care if there’s four, five, six streams—we care about the aggregate audience. By setting the priority of being an aggregate audience, then we can do things to experiment and try a lot of different things.
This YouTube - NFL deal doesn’t map perfectly to this concept of “aggregate audience” but the quote helps to tease out why the deal is even more “seismic” than many realize.
The deal redefines “aggregate audience”
Cuban’s concept of “aggregate audience” is across multiple broadcasts and streams, a strategy that Amazon has succeeded with (Amazon Prime Video landed four Thursday Night Football telecasts in the top 100 Telecasts of 2022, according to Variety, and offers alternate streams, including social media influencers Dude Perfect). ESPN, Paramount and Turner Sports have found some success with a similar strategy of multiple broadcasts across linear and streaming (NOTE: I wrote about these in August).
It also updates and redefines the DirecTV model, enabling à la carte consumption of games (DirecTV required a subscription and then charged an additional fee for Sunday Ticket).
Most notably, the deal’s emphasis on YouTube Shorts fundamentally redefines Cuban’s concept: Cuban was imagining multiple broadcasts as the ideal value proposition for reaching cord-cutting consumers and Gen Z and Gen Alpha. But, the NFL and YouTube seem to agree that multiple formats and multiple broadcasts in one destination are the ideal value proposition for reaching the next generation of NFL consumers.
In other words, almost three years after Cuban’s interview, and less than one year into Amazon Prime Video’s Thursday Night Football, the paradigm for “aggregate audiences” in sports streaming is shifting, again.
The deal redefines "scarcity"
The most significant takeaway may be that the deal reimagines the value proposition of "scarcity" to advertisers. As I wrote back in June in “The Core Tension/Weird Dance At Upfronts for Connected TV (CTV) Dollars”, scarcity was historically the linear networks’ competitive advantage at upfronts. "Scarcity" reflects how networks sold “media retail cartel” advertisers (the 200 or so brick-and-mortar retail advertisers who accounted for 88% of U.S. network television revenue) access to audiences at scale and there was no market alternative to reaching millions of households on a nightly basis.
The upfronts now face a “death knell”, and YouTube reported success at 2022 Upfronts to investors: as I wrote in October, one senior YouTube executive shared with me that he believed they took market share from linear at 2022’s upfronts. YouTube now reaches 135MM connected TV users in the U.S., alone, according to Nielsen. There are also 1.5B users of YouTube Shorts, worldwide.
From the perspective of “scarcity”, the NFL deal suggests YouTube is “sitting in the catbird seat” because it can aggregate:
A subscale “scarcity” of linear subscribers and monetize them both at a free of $65.99 per month and also with connected TV inventory it owns on the service;
YouTube viewers of NFL content at scale (some percentage of 2.5B monthly active users) and sell them to advertisers; and,
YouTube creator audiences and monetize them both with advertising and also Partner Program monetization tools, which they split with the creators 45/55.
No traditional media business — not even Disney with ESPN+, Hulu and Disney+— offers anything competitive.
Après YouTube, le deluge?
In June I quoted IAB Executive Chairman Randall Rothenberg's assessment of the advertising marketplace: “Everyone now lives under the same market conditions of abundant, fickle audiences; abundant, wildly varied content; competition from not just three networks but hundreds of companies; and real-time pricing and fulfillment.”
The YouTube-NFL deal reflects YouTube as *A* center for these market dynamics: it captures linear audiences with YouTube TV, connected TV users with YouTube and over a billion short-form consumers with YouTube Shorts. But, with an estimated 84MM homes with access to linear via virtual MVPD or traditional pay TV (cable, satellite or telco) in the U.S. (including YouTube TV subscribers), YouTube is nowhere near becoming *THE* center for these market dynamics.
That said, it is positioned to change the sports distribution game. With big questions looming for the future of NBA distribution rights — the first time they have gone on the open market in 25 years —and the future of Regional Sports Networks (RSNs), YouTube’s deal with the NFL may be a clear signal within the noise of the next chapters for both distribution deals.