Economies of Ever Decreasing Scale - The English Premier League’s future problems

Value over three seasons: £5.1bn

That, readers, is rather a lot of money. It’s over £1.7bn per year. That is also domestic rights only. International rights are likely to add another £1bn a year to that pot when all is said and done.

How much money is this in real life? In 2013, Netflix had revenues of around £2.85 bn. This TV deal for the English Premier League is going to bring media revenues alone of upwards of £2.8 bn per season. Rather than comparing the EPL to other sports leagues, which it has far outstripped, the EPL is making revenues that aren’t all that dissimilar to the largest internet streaming company in the world.

And it’s Netflix that is the example we should really focus on because the TV broadcasting landscape as we know it is changing as it transitions from just being signals into a box in our living rooms to being an always-connected multimedia experience. Netflix has taken best advantage of this by securing rights to archive programmes at a low price and then adding value by creating it’s own high quality series such as House of Cards (which famously came about simply because their statistics showed people who watched the original UK version also liked Kevin Spacey).

This is the problem for the EPL and it is a huge one. To attain revenues of £2.85bn, Netflix had to monetise a subscriber base in the region of 40 million. Since 2013, this amount has gone up, but Netflix still only has just over 50 million subscribers dutifully paying around £6 per month every month. The EPL, however, are doing this on TV alone, a medium where the EPL is simply a very good marketing tool for the battle for TV packages and broadband.

That, currently, isn’t that big of a problem when you can rely on TV companies fighting hard for viewer subscriptions. However, for Sky Subscribers also subscribing to BT Sport, this is at a cost of £227 per year just to subsidise the EPL rights, a programme which, ultimately, only draws in 2.5 million viewers a pop even for it’s biggest matches. Come 2019, once this contract ends, viewing habits will have continued to change and that spells trouble as Netflix and other online streaming services provide content in terms of drama, etc that is superior to that that is available on traditional networks and the heaving trophy cabinets that are getting installed at Netflix and Amazon are testament to this.

Streaming is hurting traditional TV networks and, crucially, they are able to now call on examples of sports cutting the cord on their reliance to TV revenues in the WWE Network. It may not have been a resounding success in terms of subscriber numbers but it sets the standard in terms of what service fans expect and at what price point they wish to go in at. Fans see the product not as a replacement for TV but as a supplement to TV. As such, the product has to be priced as such that fans are able to purchase the product on top of their Sky subscription, etc. If the future of TV in online, the key innovation will be the UI that allows viewers to have multiple disparate services and view them in the easiest manner possible.

What this means is that the early adopters to online streaming will be the ones who will benefit most but, even more importantly, they will set the standard for price points in the market and also be a football league with nothing to lose by doing this. The primary candidate, in my view, is that of the SPFL - a league with a disproportionately small TV deal compared to the amount of fans who watch and go to games and a league who are already moving towards getting as much content online as possible.

At the ideal supplemental price point, which we will use as the Netflix price of 2014 of £6 per month, to attain more money than they receive currently from TV rights (around £14m per season) and assuming subscribers discontinue subscriptions for 2 months a year (in the off season), an online only SPFL Network would need under 250,000 subscribers. Considering that, this season, matches have exceeded that figure and that even the highest viewing figure will be slightly under the total viewership that would wish to purchase an SPFL Network (as, of course, not all fans are bothered about all games), then the SPFL would easily surge past their current media deal value and surpass it by some way. This offering presents viewers with a choice - the amount is small enough to be simply an addition to existing services but it could also be thought of as an alternative to another subscription service, for example, BT Sport. Because it is valued at a price point where customers have a choice, it works.

This is where the impact on the EPL becomes very interesting. If we follow the viewing figures guidelines and even consider those who watch Match of the Day, we still only get to around 5 million regular domestic viewers of the EPL. This would mean that, to replace TV revenues by cutting the cord, the EPL have to get £340 out of every single viewer every year to break even - or, if you prefer, £28.33 per month. In this instance, customers do not have a choice - they cannot afford to have the EPL Network as a supplemental service, it would have to, in most households, replace their satellite TV package or, at least, a large part of it. At £6 per month, our Netflix price, they require an astonishing subscriber base in excess of 40 million - that is over 14.5 million more than the amount of households in the entire UK.

But what does this all mean? In a world where viewers are moving online, the invention of a professional online streaming product in the football marketplace will be all it takes for many households to cut the cord and move further online. As consumers choose to go online rather than take Sky subscriptions, the pot the TV broadcasters have to spend declines as people ask themselves “If I’m not using Sky/BT to watch the football, do I even need it?”. The product able to take advantage of this glaring opportunity in the marketplace is one which has absolutely nothing to lose by doing so and one that can make the move secure in the knowledge that, even as a niche product, it will easily get subscriber numbers to at least break even on it’s current income. If one is in the position the EPL is in, where TV revenues are so high, they are simply pumping clubs full of money in amounts that would make Croesus blush, then taking that gamble and cutting the cord is simply not an option and they are forced to use TV revenues as a crutch even when they, inevitably, stop inflating and start to constrict.

The issue is when? That, in itself, is impossible to put a figure on because it relies not on the passage of time from now, but rather the passage of time from when someone enters the market. Once a high quality, affordable football product is available on online streaming only, others will make the move and the TV broadcasters will start to panic as viewers choose to purchase the SPFL/La Liga/Serie A network and watch it on an app on their phone/PS4/XBox/Smart TV rather than bother to feed £50-80 a month on a TV subscription when it is cheaper to put together a bespoke App package using Netflix, Amazon plus other Apps.

It takes someone to make the first move and to see just how much the TV broadcasters flinch. It is better to be undervalued right now as it means that this gamble is a safe one to make.

For the English Premier League, they cannot afford to take that gamble but, even worse, they cannot afford anyone else to.