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The Olympics end tonight. Have you watched any of it? Neither have I.
The Olympics are supposed to be the crown of sporting events. Who wouldn’t want to watch freak athletes at the peak of their performance going toe-to-toe with each other?
But the Olympics of old, where you turn on your TV and sit around for 2 hours just to watch Usain Bolt run 100M in under 10 seconds, is dead.
NBC paid $7.75 BILLION for the rights to the Olympics (until 2032) and they have botched its experience to epic proportions.
The opening ceremony in Tokyo drew 16.7M viewers on NBC, down from 26.5M that watched Rio de Janeiro in 2016, and 40.7M people that watched London in 2012.
For reference on just how small the relative audience is, in April 2020 Travis Scott threw a concert on Fortnite that drew an audience of 27.7M.
If you want to watch the Olympics, you have to go through mental gymnastics (pun intended) just to find the time of the event, then you have to figure out how to consume it.
It sucks.
And this is all due to a change in media consumption patterns. People want it to be easy and they want it now.
No one busts out their old paper TV guide and sets their set-top box to record their favorite sitcom anymore, let alone wait to watch it live. Why would I do this when I can binge all of this at my fingertips through Netflix, Disney+, Amazon Prime Video, HBO Max, Peacock, Hulu, Etc.. etc… etc…
This trend has been going on for a while, but linear cable and old-school broadcasting big wigs are trying to hang on to their only saving grace: Live sporting events.
This week, in <5 minutes, we’ll cover shifting consumption patterns through the lens of:
TV of Old 👉 Gatekeepers, Waste, “Spray and Pray” Advertising
Shifting Consumption Patterns 👉 The Personalization of Everything
Live Sporting Rights 👉 Contracts, New Buyers Entering the Square
How GRIT’s Playing it 👉 Focus on IP-Rich Companies with OTT Strategy
Let’s get started!
1. TV of Old 👉 Gatekeepers, Waste, “Spray and Pray” Advertising
Ah the TV of Old – Cable Television. We used to gather around living rooms, pull out our foldable dinner stands and watch the old jumping box do its thing.
This was enabled by the infrastructure buildout where TV was delivered through radio frequency (RF) signals transmitted through coaxial cables, or more recent through fibre-optic cables that are plugged into set-top boxes.
This system was hyper-localized because broadcasting systems would receive these signals through large hilltop antennas, then amplify the signal and send them to surrounding areas over hardwire.
Key to this early system was the method of distribution: through local utility poles and underground lines that were built directly into homes. If a house did not have a connection, a cable company would send out a service order to install one.
This would later evolve into high-definition services and the equipment would be upgraded, but it was still essentially the same distribution method. It reminds me of the audience laughing during a David Letterman interview with Bill Gates about this new “internet” thing.
Letterman almost prophetically describes how he consumes this content through radio, tape recorders, and magazines – old media. Gates goes on to describe how it’s a subtle difference, but I would argue that it is an important one.
The internet brought into the world ubiquitous distribution that doesn’t have to go through as many different gatekeepers.
Also important was the nature of the content. Each localized system had maybe 7 or 8 channels to start, where you had to flip through each stream of content to find something that you liked or flip through a paper TV guide and wait for something that you did like to come on.
This created a headache for advertisers because it was difficult to tell who was watching what, and when. They had simple metrics like the number of viewers at a certain time, but this was largely dictated by who had the remote in their hands. Little kids, Timmy and Jimmy, could be getting served cigarette and sewing machine ads while they were trying to watch cartoons.
You could do simple content matching with similar types of products to try to get the desired reach but there was no deep-level attribution.
Content was linear because there was no feedback or interaction with the individual end user, rather you were just putting a bunch of programming out that maybe everyone found moderately entertaining. The most successful content appealed broadly to everyone which is how we ended up with terrible shows like ‘Frasier’ and ‘Golden Girls’.
But what if I could watch exactly what I want, when I want? That sounds like a better use of my leisure time.
2. Shifting Consumption Patterns 👉 The Personalization of Everything
Netflix came in and really broke the system.
Starting out as a mail-in DVD business, they were always focused on the personalization of content. You got what you wanted to see. No ads and no flipping through channels.
The business model then adapted into what it is today, but it was the distribution medium that changed the most. Anyone with wifi reception could access the platform instead of waiting to get it in the mail.
Viewers got what they want, when they wanted it, delivered over the internet for eight bucks a month.
The content then expanded from only movies to all types of videos including originals (and soon gaming). With a built-out library, we then got introduced to things like discovery, binge-watching, and recommendation engines. We’ll save that rabbit hole for another time, but the importance of this on-demand content library meant that very few people were going to consume a sitcom or TV show on linear cable in a live fashion.
This is why sporting events are important. It’s one of the final forms of content that broadcasters are holding onto that fits their old model – live.
Under the Radar…
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3. Live Sporting Rights 👉 Contracts, New Buyers Entering the Square
As you can see in the chart below, Sports rights are split every which way: leagues, broadcasters, divisions, certain nights (for NFL), etc…
A lot of these contract prices were accelerated greatly as they remain the last chance for advertisers to reach a highly engaged audience during primetime. You can generally avoid advertising in today’s digital content consumption unless you’re watching the game. That’s why a 30-second Superbowl ad sells for $5.5M.
But what I want to highlight in the chart above is in the “Network” column. You see all the legacy networks like CBS, FOX, NBC in there, but now you also have Facebook, YouTube, and Amazon entering the square.
Why do we think this is?
It’s because those platforms are kings of distribution. And they’re coming for sports.
My prediction is that legacy network companies will fall by the wayside, and tech companies with shored-up balance sheets will finally consume the last leg of entertainment: sports.
4. How GRIT’s Playing it 👉 Focus on IP-Rich Companies with a Solid OTT Strategy
My favourite name in the space is Disney (also owns ESPN). It is also a large position in my portfolio. When it comes to the House of Mouse they’re the undisputed GOAT of distribution, and they proved this when they put up numbers for Disney+ that were so impressive, even the Netflix CEO said it was great.
We’ve all heard about some of the best ideas in business being drawn on a napkin at a bar, but how about this for a flowchart:
What they do so great is exactly the model we’ve been talking about in software that is so scalable. You make it once, and sell many many times.
This is what they’ve done through all different mediums using the same likeness and images that are iconic across the world.
Oh, and people piling on the revenge travel train might be pretty good for their parks business…
Wrapping Up…
This is all to say that we are now in a very dynamic world of cord-cutting, unbundling, and rebundling. It will be fascinating to see how it plays out.
What I like to do is ZOOM OUT. Focus on the companies with a desirable content slate paired with a distribution strategy that allows scalability.
And while content may be king, distribution is queen, and long may she reign.
Until next time. Always Yours. Incessantly Chasing ROI,
-Genevieve Roch-Decter, CFA
P.S Guess who's back, back again? Bitcoin’s back, tell a friend…
What else we Grittin’ On?
BETTING. Shares of theScore close up 79% after Penn National announces plans to buy the company for $2 billion. Acquistion multiple of 75x run-rate revenue speaks to insanely high demand for betting assets.
PSYCHEDELICS. What’s better than helping people? Helping people AND making money! Novamind, an innovative psychedelics company, increased revenues by +43% to C$1.85MM last quarter, and with clinic visits expected to increase by 225% this year, they’re just beginning to scratch the surface!*
ROBBING THE HOOD. Filing from the company indicated that early investors could sell up to about 98 MM shares. Lot’s of pumping going on and maybe some dumping?
COPPER. Copper projects like this don’t exist anymore! Solaris Resources’ Warintza deposit has been sitting in a time capsule for 20 years…until NOW! Largest drill program in S. America at The beginning of a COPPER supercycle! Check out Solaris’ announcement on their HUGE discovery!*
INFRASTRUCTURE. US Senate vote advances Biden’s $1 trillion infrastructure bill. Winners: Freight/transportation, Airlines, Internet providers. Losers: Chemicals & Crypto. Keep the money party going!
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