Feature: Online sports content - get what you pay for  

Sab Singh and John Bruel, co-founders and principals of US-based Avila Partners explain why the business of selling content on the internet is robust and why sport provides that special edge.

Ready for a surprise? Selling content online is alive and well. Why? Because the market is figuring out that the internet is not a new business that will dominate all others, but rather is a new distribution medium that complements, and sometimes is integrated with, other media such as TV, print, and radio. And like with the other distribution channels, we sometimes have to pay directly for customised or premium information and entertainment.
Paying for online content is not a passing phase. It is a booming market coming off its best year (although granted, from modest levels), and the impressive growth rate is expected to continue. The overall market for online content in 2002 in the US was worth $1.3bn, which about doubles the previous yearís $670m, according to a study from the Online Publishers Association and ComScore. That report also noted that 14.3m US internet users paid for online content in the fourth quarter of 2002, a 43% increase over the same period a year earlier. Jupiter Research predicts $2bn in US revenue in 2003 and an annual 20% growth rate over the next four to five years.

Sportís experience

In the sports world, the last seven years have seen the major sites waffle between for-pay, mixed and free models, while attracting very few subscribers. Why? In the world of the static dial-up internet, every sports fan has an outlet, and every newspaper, magazine, TV network, university, pro team and league has a site jammed with data. It is a commodity, so even sports broadcaster ESPN struggles to charge for it.
The surveys that proclaim that only a fraction of web surfers will pay for online content merely reflect previous behavior and consumersí preferred scenario, not the reality of the next few years. Why should AOL Time Warner give away Sports Illustrated and Time articles online that have never been free in the print world? It makes no economic sense. (In fact, the company no longer is.) A few major players will be able to finance free content via advertising; surrounding those companies will be a myriad of smaller, niche-focused sites that charge for access, and may or may not supplement that with advertising, e-commerce and potentially other services. If this scenario sounds familiar, it should: it is the model of broadcast TV, and regular and premium cable.

Prising open consumersí wallets

Yes, consumers have balked at sitesí attempts over the last few years to charge for content, but surfers will soon accept paying. Why? Simple economics: the huge majority of sites that continue to give away non-commodity content will disappear. Advertising as the sole source of revenue will work for only a handful of companies. The other factor is that much of the content will not be considered ëcommodityí, and people will open their wallets for that type of premium content. You must remember: consumers would rather pay for what they want than not have access to it.
The catalyst for this new and better content is broadband. Broadband enables quality video and audio to be streamed or downloaded, and unlike a game recap or opinion column, multimedia such as game film and player interviews is the property of a single rights holder. That makes it a unique, enriching experience - one that people will pay for.
In 2000, only 6m homes in the US had broadband internet access - not enough to make special online programming financially viable. By the end of 2003, more than 23m homes will have broadband, according to research firm eMarketer. To put that in perspective, that's about as many homes as had cable TV in 1980, the year CNN launched and one year before MTV. Now that broadband penetration is increasing in major markets such as the US and Europe and the technology for delivering the content is improving, rights holders (such as broadcast networks) are eager to introduce new products.

Leagues entering the fray

So the stage is set, and the players are emerging. The first half of 2003 has seen an explosion in new products announcements. Leagues (such as Major League Baseball, the National Hockey League and the Womenís National Basketball Association), media companies (such as Yahoo! and ESPN), technology companies (such as Real Networks, which has a million paying users) and communications/ISP companies (such as T-Online) all plunged into the market with for-pay online sports content. While sports has not claimed a large share of paid online content, it seems clear that 2003 is an inflection point for the sector.
Looking forward, the case can be made that even the so-called non-major sports will attract paying fans online, giving them an additional revenue and branding resource. Again, passion and access will determine success. For example, if Major League Lacrosse, a three year old league in the US, can continue to build upon its loyal fan base, but those fans canít watch all the games on TV, it is reasonable to assume that some will pay to watch online (or receive other types of relevant information). Will that number be a critical mass that provides a profit? As broadband penetration increases and prices fall (both of which are virtually guaranteed over the next few years), the break-even number will decrease. And in the meantime, itís a great brand building and marketing tool.

Ancillary benefits

There are ancillary benefits to sites that generate payments (subscription or a la carte) in addition to the actual revenue associated with the content purchase. Gathering data from users can be used for customer relationship marketing and loyalty initiatives that can retain current customers, find new ones, and sell more to everyone. The goal for sports entities is to extend their brand outside the stadium or arena and into the fansí everyday lives, and non-invasive, value-adding communication can accomplish that.
The risk of a move to more subscription-based sports content is lessened by the fact that this business model is firmly established. For example, the trend in magazine publishing is to decrease subscription prices (to encourage predictable, recurring revenue) while increasing news stand prices (to reap higher margins off these more volatile sales). This will likely be a major factor in the online world as well within two to three years. If you prefer an annual subscription, it will be fairly inexpensive. But if you want to download one issue, article, song or video clip at a time, you will pay extra for the flexibility. This is what is happening in the online world right now. For TV, you can get basic cable, and then pay extra for movies and sports on a pay-per-view basis, or you can get a more expensive, but more inclusive subscription package. This is a well-established model that is migrating online.
So, disregard the nonsense you hear about consumers not paying for content online. They will increasingly pay for unique, customised content - and sport will be a prime driver, and beneficiary, of this trend.

Sab Singh and John Bruel are authors and publishers of the 2003 Sports Funding Report. For further information and to order the report see www.avilapartners.com/arksports

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