How live sports change the streaming game for investors
Video streaming has fundamentally changed the way we consume video entertainment, disrupting the traditional broadcast and cable TV ecosystem and allowing for an ‘à la carte’ watching experience. Through streaming, we are able to watch episodes whenever and wherever we want to, instead of just following the programming predetermined by each TV channel. Welcome to “binge watching”. And as live sports make their appearance, welcome to a possible interesting investment opportunity.
Having differentiating content is essential for video streaming services. The competition on unique content now extends to live sports. Adding exclusive live sports enables streaming companies to attract more subscribers and keep them engaged. From the point of view of investors, live sports take the streaming game to a whole new level.
José Hernandez, Thematic Portfolio Manager KBC Asset Management
Live sports redefine the rules of the game
Live sports streaming isn’t new. Services like DAZN have been around for years. However, TV rights for the major sports leagues are mostly held by traditional - linear – broadcast and cable TV providers. “The NBA, for example, is re- negotiating its TV rights this year”, says José Hernández, Thematic Portfolio Manager at KBC Asset Management. “But from 2014 to 2024, its US TV rights were held by ESPN and ABC, owned by Disney, and TNT, owned by WBD.”
Streaming services have been embracing sports-related content, like documentaries, series or special events for some time. Think of the Formula One series Drive To Survive or the highly-acclaimed docuseries about Michael Jordan’s career The Last Dance. “However, live sports themselves, until now, remained a near monopoly of linear TV”, Hernández adds. “Moreover, if it wasn’t for major live sport events, the traditional TV ecosystem would be losing many more subscribers and viewers, and hence profits, than it is already doing.”
Last year, 93 of the top 100 most watched TV broadcasts in the US were American football games. In that sense, live sports are like a last resort for traditional TV. Today, streaming services are about to take the loot.
José Hernandez, Thematic Portfolio Manager KBC Asset Management
Because of the huge popularity of sports leagues, TV rights are expensive. “Sticking with the NBA example”, José says, “the NBA’s US TV rights cost, under the current contract, 2.7 billion USD per year. Under the new contract, that will be negotiated later this year, this massive figure is expected to at least double to close to 5 billion USD per year.” Media companies bidding for these rights must be sure that they have a big enough audience willing to pay to watch these games. Otherwise they risk big losses. “Moreover, sports leagues are very demanding with wanting their games to be shown to as many people as possible in order for their brands and fanbases to keep growing. The NBA and NFL are famous for this. That’s why, 10 years ago, these major sports leagues didn’t want to take a chance on an unproven technology like video streaming was. Remember Netflix only went global in 2016.” Today streaming services play a whole different game, taking over traditional TV and reaching audiences all over the world. “It makes sense that the leagues are now willing to sell their TV rights to streaming companies”, Hernández concludes.
An enhanced viewing experience
Live streaming brings a lot of possibilities on the experience side of things thanks to internet connections. “Leveraging each individual subscriber’s data, streaming companies could tailor the viewing experience for each fan in a way that is simply not possible with cable and broadcast”, Hernández explains. “For example, you could offer behind-the-scenes content of one’s favorite team, live statistics tailored to one’s preferences, etc.”
Our viewing experience will become more immersive, community-oriented and interactive. Just imagine a future where, instead of just watching the game with analysis from a sports reporter, you have social media integration, showing you live Tweets, interactive polls asking fans what they think the outcome of the game will be and live chats to discuss the game with other viewers.
José Hernandez, Thematic Portfolio Manager KBC Asset Management
Taking it one step further, if we put together these improved sports-watching experience with augmented and virtual reality tools like Apple’s Vision Pro, we can imagine a future where watching a game from your living room feels like being in the stadium but at the same time having all these live stats, polls, chats, etc.
A new playing field emerges
So far there is no comprehensive live sports streaming service that offers viewers a large amount of major sports. But we see three separate developments that could shape the market for years to come.
First, you have sports-specific streaming services where fans would subscribe just to watch sports. “This could be something like Disney’s planned ESPN Flagship streaming service, which is expected to launch in 2025, and which should include all of ESPN’s live sports rights as well as their sports documentaries and analysis or talk shows with expert reporters like Stephen A. Smith”, Hernández says. “Another example is the joint venture between Disney, WBD, and Fox - to launch later this year - through which these companies aim to pool their sports rights in order to offer their viewers a standalone streaming service with rights across many sports.”
As a viewer, a one-stop-shop for the best entertainment would be a value-add, with, in addition to the streaming service's own productions and a whole host of third-party series and movies, a wide live sports offering you can only dream of.
José Hernandez, Thematic Portfolio Manager KBC Asset Management
Second, general entertainment streaming services like Netflix could start bringing in more live sports content to create one single service to view it all. “Netflix has been cautious on bidding for sports rights given the aforementioned high costs”, Hernández says. “But recently, they have been dipping their toes in sports-adjacent content and bought the rights to stream WWE’s Raw show, which is a step in the direction of live sports. Another example would be Disney bundling together their Disney+, Hulu, and ESPN Flagship service in the future to create a very comprehensive video entertainment offering.”
Finally, one more option would be if the big tech companies decide to make a bigger push into live sports. “Amazon, YouTube and Apple all already have some live sports offerings”, Hernández explains. “But still limited. With their massive budgets, these big tech companies could also try to enter the live sports scene in a bigger way.”
Investors embracing a game worth playing
Streaming services have transformed the entertainment industry and continue to grow in popularity. This makes them an interesting option for thematic investors. But as with any investment, it is important to understand the strengths and weaknesses of the business, as well as the risks and opportunities they present.
The streaming market is highly competitive, with major players committing significant resources to growth and retention of paying customers. The cost of unique content offering is high, putting pressure on profit margins. “There is no question that we are at a turning point for live sports”, Hernández concludes. “Documentaries, movies, and series have already made the jump from linear TV to streaming, and in these coming years live sports are bound to follow. Adding live sports experiences allows streaming services, and in their wake investors, to embrace new opportunities and to further diversify in the growing market of the entertainment industry.”
From Netflix, the pioneer of streaming, to Disney, the entertainment giant, and internet rulers like an Amazon or an Apple or an Alphabet, there are several players fighting for viewers' attention. Investors too, when knowing the game inside out, can get a piece of the action.
José Hernandez, Thematic Portfolio Manager KBC Asset Management
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This article is informational only and should not be considered investment advice.
