What’s the strategy of Stan Sport?

When Stan announced it had won the broadcast rights for the Australian Rugby Union, it was a result most of us didn’t see coming when then CEO Raelene Castle signaled her intent to test the market almost 12 months ago.

The idea of a sporting code undergoing a normal market review to gauge the value of their rights is, theoretically, a relatively normal exercise in governance. Castle found out the hard way that the practicalities of the Australian market are a bit different when she was moved on just months later.

The narrative at the time was that Optus had expressed interest in acquiring the rights in order to add them to their Optus Sport bundle. The presence of a second legitimate bidder gave Castle the confidence to rebuke Foxtel’s re-up offer to continue its relationship with the code.

In 1 February wrote an analysis piece where I explained that the Foxtel and RA relationship was of such mutual benefit that both parties needed the other equally. RA needed the money at a time where the sport had become lost in a commercial no mans land, and Foxtel needed to hold the code as a risk avoidance strategy due to the volume of Foxtel subs in the elderly, more affluent core base of Union.

Once COVID hit, all the analysis in the world didn’t matter. Optus reportedly iced any talks (sensibly, given the financial outlay) for 12 months, and the damage seemed done with the incumbent. Whilst Rugby Union has a reasonable fan base, there are concerns about the suitability of the game to ad supported free TV and that it lacks the hooks of AFL and NRL. This made a FTA pure play bid unlikely.

So fast forward to November and the Stan partnership. Last week in tandem with the ARU deal, NEC and Stan announced the launch of Stan Sports. Stan Sports will be a bundled add-on to the core Stan service, and whilst it’s tempting to think about how this may impact the rights environment for Tier 1 Australian sports, it’s unlikely this is the strategic play for Stan.

The SVOD formula is a mix of depth of catalog combined with sufficient ‘new news’ to attract new customers as well as stimulate existing ones.

This is the formula Stan has grown exponentially with over the past 5-6 years, and is the same formula used by Netflix. It also has powered the growth of linear channels such as ESPN and Fox Sports.

Lever 1: Acquire a high volume of cost efficient sporting codes.

But when it comes to the big acquisition ‘hook’ type programming, no SVOD service or any disruptive media competitor in Australia can simply follow the past traditional of acquisition of a Tier 1 sporting code.

Why? The cost of entry is simply too great. Sporting rights for the main codes are now so expensive making a profit on them is not feasible with a single revenue source. These codes are on free to air, but don’t assume they create a direct return for these networks. Foxtel has traditionally been an aggressive acquirer of sports, mainly because it can recoup in three ways – subscription, incremental bundle revenue and advertising.

If Stan was to go after Tier 1 sports it would create two significant strategic problems – huge pressure on cash flow and massive financial risk, and a lack of funds to acquire other content. It’s important to remember Stan was established off a $100m investment, it is not going to willingly take on a $800m-1b plus liability in order to grab a few games of AFL or NRL a week.

It’s far more likely Stan will look at the sports to the right of the line above. Leagues which have, to this day, very low competition for their rights. Leagues which can be acquired for hundreds of thousands rather than hundreds of millions per year. Leagues which can provide year round content, at volume, and involve sports that have high amounts of engaged participants locally and large presence on social platforms and in wider culture.

These leagues provide the chance to build audience via numerous levers, rather than hoping one league can provide immediate volume. For leagues like the NBA, NFL, ATP, PGA Tour etc, it can provide a way of being the main game on a large service.

Lever 2: Double down on sport related series and documentaries.

‘The Last Dance’ showed sport can translate well to the mainstream. It didn’t hurt that the subject was Michael Jordan, sure, but whilst ‘The Last Dance’ wasn’t the first doco on a bonafide legend it was the first to crossover into the mainstream.

Amazon used the same approach with ‘The Test’ – turning 12 months of the Australian test teams trials and tribulations into a 10 part series that was used deftly to raise awareness of the Prime service and gain new subs.

Here’s the big difference between streaming economics and TV economics.

TV need to pay hundreds of millions of dollars for sports. These sports provide 10-20 hours of in season content, they provide concentrated viewers which are needed to sell to advertisers who want to reach a large volume of people quickly. So, the network pays a couple of hundred million each year, to ideally provide 70-100 pieces of programming that can ideally captivate a reasonable audience for 3 odd hours, and that can generate 36-40 mins of advertising inventory.

SVOD has two aims – acquiring a new subscriber or holding a current one. It doesn’t care as much about volume, or whether a program can get 600,000 viewers at one time. So the focus is on interesting content that can drive action – sign up – or can demonstrate value and hold the user.

Sport can be used very effectively here, but the economics are much different. A SVOD service can drop $1m on a highly produced, high end sporting documentary or series. It could spend an equal amount marketing it as well. And all it needs to claw back is $2m. The SVOD service can easily tap into the fanbase of sport, the passion, the loyalty, without having to buy the live rights.

This content for a broadcaster is rarely viable. These programs don’t rate that well – and by rate I mean generate high volume of concurrent viewing at a specific timeslot. The ROI is viewed only through the lens of advertising clawback via the linear broadcast. SVOD doesn’t have to use this lens.

This means if Stan (or Kayo) have $100m to invest, they can have a more even split between rights and content commissioned. Rights provide a volume of content, a demonstration of depth and value, and the commissioned series provide consistent hooks throughout the year and synergy with the core service.

Lever 3: Low price, high volume. Demonstrate value all year around.

The brilliance of the successful SVOD services has been to demonstrate high value, repeatedly, at all times. This has meant SVOD services sit at the $10 entry level mark, but provide users with a level of content they haven’t had before.

This formula works and it’s unlikely a business built on the simple premise of depth and breadth of content at an accessible price is going to pivot to a focus on a handful of sports at a higher entry price.

Right now there is an obvious clear space – high volume of content, low cost. Kayo provides a huge volume of content, much of it extremely expensive to acquire, and charges $25 for the core package. On the other hand you have the superfan league pass type packages – with a single focus and a premium price. Optus Sport competes in the focused area, but with a lower price point. However, for Optus it can claw back content acquisition cost via mobile bundles.

The importance of content volume is critical. Again – attaching to one Tier 1 sport gives you one big audience hook. This doesn’t suit the economics of streaming, where you need multiple acquisition moments every month. Plus Kayo has the edge here – it has the tier 1 leagues, and it has a compelling offer for the fans of these leagues.

Below is my view on the pillars of a strong SVOD service and how they can extend to a sports based disruptor.

These are built from the bottom up, not the top down. This is key – you can’t just grab a handful of hero pieces of content and then push them to everyone and base the year on it … it’s a markedly different game to TV.

The foundation is depth and breadth of league content. This gives you year-round depth of coverage, it gives you numerous acquisition hooks, it provides 12 months of constant content. The staggered nature of these leagues provides marketing focus throughout the year – start of season, finals … and 10-12 of these throughout the year provides a nice base for consistent acquisition marketing. Rugby, Wimbledon and French Open provide this. Tennis, the NBA, NFL, NBL, Asian Champions League, netball, golf and a league like the IPL would provide more than enough to take to market.

New content – documentary or sports series, provide another layer of marketing activity. This can be PR’ed, pushed via social, and becomes watercooler-type viewing. This reinforces the value to subscribers and adds a new layer to prospects.

And finally, there’s one off events – basically events or leagues where there’s the chance to test or acquire cost effectively. These are nice to have and reinforce the other pillars rather than being necessary to sustain the business. Boxing and UFC seem like the most obvious angles here.

There’s definitely enough space for Stan and Kayo to co-exist. Kayo has strong momentum out of COVID and the product and experience keeps improving every day. It’s held firm on its pricing, so it’d be unlikely it decides to compete in a <$20 price point in the future. And it continues to buck the conventional wisdom about consumers demanding ad-free streaming, so it is in the position of having both sub and ad revenue streams.

Stan’s big chance is in building a low cost, high volume and high value sport and entertainment alternative. In terms of market dynamic, this is similar to what faced Stan when it launched.

It could pursue content that wasn’t considered viable for the TV network business model (which relied on concentrated viewing by a large amount of people at one specific time) and monetise it over months, even years. Live sport is highly perishable and often contingent on live viewing, but any sports based SVOD service (including Kayo in AU and ESPN+ in US) is going to a much more even mix of live sports, highlights and stories.

Stan pursuing sports is strategically savvy for 2 reasons – it provides a new platform for user volume growth through a new stream of content appealing to new audiences, and it provides a method to increase ARPU for existing users.

Let the games commence.

Ben Shepherd is the general manager at Thinkerbell.