In Summary

Analysis for The Conversation by Professor Heath McDonald, Swinburne University of Technology. 

Negotiations are due to get underway for the right to broadcast AFL games from 2017-2021 and the reasoning goes, stakes for free-to-air networks have never been higher. Thus, the price tag will surely follow.

In 2012, the Seven Network bought the rights for AFL games for $1.25 billion, up from the $780 million paid five years earlier. The AFL have reportedly valued the upcoming rights at at $1.75 billion, with media reports focusing on whether free-to-air networks, Nine, Seven and Ten, will engage in a three-way battle to push the price tag past this.

It’s understood that free-to-air broadcasters, struggling to retain their audiences against illegal downloading and the movement of advertisers away from traditional media to a myriad of new options, must fight hard to retain elite sports rights.

But there are ways the rights can be leveraged far more effectively than at present, to improve the return-on-investment. This will involve sports broadcasters taking advantage of the three main ways in which sport has a natural advantage over competing broadcast content.

The cost of alternatives

It is estimated that an hour of US drama costs $200,000-$300,000 and Australian-made drama up to $1 million an hour. By contrast, the AFL broadcast rights sit in between. Assuming there are 207 matches played (as in 2014), the average match broadcast goes 3.5 hours, and the yearly cost of rights is $250 million ($1.25 billion divided by five years), then the hourly rate of match content is around $345,000.

Add in production costs and the figure may be closer to locally made drama, but replays (as the Fox Footy channel does all summer) and panel shows featuring ex-players and journalists endlessly dissecting replays add further value.

That said, direct revenues to Seven from AFL broadcasts are thought to have been insufficient to cover costs, suggesting advertising rates must rise.

Piracy protected

The scourge of all broadcasters these days is the ready availability of shows online as legal and illegal downloads. Pirating of TV shows continues to grow, with the number of downloads often exceeding television ratings. Consumers download in order to fit entertainment in better with their lifestyles, they get to “binge” watch their favourite show in one hit and be free of 12 minutes or more of commercials and station promos each hour.

Sport avoids this trap in two ways. First, sport broadcasts needs to be consumed “live” as once the result is known, much of the theatre of sport disappears. Consumers therefore do not benefit from “time-shifting” viewing, except those hard-core fans whose nerves cannot stand to watch their team live.

Second, advertising and promotions are embedded into the modern sports product, so while consumers might “zap” adverts in breaks in play, they cannot avoid in-stadium advertising, overlaid promotions in live play and sponsors logo on team uniforms, balls etc.

A savvy broadcaster would never leave the broadcast for any advertising breaks, but would overlay all ads on the background of the live coverage.

A large, broad audience

Big sporting events do something almost no other content can do these days – attract a large audience comprised of many different types of people. Consider the Superbowl, just played. Averaging 114 million viewers in the US, with a peak of just below 121 million, this dwarfs any drama show audience by a factor of four or five times.

And that doesn’t include those watching in venues outside the home, which many do for socially viewed products like sports. For example, the drama program that followed the US Superbowl on NBC, rated 26.5 million viewers, making it the most watched drama on that network for more than 10 years. This is great follow-on viewing, but only a fraction of the sport audience.

How do these characteristics justify paying billions? Advertising. Despite the excitement of new media, traditional advertising is needed more than ever, and television is still our best medium for it.

Most products gain market share by building what University of South Australia Professor of Marketing Science, Byron Sharp calls “mental availability and physical availability”.

Big brands become big by having large numbers of customers, many of whom purchase infrequently, rather than by “owning” a group of 100% loyal customers. To grow in this fashion a brand needs high levels of awareness and recall among all potential buyers of the product and excellent availability in the retailers frequented by those buyers.

Customers don’t care that much about most of the products in supermarkets and department stores (despite what many brand managers believe) and so if you lose top-of-mind awareness, you quickly lose market share.

Advertising in sport broadcasts makes sense, because it’s an almost unrivalled way to efficiently reach a broad audience and the length of broadcast allows repetition and memory building. Television, in particular, allows the building of distinctive brands by combining sound and vision, which allows creative attention-grabbing ads.

Lack of appreciation from broadcasters

What’s remarkable is that broadcasters still don’t seem to appreciate these factors. Already this year, we have the ABC paying a rumoured $1.5 million for the Asian Cup but then delaying broadcast of pool games, and Nine and Seven have been sluggish to introduce HD broadcasts of their prized sports properties.

Current anti-siphoning laws give free-to-air broadcasters a distinct advantage in negotiations, but they have to work smarter in future given the political pressure to remove those regulations.

Sports marketers have their role to play too, in recognising that free-to-air also works to keep the sport top-of-mind amongst a large audience, bringing new fans and encouraging consumption.

Being flexible on match times and schedules, open to innovations in broadcast technology and game format (Twenty20 cricket, Fast 4 tennis) and building marquee game events all build broadcast rights value.

The major challenge however, is to continue driving live attendance through an engaging fan experience, because without a live crowd, the broadcast value drops significantly.

Written by Professor Heath McDonald, Swinburne University of Technology. This article was originally published on The Conversation. Read the original article.