Is it possible for the Padres and MLB to maintain the same business model and revenue now that Diamond Sports Group has walked away from its media rights deal?
No.
I’ve got two reasons why I think this doesn’t work:
The idea of sliding from the RSN model to an OTT model is hard to imagine.
In most cases, the RSN model has worked because cable subscribers were locked into 24-month contracts and most of the packages included channels like the RSNs that customers didn’t really care about but had to take due to the nature of their contract with the cable provider.
As this system is starting to erode, we are seeing a lot of hype about OTT.
The theory of OTT is a lot more appealing that the actual practice of OTT.
Netflix is profitable. Disney, Max, Peacock, and others…not so much.
Why is this a challenge?
One, customer acquistion cost of streaming is high, estimated at about $200 by Marketing Brew.
Two, baseball’s fandom has been shrinking to the point that MLB is the third most popular league in the US behind the NFL and NBA. And, if I could come up with an apples to apple comparison, I’d guess we would see that the Premier League is also more popular than MLB.
This means that you have an expensive customer acquisition paired with the need to expand your market base by building top-level brand awareness all while the RSN business model is under duress.
That’s why I question the wisdom of focusing on “distribution” when the games are going to continue to be behind a paywall.
Corey points out that Direct-to-Consumer models are tough. In truth, they haven’t really worked for most businesses. The success stories like Dollar Shave Club were losing tons of investor money in the hopes of acquiring enough customers to make them attractive to a larger competitor to buy them.
Brands that started out with a D2C model like Warby Parker have found that the theory of D2C is great, but the real business is in traditional retail which has been why Warby Parker has continued to grow the number of store fronts they operate.
What does a path forward look like?
One, you have to do something in the short term. So MLB acting quickly to get the games up in some form is wise. I just don’t think that the “walled garden” approach is going to be successful for baseball.
The history of OTT/D2C brands shows that the path is treacherous and baseball has a declining viewership and fan base as a starting point right now.
Two, maybe the idea of propping up the old business model is a bluff.
I doubt it.
Not because MLB is dragging their feet, but in general there is an evolution in consumer tastes/demands that people are still grappling with solving.
Three, one thing I can guarantee that all leagues and teams need to deal with and pay more attention to is the need for top of mind brand awareness.
Professor Byron Sharp talks about the concept of mental and physical availability.
Currently, tickets gets the physical availability right through the distribution of tickets using platforms like Ticketmaster, Tickets.com, StubHub, Vivid Seats, and more.
Where the challenge comes is that the mental availability isn’t there in enough cases. That’s where top-of-mind brand awareness comes into play.
You have to be thought of to be purchased.
In too many cases, sports teams think they are top of mind, but they aren’t.
The frustrating thing is that sports teams have a built in advantage in the way that newscasts, physical newspapers, local news sites, etc. all cover sports as a foundational aspect of their community.
So the lift to total salience isn’t super heavy.
The challenge is correcting the mindset that marketing is about “communications” and get back into the idea of brand building that is about stories, characters, nostalgia, and other emotional points of contact.
Four, know that there isn’t a quick fix for MLB.
Ratings, ticket sales, attendance, and cultural impact have been declining for a decade or more.
The changes to speed up the game seem to be a positive for the game, but that’s one step. There are many more to take.
What do y’all think?