Hey!
I’ve been getting a lot of questions about the economics of the DTC business model.
You love numbers.
You deserve numbers.
I’m using a team from MLB, but understand that the calculation of numbers works in every situation and if you don’t know your numbers…you are failing your business.
I’ll use Minnesota and the Twins as my example because that’s the example that someone most recently asked me about.
- The Bally Sports Network deal with the Twins is for $54.8M.
- The Twins had around 11,000 STH equivalents last season.
- The Minneapolis TV market has just over 1.7M TV viewing households. Though the rights’ market is 4.3M.
- Why the huge disparity between Nielsen’s numbers and the right’s market? The right’s market covers a bigger territory form a landmass size, but a team’s territory and rooting interest are often divorced of connection.
- The proposed price of the new OTT: $19.99 a month/$189.99 a year.
Oh math!
I’m not going to even try and figure out the costs associated with talent/production/etc.
I’m just going to do the math for what it will take to make up $54.8M.
Then, I’m going to use a benchmark funnel to show you how this will add up.
- $54,800,000/$189 = 289,947 customers needed.
- For simplicity, we will go with the annual subscribers.
- The highest local viewership I could find for recent seasons was around 109,000, I’ll use that.
- 109,000 * $189 = $20,601,000
- Nothing to laugh at, but 37.6% of the old TV deal.
That’s just an optimistic look at the numbers if every single household that typically watches Twins’ games gets a subscription.
- Still leaves you 52% short of the old revenue.
Now let’s look at the math of a benchmark DTC sales funnel. (Remember, I hate average and generic sales funnels, but without real data…this is the best I can do.)
For this I will also use the 4.3M households in the Twins’ rights area.
Here we go:
- Top of the funnel (100%): 4,300,000 households
- Sessions with a Product View Page (43.8%): 1,883,400
- Sessions with “Add to Cart” (14.5%): 273,093
- Sessions with a transaction (3.3%): 9,012
Those numbers are tough.
Where the challenge starts:
- Only 30% of these households have been previously been reached. About 1.3M less than the 1.7M that Nielsen gives as the local viewing area.
- This means they aren’t just going to drop into the funnel and start the path to buying.
- Even if they did, do you think they are going to buy at a rate that outpaces the benchmark in businesses that only do DTC?
- This means they aren’t just going to drop into the funnel and start the path to buying.
Even if you throw in the 11,000 STHs…the numbers are still short of what would be needed to make the financials work.
What about over the air and ads?
- Ad rates are pretty closely guarded, but I played with the numbers and figured for broadcast TV, you could expect a CPM of around $110.
- 109,000 viewers probably works out to around $11-12,000 per spot.
- 36 spots a game = $435,600
- 81 games in the season = $35,283,600
- That’s 64% of the $54.8M.
Even if we could capture the full revenue of both best case scenarios, we are talking about $56M before taxes, before sales teams to sell ads, before production costs, and other associated fees.
My math on the way that the over the air TV market works.
My media experience comes from local radio in Miami and NYC. So TV math may be slightly different.
With everything, you need your specific numbers.
The big key is that without the carriage fees that cable companies have been charging home subscribers, the numbers get tough…fast.
Solutions are available, but they will require a new POV.
Let me offer a few to close out this note:
- You have to reach a larger percentage of your market.
- Are you? Do you know?
- Professor Byron Sharp’s “Law of Mental Availability”. To buy, watch, use your product/service, folks have to realize you are there.
- You can measure this if you are doing any sort of brand tracking.
- You have to do some market research.
- You need to know what the alternatives are for your products or services.
- Keep in mind the status quo is the biggest competition you have, doing the same thing or nothing at all.
- You want to understand what behaviors are driving actions.
- You want to know what people want/need/value.
- You need to know what the alternatives are for your products or services.
- You have to challenge the ‘conventional wisdom’ about your business.
- “The way we’ve always done things…” That’s your enemy and putting you in danger right now.
The way through the evolution of your business model isn’t going to be following the herd or latching on to the next thing “everyone” is doing.
You have to take a step back, understand the world around you, and build a business model that works for your situation.
The decline of the RSNs, season tickets, subscriptions, and other traditional forms of business signals a need to rethink the business because these were all forms of mass market consumption that might not reform.
What are you doing to rethink your business model?
Are my numbers nonsense?
Don’t even get me started on the sales teams still posting their championship belts on LinkedIn and other social media.
Let me know by hitting reply.
Dave
Come hang out with us in the ‘Talking Tickets’ Slack Group.
‘First Wednesdays with Dave’ is focused on launching into 2024 with full guns blazing! It is January 3rd at 1PM Eastern.
Get me your questions on the secondary market for Monday’s special holiday episode called “What Scalpers Love When You Go On-Sale!” (Also, it wasn’t True Tickets that produced the report, but Total Tickets. Both solid companies and good folks. But credit where credit is due, Martin and the True Tickets team put together the report.)
What do you think of my idea of “Resale as a Service?”