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October 07, 2019

The Contender

An upstart streaming service looks to upset ESPN in the fight for major-league sports rights.

Daniel Frankel
  • The surprising bout between Andrew Ruiz, Jr. (left) and heavyweight champ Anthony Joshua at New York’s Madison Square Garden was a coming-out party for sports streamer DAZN (pronounced “da zone”).

    Mark Robinson/Matchroom Boxing UK

When Andrew Ruiz Jr. approached his June 1 heavyweight bout against Anthony Joshua, he was the 25-to-1 underdog.

It was easy to see parallels between the soft-bellied Mexican boxer and DAZN, the UK–based start-up that carried the fight's exclusive live stream.

Based on optics alone, few thought Ruiz had a chance against his chiseled British rival. Joshua, the undefeated heavyweight champion, controlled the majority of the world's major heavyweight belts.

And outside the world of combat sports, not many folks knew about DAZN (pronounced "da zone"), a sports-focused live streaming channel that entered the U.S. market only last year. Given ESPN's stranglehold on major-event U.S. sports rights, 25-to-1 might have been underselling DAZN's underdog status.

Let's just say a lot of perceptions changed after Ruiz's shocking upset victory.

At least in the U.S., DAZN immediately became a contender for major sports broadcast rights in an era when pro leagues (even beyond boxing) are looking for ways to match their younger audiences' viewing habits.

Based on sheer awareness and brand exposure, the Ruiz-Joshua fight was a coming-out party for DAZN. For starters, its YouTube channel, which carried highlights of the bout, was viewed more than 13.1 million times in the two months following the fight. That gave the over-the-top (OTT) service massive exposure on the internet's biggest free-to-consumer promotional platform.

On social media, DAZN's "conversation volume" — which measures brand mentions — increased 322 percent immediately after the Ruiz upset. Notably, the highlight reel, prominently featuring the DAZN "bug" in the upper-right corner of the frame, garnered another 6.3 million views… on ESPN's SportsCenter Twitter feed.

Anthony Joshua, meet the so-called "World-Wide Leader in Sports." After launching in Canada, Austria, Germany, Switzerland and Japan, DAZN has staked a claim on some 4 million subscribers in the U.S. market, each of whom pays 20 dollars per month to watch some of the biggest live prizefighting events in the world. DAZN also just kicked off service in Spain and Brazil.

Backed by Soviet-born, British-American billionaire Leonard Blavatnik, the company is chaired by former ESPN president John Skipper.

It does seem to be coming right for Skipper's previous employer. DAZN began by taking market share for top boxing events that used to belong to cable and satellite pay-per-view.

"In the U.S., boxing was available, and it provided us with the ability to make an impact from a subscriber perspective," Skipper says.

DAZN boasts that it streams more than 100 fights a year "without the pain of pay-per-view," connecting its subscribers to a stable of luminary fighters that includes not just Ruiz and Joshua, but Canelo Alvarez and Gennady Golovkin, among others.

"In the short term, DAZN is building its business in the U.S. by disrupting the pay-per-view model within combat sports," Jamie Horowitz says.

A former ESPN and Fox Sports executive, he has come in under Skipper to lead DAZN's $12 billion investment in content for the North American market. "Our hypothesis was that boxing fans who regularly purchase fights are a good proxy for an OTT subscriber base, and the numbers have confirmed that notion."

Now, DAZN wants to move beyond pugilism and compete for mainstream American pro-league sports.

It has made some progress. Having lost a reported $627 million in 2018, the company has acquired streaming rights to NFL games in Canada and to MLB games in Germany, Switzerland, Japan and Australia. In November, DAZN expanded its MLB deal — reportedly valued at $300 million a year — to include the "wrap-around" daily studio show ChangeUp for the U.S. market.

But airing studio shows isn't the same thing as broadcasting live big-league games. Taking this new media business to the next level calls for acquiring live broadcast rights to more mainstream sporting events — think NFL, NBA, MLB and NHL.

"DAZN is a global business, and it's critical to secure key rights in each of our markets," Skipper says. "As more rights become available, we will have a seat at the table."

John Ourand, who covers DAZN as part of the media beat for Sports Business Daily, notes, "John Skipper has a lot of deep relationships with the U.S. sports scene." Having spent the last six years of his two decades at ESPN as network president, "he'll be using those connections at DAZN," Ourand adds.

To understand why the pay-TV bundle — and ESPN's primacy within it — have been so enduring, the TV rights of the Los Angeles Lakers provide as good a case study as any.

If you're a Lakers fan who lives in southern California, a traditional cable or satellite TV subscription is the only way you can follow LeBron James, Anthony Davis and company on TV on a regular basis.

For starters, you'll need Disney's ESPN, which is paying the NBA $1.4 billion a year through 2024 to broadcast regular-season and playoff games nationally. TNT, which is owned by AT&T's recently acquired WarnerMedia division, is essential for the same reason: it's paying the pro hoops league $1.2 billion a year, also through 2024, for a national rights package that covers regular-season and playoff contests.

ESPN and WarnerMedia also can stream these games to mobile and OTT devices via the TV Everywhere rights that are included in their licensing deals. For the most part, any regular-season marquee game featuring the Lakers will be on either ESPN or TNT.

Most Lakers games not picked up for national broadcast by those cable networks will be shown on regional sports channel Spectrum SportsNet, owned by cable operator Charter Communications.

Spectrum SportsNet has exclusive local broadcast rights to all Lakers games not picked up nationally by ESPN or TNT, thanks to a 20-year, $3 billion deal the Lakers signed in 2011 with Time Warner Cable (since acquired by Charter).

Notably, the league's own streaming service, NBA League Pass, will let you live-stream any game in the league, on pretty much any device you want — but you're blocked from watching your local team. So if you live in SoCal and you follow the Lakers, no soup for you on League Pass.

There are a few circumstances in which the Lakers might be shown on broadcast television. Thanks to Disney's deal with the NBA, ABC airs select regular-season games on Sundays and holidays, and it also broadcasts the league's premier showcase, the NBA Finals. But that covers only a handful of games.

SoCal residents who really want to follow the Lakers this season will need premium-tier cable or a satellite TV subscription. The same is true for Dodger fans — ESPN shares MLB broadcast rights with WarnerMedia's TBS and Fox Sports. Regional sports network rights are tied up in a 25-year, $8.3 billion deal between Charter and the Dodgers.

For its part, the NFL keeps the bundle in line with a complex series of TV licensing deals that resulted in a net payment of around $8 billion in 2018. This largesse includes a seven-year, $15.2 billion deal with ESPN that runs through 2021 and includes Monday Night Football rights.

Notably, however, the major U.S. pro sports leagues are just as beholden as their media partners to younger fans, who mostly stream their TV these days on the devices of their choosing.

Cracks in the previously invulnerable bond between these leagues and the industrial pay-TV complex have emerged. The leagues — along with pretty much everyone else in the TV business — have been disappointed with the cable industry's decade-long quest to port its content from the set- top to mobile devices. The so-called "TV Everywhere" initiative has failed miserably.

Make no mistake: the leagues want to catch up with the streaming future. The NFL, for example, has broken off a piece of its already fragmented Thursday Night Football games package for digital partners in the past few years. In 2018, it reached a two-year, $130 million deal with Amazon to stream 11 Thursday-night regular-season games on Amazon Prime.

The deal is somewhat non-exclusive, in that these games are also shown on linear networks like CBS and NBC, as well as the NFL Network.

The NFL is now negotiating to put Sunday Night Football on Amazon Prime, too. Amazon is also producing an original series based on the NFL's Carolina Panthers, All or Nothing, that looks very much like HBO's venerable Hard Knocks franchise.

Meanwhile, the NFL's $1.5 billion-a-year deal with AT&T's DirecTV satellite TV service is set to expire after next season, and the league is said to be looking for a more digitally focused partner.

With Skipper so closely tied to ESPN, and that cable giant controlling so many U.S. sports broadcast rights, DAZN's infiltration into the U.S. is often narrated in one-on-one terms.

But as Ourand notes, "DAZN is also going up against Fox Sports, Facebook, Google and Amazon. ESPN is but one of many competitors for them."

Skipper views the DAZN vs. ESPN narrative as "conflated." He says: "Again, the focus is truly global. Our aim is to make DAZN the number-one sports streaming platform in the world. And by many measurements, we already are. We've expanded to nine countries across four continents since our launch in 2016, and we plan to keep growing.

"Of course, the U.S. market is extremely mature, but we've found a unique mix of rights that has provided us with an early foothold."

While calling ESPN "one of many competitors" that DAZN faces in the U.S., Ourand notes that Disney's effort to transition ESPN out of the pay-TV ecosystem and into the direct-to-consumer streaming future with the year-old ESPN+ will probably provide DAZN with its most formidable challenge.

ESPN+, which can be paid for and viewed without a pay-TV subscription, is not yet a live-streamed replacement for the traditional ESPN cable channel. But as sports rights renewals come up, Disney will add to the OTT platform. In the not-too-distant future, it will be the main way consumers experience ESPN.

That transition is expected to accelerate now that Disney plans to include it in a $12.99 bundle along with Disney+ and Hulu.

By 2023, Fitch Ratings director Patrice Cucinello predicts, ESPN+ will be profitable, with about 8 million to 12 million paying customers watching some of the biggest sporting events in the world on its à la carte platform. Still, she predicts that Disney will lose around $650 million this year, and again in 2020, to build up ESPN+. "They're going guns blazing at direct consumer," she explains.

DAZN doesn't seem to believe it has to compete head-on with ESPN immediately to succeed in the U.S. market. For one thing, it's built something few companies outside of Disney-ESPN have — the technology infrastructure to live-stream sporting events to large audiences. That's not easy to pull off on an engineering level.

"Without question, the task of delivering live sports to a mass audience is not trivial," Skipper says. "It's a large part of the reason music and entertainment shifted to streaming earlier. Fortunately, we have created one of the few platforms in the world that can successfully stream multiple live sporting events at scale."

At this point, ESPN+ is streaming only studio wrap-around and sports-celebrity-themed shows. Most sports rights are still tied to the bundle, at least for now.

But DAZN studio shows like ChangeUp — as well as the sports celebrity–themed documentary series 40 Days — have been enough to keep building the DAZN brand, Horowitz notes, positioning it for the time mainstream sports rights inevitably go over-the-top.

"This programming complements our live rights portfolio," Horowitz says, "helps drive awareness of the DAZN brand and keeps subscribers on the platform between big events." Like the next startling heavyweight boxing bout.

This article originally appeared in emmy magazine, Issue No. 9, 2019

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