Bloomberg: Stefan Nicola and Rebecca Penty, December 20, 2016
Blavatnik’s Netflix of Sports Targets Murdoch’s Sky in Europe
Music mogul Len Blavatnik has begun to breach broadcasters’ last line of defense against the onslaught of online entertainment: sports.
DAZN, a startup backed by billionaire Blavatnik’s Access Industries Holdings LLC, has planted its flag in Germany, where the company (pronounced “da zone”) has been offering Bundesliga highlights, live English Premier League soccer and NBA basketball online since August. Soon enough, it intends to go after dominant providers like Sky Plc when prized rights are auctioned.
“Within the next 12 to 18 months, we’ll get pretty aggressive,” DAZN Chief Executive Officer James Rushton said in an interview at Bloomberg’s London office. “We don’t see ourselves as a niche platform.”
If that sounds fanciful, so did Reed Hastings when he moved DVD-rental firm Netflix Inc. into streaming in 2007. DAZN, which also operates in Austria, Switzerland and Japan, has set about replicating the formula: An array of online sports for one low monthly price. Like Netflix, Rushton has initially filled the queue with the equivalent of reruns — less-expensive highlights and out-of-market games for most sought-after leagues — combined with some marquee material that he hopes will become a bigger and bigger component of the offering.
DAZN’s incursion may be well-timed. Live television viewing of major sports like Premier League soccer in the U.K. and the National Football League in the U.S. has weakened recently, hurting share prices at Sky and Walt Disney Co., the owner of ESPN. Younger viewers are especially elusive, spending less time in the living room and more on mobile apps like the one DAZN offers.
After agreeing to spend 4.17 billion pounds ($5.15 billion) on domestic Premier League rights in a three-year deal starting this season — up about 80 percent from the contract that began in 2013-2014 — Sky can’t afford to hold onto all its best content, said Tim Westcott, an analyst at IHS Technology in London. That could make it easier for DAZN to seize sports such as Formula One in Germany, he said.
“They’re in a good position to cherry-pick some of the rights that Sky currently has” in Germany, Westcott said.
Unlike the U.S., where major sports leagues have set up their own online — and broadcast — operations, Europe’s largest leagues prefer to sell rights to live games to the highest bidder.
DAZN, based in the London suburb of Feltham, struck a three-year deal for an undisclosed price with the English Premier League to show matches in Germany, replacing a contract with Sky. It follows Discovery Communications Inc. in intensifying competition in the country just as Sky is seeking faster growth in the market.
The startup is also weighing expansion into other European and southeast Asian markets. DAZN paid 210 billion yen ($1.8 billion) for a 10-year deal to show J.League soccer in Japan — the only bidding figure it discloses — as it challenges TV rivals such as SKY Perfect JSAT Holdings Inc.
In Germany, DAZN currently pipes the games onto any web-enabled device — such as a tablet, mobile phone, or smart-TV — without a long-term fixed contract for 9.99 euros ($10.41) a month, cheaper than Sky’s lowest-cost monthly sports package of 29.99 euros excluding promotions. DAZN’s subscriber numbers are still small, though rising faster than expected since the August launch, Rushton said, declining to provide details.
Part of Access Industries-backed Perform Group, DAZN has the financial muscle to go after prized rights, Rushton said. Blavatnik, who owns Warner Music Group and controls music streaming service Deezer through Access Industries, is worth $18.8 billion, according to data compiled by Bloomberg. While DAZN’s offerings for now are complementary to Sky’s, part of its strategy is to squeeze Sky by bidding at both niche and premium auctions, Rushton said.
“If they have to pay more to defend their premium rights, then by nature they’re going to have less money to spend on something else,” Rushton said.
Sky paid a record amount in June to keep live Bundesliga matches through 2021 in Germany, though it had to share the rights with Discovery. Last year, it secured Formula One through 2017 for all its platforms and has live broadcast rights to Champions League games through 2018. The company has about 4.6 million customers in Germany and Austria and targets double-digit sales growth in the region.
Billionaire Rupert Murdoch may give Sky more heft in bidding, however, after his 21st Century Fox Inc. agreed this month to acquire the 61 percent it doesn’t own in the U.K.’s largest pay-TV company for 11.7 billion pounds.
Germany isn’t an easy market to crack for pay-TV providers, as well-funded public broadcasters provide high-quality content for free. While 90 percent of American homes and about two-thirds in the U.K. have pay-TV subscriptions, only about 30 percent of German households do.
The low pay-TV penetration may be an advantage for DAZN, along with good broadband and public Wi-Fi coverage and the rise of smart-TVs that support internet streaming. Still, the company will have to invest heavily in rights and be prepared to take subscriber losses for several years to build its market share, Westcott said. DAZN also has to improve its technology after some glitches he likened to “teething problems.”
Early subscribers see potential in the service. Olivier Jollet, a 37-year-old Frenchman living in Berlin, signed up to watch live games of his hometown soccer team Olympique de Marseille.
“DAZN has content that has no easy place on TV,” Jollet said. “If you want to watch French soccer but also other content like NBA basketball and rugby live in one place, then DAZN is the only product where you can do that in Germany.”