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Mobile Sports Media Companies are Primed for Takeover

johnwallstreet
·5 min read

Over the last decade, media companies have managed to construct large mobile properties on the backs of social media platforms (think: Bleacher Report’s House of Highlights). But within the last two years, much of that programming has become ubiquitous, and with Snapchat, Instagram and others simultaneously de-emphasizing paid content, it has become harder and more costly for many digital-first sports media outlets to deliver views to advertisers.

Less powerful (from a value prop standpoint) and profitable (at least from a margins perspective) than they were just a couple of years ago, some mobile-first media companies could soon change hands, suggested Kyle Bunch (VP Managing Director, Global Sports Venture Studio at R/GA). “It is a good time to sell,” he said. With the sports betting industry in the midst of a land grab, there are likely to be operators—some of whom are “playing with funny money equity,” Bunch says—who would find value in the opportunity to acquire the aggregated eyeballs.

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Our Take: Branded sports video content is undeniably receiving fewer organic eyeballs within the social media ecosystem today than it did just a few years ago. For context, one senior media executive who asked to remain anonymous suggested that clips that would once deliver over 1 million organic views now draw one-fifth of the total.

One reason for the drop-off is the explosion in brands running a similar playbook (just think about all of the outlets that now look and sound like HoH, including SportsCenter). There is also widespread speculation that the social platforms have altered their respective content discovery algorithms to deprioritize sponsored posts, though theories on why the code may have been re-written differ.

Some believe the decision to bury sponsored content is revenue-driven. The logic is if the algorithm deprioritizes branded content, mobile media companies will need to buy impressions (or cut the platform in on ad revenues) to meet advertiser expectations.

But Matt Heiman (CEO, The Game Day) doubts the algorithm changes are financially driven. “If [the platforms] are not getting their slice of the pie, what is that 1/10,000th of their P&L? I don’t know [the revenue opportunity] even comes up,” he said. For the record, Heiman said The Game Day has never been approached by any social platform seeking to take a cut of sponsorship proceeds.

Others insist the social platforms are in the engagement business and that paid content simply does not perform as well on a relative basis, so the videos are not featured prominently. “[The changes] are driven by consumers, who are turning away from branded content in favor of deeper integrations. The disruptive advertising model is really struggling,” Bunch explained.

With the social platforms devaluing paid content, it is increasingly difficult for mobile-first media companies to monetize their audience. TMT analyst Rich Greenfield (partner, LightShed Partners) said the struggle exemplifies the existential risk that media companies face when they don’t maintain a direct-to-consumer channel. “When you live on somebody else’s platform, you don’t control the rules,” he said. “One day you could be monetizing, and the next day you are irrelevant. The platform who has the relationship with the subscriber is king.”

Heiman is building a social-first media business (The Game Day records 20-25 million impressions/week across platforms), so it is no surprise he doesn’t view algorithm changes as a reason to shy away from social channels. In fact, he says media companies emerging today have no choice but “to think social, social, social to get a very large voice in market [and the valuations that come along with that].” And while it sounds simple, he says making content that keeps viewers engaged is the key to withstanding the shifts in the wind.

The mobile-first sports media companies capable of driving viewers to owned and operated properties (a tough ask) and the ones delivering engaging content around original I.P. (see: The Game Day, Barstool Sports) should be able to adapt to a social ecosystem that values stickiness above all else. But for the remainder, the options appear to be: shrink or become an acquisition target. Bunch says, “This is where sports betting companies beginning to act as media companies becomes really interesting—and sadly inevitable. If you have [a digital media brand] really good at creating sports content, at what point will the most lucrative play against those eyeballs be sports betting? House of Highlights is probably way more valuable to DraftKings than it is to Turner” (which sees B/R as a marketing vehicle for television).

Greenfield was thinking along those same lines. “Most of these [mobile-first media] companies have been monetizing through advertising,” he said. “Sports betting could be far more compelling way to [capitalize on the eyeballs]. Maybe Bleacher merges in with DraftKings or FanDuel.”

The Game Day has seemingly already figured out that sports betting is the most lucrative way to monetize eyeballs aggregated on social. Roughly 80% of company revenues come in the form of affiliate fees. Heiman explained, unlike adverts for most businesses, sports betting calls to action are “not just eyeballs changing hands; it is real money and value.”

While the sports betting gold rush makes it a good time for mobile sports media companies reliant on paid content to seek an exit, the prospect of the pro leagues deciding to exercise greater control over game highlights should also have many looking to get out while the going is still good. “These creators are spending tons of time and really making good stuff,” Bunch said. “But because they are doing it on the back of intellectual property that has the most protections imaginable, on the backs of these wealthy land barons, it is hard [to bet on them long-term]. At some point the leagues are going to cut people off or ask for a pound of flesh.” As the pay-TV ecosystem continues to erode, it only reasons to believe rights owners are going to seek to extract more value out of their digital assets.

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