Taking Advantage of New Broadcast Technology Would Net Cubs Huge Windfall

In the past decade, we have seen rapid shifts in how media content is viewed and disseminated. New technologies offer transformational changes in big data technology and communications and these changes and their resulting impact on our daily lives has not been subtle. We live in a mobile world where information, goods and services, and professional and social interaction are available in all-access, anytime format.

With the expansion of internet delivery technology for all forms of communication and media, and with the advent of convergence — particularly via broadband networks — information technologies (ICT) are replacing physical infrastructures as the main drivers of this new landscape. Nowhere is that more evident than recent developments in Over The Top (OTT) broadcasting platforms.

Previously, telephone networks provided telephony, cable television networks provided video programming and dedicated data networks allowed information to be transferred and accessed remotely. In an environment of convergence, this is no longer the case.

I cannot speak for the Cubs and their intent for the future of their MLB broadcasts, but there is no doubt that with advances in Internet Protocol and Voice Over Technology, traditional cable and telephony carriers are now seeing intense challenges and new competition to their business models, as well as competition from new internet-based services and content providers.

I expect the bright minds in the Cubs organization to fully leverage this technology. In fact, I believe it is the impetus for their efforts to secure a local broadcasting contract.

How will OTT technology affect Major League Baseball and, more specifically, the Chicago Cubs?

Broadband penetration is still relatively nascent in the United States, but that is changing quite quickly; we liken it to the Wild Wild West in our office. Mobile broadband is the most widely-used data delivery platform in this country and is growing at a much faster rate than fixed broadband, which is actually seeing a tangible decline in new users.

Mobile content delivery is a wide open, all-access canvas in need of entertaining, ingestible video content in both short and long form composition. Content providers, which is exactly what the Cubs would be, are taking notice of this void. The Cubs would likely expect to have a fully functional, dedicated, app-based and live-streaming network in place before the expiration of their current Comcast deal, set to end in 2019.

For baseball telecasts alone, the Cubs can expect an average cost of $25,000-35,000 in production outlay per game in today’s market. Additionally, they would need a video control room, which would probably cost in the $7-10MM range, as well as a full-time video production staff. My guess is that most of that infrastructure is already in place for operating the new scoreboard.

A dedicated streaming network requires dedicated, round-the-clock programming. So expect a lot of cool team and individual player features, short-form lifestyle videos, timely and historical documentaries, game replays and public usage baseball-themed programming; really, the list is endless.

A dedicated network that is app-based also requires an archived content library for on-demand viewing. Just imagine: you’ll get to watch that Bartman Game as often as you like.

Here is why a dedicated Chicago Cubs internet delivery network would be a financial coup for the Chicago Cubs, given their widespread appeal in comparison to other major league ballclubs.

• 100% capture of all advertising revenues
• Residual revenues via monthly subscriptions
• For a company like mine, the Cubs could charge to air segue content, such as music videos or short-form (3-12 minutes) promotional programming.

As a team with true national appeal and a fanbase that encapsulates the entire country, the Cubs would be able to sell advertising at a national broadcast level. Further, their subscription base would be massive in comparison to teams like the Padres or the Royals, for example. A subscription base of 3 million viewers at $7.95 per month would yield about $286 million in yearly gross revenues.

That’s nearly double the going rate for traditional broadcasting platforms of about $1MM per game and doesn’t include dedicated advertising revenues, which, in traditional delivery systems, works somewhere in the range of 50/50 to 70/30 rev share splits. That’s a big difference in revenue captures.

In fact, it’s enough yearly revenues to pay Jon Lester and Max Scherzer. In a perfect world.

Will OTT technology make the Chicago Cubs a live-game, national broadcasting entity?

Unfortunately, that is regulated by MLB and Major League Baseball Advance Media (MLBAM) in this case, so games will be blacked out if you are outside the periphery of what is considered the Chicago Cubs television viewing market, though the FCC is considering elimination of home blackout restrictions of professional sports in neutral markets.

Nationally-televised games are proprietary to the broadcasting network and would be unavailable on a dedicated OTT channel. Regionally broadcast games via FOX affiliates (Saturday Game Of The Week) would be in-market inaccessible as well. However, all games would be available in all markets 90 minutes after completion for on demand, time-shifted viewing.

Obviously, postseason and/or play-in games would be excluded in live and in time shifted format due to national television requirements.

How robust is MLBAM? Their technology arm handles streaming video for several organizations and sporting events, including NCAA’s March Madness, WatchESPN, WWE Network, YES Network and, as of yesterday, HBOGO’s new stand-alone streaming service. I think it is safe to assume that MLBAM would be heavily involved in any stand-alone team network, including marketing, support and tiered packaging of MLB-owned content.

One workaround benefiting fans in market territories outside the Chicago viewing area could be to sell live games a la carte with a 24-48 hour accessibility license, such as the ones used when renting steaming video content from iTunes or Amazon.

It is important to note that cable television is eventually going away, but it is not going away immediately. That being said, just as old technology dinosaurs are now extinct or on the verge of extinction, cable television is facing the end of a 30+ year run. I fully expect the Chicago Cubs to be at the forefront of this new technology, and, subsequently, the recipients of its financial windfall.