The process of deciding whether to greenlight a movie in Hollywood involves a lot of variables and input from multiple studio divisions, but the math is pretty straightforward: Each distribution unit — domestic theatrical, international, home entertainment, TV, etc. — is asked to estimate how much revenue it could deliver based on the “elements” attached to the proposed film (script, director, stars), the genre, the proposed timing of its release, competing projects at other studios, and other such factors. Each division, in turn, has its own methodology for arriving at its estimate, based on the track records of the stars/director/etc., the performance of “comparable” recent films, and so forth.
Those projections are then weighed against the project’s proposed budget and projected marketing costs, allowances are made for non-quantifiable variables (star relationships, etc.), and a reasonably well-informed gut call gets made.
The process of approving franchise sequels is even more straightforward since many of the numbers are hard-coded before there’s even a script. The movies may still flop, due to creative failures, marketing miscalculations or shifts in the zeitgeist, but at least the people making the call know what they can’t know.
Compare that with the challenge facing TV sports rights buyers. Speaking at the Second Screen Society’s Sports Summit in New York this week, executives from two of the biggest buyers of sports rights — CBS and Turner — highlighted the growing number of unknown unknowns facing sports buyers.
“One of the most significant changes in the business in the last year or so is figuring out what to pay for rights,” CBS Sports Digital VP of business development Adam London said. “We spend a lot of times figuring out what rights we’re going to need six months from now, two years from now, six years from now with all the new platforms that are coming online.”
With live sports increasingly going over the top and mobile the number of options for viewing them is growing. The risk for the networks is that rights to new use cases not expressly granted in their contracts with the leagues could end up being sold to a third party, or exploited directly by the leagues, undercutting the value of the networks’ top-dollar broadcast rights.
The risk is amplified by the fact that the networks, by and large, have locked themselves into long-term contracts with the leagues at a time when cord-cutting and cord-nevering are draining revenue from the traditional pay-TV ecosystem.
“Our contracts mostly run for 10 years, some of them for even longer,” Turner Sports senior VP for sponsorship integration and business development Will Funk said. “That’s a hedge against rising prices [for rights]. But there is a change underway. Subscriber losses means less money in the marketplace which could obviously affect revenue.”
Both Funk and London expressed the belief that prices for live sports rights have plateaued, but perhaps more from hope than conviction. More ways of exploiting rights are likely to attract more buyers to the marketplace, driving up prices, particularly as emerging OTT platforms seek live programming for their linear services.
“On of the interesting questions is whether a non-traditional broadcaster — a Google or a Yahoo — decides to get into the business in a big way,” Fox Sports senior VP for TV Everywhere Clark Pierce said.
Yahoo, in fact, recently inked a deal with the NFL to live-stream a regular season game between the Buffalo Bills and the Jacksonville Jaguars scheduled to be played in London on Oct. 25.
“I wish we had that game,” Pierce said.