The real reason Rogers and Bell bought MLSE

The two telecom giants were willing to set aside a bitter rivalry to buy a majority stake. Here’s why.

 
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(Photo: Chris Young/Canadian Press)

On Friday, Dec. 9, two of this country’s fiercest corporate rivals smiled for the cameras and officially announced they had jointly purchased a majority interest in Canada’s most valuable sports company, Maple Leaf Sports and Entertainment. The $1.32-billion deal included ownership of the Toronto Maple Leafs, Toronto Raptors, Toronto FC and Toronto Marlies pro teams, not to mention the Air Canada Centre, the Maple Leaf Square condo development and three specialty sports channels. It’s an enviable trove of properties, but Bell and Rogers are intense competitors. They spend every waking moment fighting for any sliver of market share on multiple fronts—cable, wireless, Internet and media. What could possibly turn these archrivals into business partners?

The analysts and media critics quickly offered an easy, unsubtle answer. The consensus for why these two shelled out to the Ontario Teachers’ Pension Plan for 79.53% of MLSE could have been summed up in a headline, with three words written in all-caps and 5,678-point type: “CONTENT! CONTENT! CONTENT!”

But that explanation only gets you partway to understanding the Bell-Rogers pact. Content is key, yes, but you don’t pay that kind of money and get into bed with a hated nemesis for just any content. What merits this kind of truce is live content with a best-before date, stuff like hockey games and soccer matches that fans can’t wait to see. And sports is the king of live content, not only for TV, but web and mobile video as well. That’s the driving force behind the MLSE deal, and it’s part of a larger trend in broadcasting and media that has seen the price of sports broadcasting rights and advertising revenues around the world skyrocket. Sports is one of the last and most valuable vestiges of appointment viewing. “We believe that live content is going to be more and more important in the technology world, and there’s no better live content than the professional sports we’re talking about today,” Bell’s president and CEO George Cope said at the press conference.

So why didn’t Rogers (owner of this magazine) or Bell go all in on its own? Neither wanted to pay the full monty, but they certainly weren’t going to sit back and let the competition swoop in and grab so much first-rate sports programming, particularly given the recent run Rogers’ Sportsnet took at Bell’s top-rated TSN. But as broadcast entertainment moves ever faster toward a world where viewers are free to choose what they watch, where they watch it and when, the audience for top dramas and comedies continues to fragment. More and more people are fast-forwarding through commercials on a PVR, streaming through services like Netflix, or waiting for the entire season to come out on DVD. But no one wants to watch a Leafs game that already happened. And only a masochist would order the Raptors 2010 season on DVD. Sports are also a perfect fit for mobile and online streaming. You can wait until you get home to watch 30 Rock, but Game 7? No freakin’ way.


 

It’s long been the case that advertisers paid up to two to three times more for a top-rated sports event compared to a top-rated drama or sitcom, and sports value as real-time programming and its finite availability have only caused its status to grow, says Michael Neale, a managing partner for investment at Mediacom, a global media agency that co-ordinates and purchases advertising space on behalf of marketers. “For advertisers, sports are a place you can go in this wildly fragmenting world where you can find a good-quality audience,” he says.

Consider that back in 1992, NBC paid US$401 million to broadcast the Barcelona Olympics. Two decades later, the network has paid US$1.18 billion for the same privilege in London. Sure, there’s 20 years of inflation to consider, but the price tag saw its biggest leap in a decade when it increased by US$287 million between the Beijing Summer Games in 2008, when NBC paid $894 million, and this summer in Jolly Old.

Meanwhile, in Major League Baseball, demand for content is so high that major regional broadcast deals are having an unprecedented impact. The perennially underachieving Texas Rangers went from declaring bankruptcy last May to signing a 20-year, US$1.6-billion contract with Fox Sports Southwest in September, the largest deal ever made by a Major League Baseball club with an independent regional sports network. The US$80 million the club will now rake in every year as a result instantly put it on equal ground with deep-pocketed powerhouses like the Boston Red Sox and New York Yankees, both of which have their own sports networks.

All these billions and millions demonstrate sports increased desirability. Broadcasters want a massive audience, and advertisers want a captive one, live and across TV, tablets and mobile phones. In Canada, where the media giants also own the cable, web and mobile markets, the stakes for quality content are even higher.

Bell Media’s president Kevin Crull has said the price of sports rights have gone up exponentially, and he expects the fees TSN pays to double every four to five years. After losing out to Bell for FIFA World Cup rights in October, CBC’s executive director of sports, Jeffrey Orridge, whose network had also lost out on rights to the Canadian Football League and Canadian Curling Association, told The Globe and Mail, “It’s a challenge for the sports media landscape in general, to sustain these types of levels, what rights are currently commanding.”

Thanks to sports’ increasing value over the past two decades, Teachers’ was able to parlay a $50-million investment in 1994 for a 49% stake in the Maple Leafs and Maple Leaf Gardens, one of the biggest, most profitable sports companies in the world, selling its stake for $1.32 billion.

That’s not to say that sports programming is always the most valuable programming on TV. In a typical week, a Hockey Night in Canada game, for instance, will pull in 2.1 million Canadian viewers, while a prime-time hit like Big Bang Theory attracts 3.6 million. Sports may be more important than it first seems because it has to be watched live, but unless it’s an Olympic gold medal hockey game, it still has stiff competition in traditional TV fare. “Did you see Global, Citytv or CTV for that matter, make any attempt to broadcast sports in prime time?” notes Phil King, CTV’s president of programming and sports. “No. If sports were the highest-rated, most profitable programming out there, then you’d see the broadcasters moving into that area, not just the sports channels, and you don’t.”

That said, with TSN and TSN2, King has 48 hours a day of sports to fill. The reality is network TV dramas and sitcoms will survive and still be a viable draw for both advertisers and audiences, but their power to pull in a mass audience increasingly depends on the whims of when people want to watch their favourite shows. That’s not an issue with sports.

Sports are also a safer bet for advertisers looking for predictable return. Every new TV season is a gamble. Who knows if that new medical drama will be a hit or that new comedy will last more than three episodes? The Leafs haven’t won a Cup in more than 40 years, and yet they’re still a strong bet for viewership.

Some in the industry argue that the rise of social media will help network TV’s appointment-viewing appeal, but it will never get back to where it once was. “There’s only so many people who want to Twitter about Gossip Girl or whatever,” says Shelley Smit, Universal McCann Canada’s managing director who also served as Labatt’s director of media and sponsorships for a decade. “The number of people who want to use those same platforms to talk about the Leafs game or the Olympics is much more significant. Also, compared to player pools and fantasy sports, there’s no skin in the game on the outcome of Modern Family.”

Smit also says that while advertisers and media buyers are finding creative ways around the PVR, with things like product placement, sports makes the bulk of that skullduggery unnecessary. “When an advertiser wants to reach someone at 7 p.m., where can they guarantee they will? With sports,” she says.

King may not agree that sports is the most valuable appointment programming available today, but the growing trend of longer-term broadcast deals forces him to plan for a future where sport’s dominance in delivering a live audience is the reality. Networks might not land the rights to that new NBC comedy, but then they have Fox, ABC, CBS and Canadian shows to choose from. If they miss out on the World Cup or even Winnipeg Jets regional rights, they’re on the bench for a decade. And since sports drive live video consumption on tablet computers and mobile phones, that’s a long time for companies like Bell and Rogers to be shut out of access to not only the ad revenue but also potential hardware and data plan revenues.

“Sports rights are going to increase and become more valuable,” King concedes, particularly when it comes to live viewers on more screens. And we won’t have to wait a decade, or even until Rogers and Bell really sink their technological teeth into MLSE, to see the new stature of sports programming. Just as the Vancouver Games set records for how we watched sports across multiple platforms, the London Olympics this summer will show in real-time why it’s worth the money to so many. “It will set the tone,” says Smit, “for how people will consume sports in general over the next few years.”

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