VR, AR, FAANGs and OTT… what comes next for the sports industry?

Making sense of the trends of today is crucial to understanding what might happen tomorrow. Nowhere does that mantra ring truer than in the fast-moving point at which sport meets technology and digital media.

VR, AR, FAANGs and OTT… what comes next for the sports industry?

By Michael Long and Sam Carp

It is no secret that the global sports industry is undergoing seismic change. Digital disruption has dramatically transformed the way all sports are distributed, consumed and monetised, while ongoing advancements in the fields of technology and media are giving rise to a raft of nascent companies, products and experiences that are creating new opportunities for stakeholders throughout the industry.

In an effort to read the tea leaves, SportsPro assembled a handful of investors and innovators at the bleeding edge of technology and media – two sectors that are sure to have a profound impact on sport in the years to come.

Will virtual reality go the way of 3D?

Recent advances in virtual reality (VR) and its close cousin augmented reality (AR) have fostered the widely held view that both technologies are the future of sports broadcasting and digital media consumption. In particular, VR has been the subject of considerable hype for many years, yet the jury remains out on when – and if – the technology will go mainstream.

One common problem widely believed to be hampering the mass adoption of VR, at least as it relates to traditional sport, is the comparative lack of quality when it comes to video content. Add to that the sky-high cost and cumbersome nature of the VR headsets on the market, which typically retail for hundreds of dollars per unit, and it is clear to see why the technology – much like 3D before it – has yet to catch on.

“We’ve made a couple investments that we’re bullish on but overall we think the lack of headset proliferation is a real problem and we believe that VR and AR are going to converge in the next five years,” says Vasu Kulkarni, a managing partner at Courtside Ventures, a Detroit-based venture capital fund which invests in early-stage startups at the intersection of sports, technology and media.

“The sort of headsets that Magic Leap and Apple are making may end up being the saving grace for folks, but I think until the form factor of VR headsets changes and it becomes more AR than VR, we’re a little bearish on the number of opportunities that exist for people to do things in VR outside of gaming – gaming is the one place where we believe VR is going to be huge.”

Mobile and digital technology have changed the dynamic between content creators and consumers

For Kulkarni, the launch of new products like Facebook’s wireless Oculus headset could yet change the game, but he doesn't see proliferation happening anytime soon. “Today, the quality of my 1080p HD 60-inch TV in my living room is significantly better than me trying to watch that same game on a VR headset,” he says. “If you’re telling me I have to buy something that is expensive, put it on my face, look like an idiot, start sweating, and the quality of the picture is less than what I could be watching on my TV, there’s literally zero reasons why anybody should be using a headset.”

Yet others are more bullish on VR. Jonathan Levene, the managing director of Intel Sports, believes mass uptake will come not necessarily through the availability of cheaper, more user-friendly hardware, but through the creation of more compelling and immersive VR experiences. He is particularly excited about the possibilities of volumetric video, whereby real-time data is captured in voxels – essentially 3D pixels – to enable the viewer to experience the same content from any angle.

“That’s what we believe in,” says Levene, whose company is making major investments and working with leading international broadcasters in the VR space. “That’s why you see the combination of volumetric instant replay and VR – because arguably we experience this the same. VR is going to take as long as it takes for the market to adopt, but if I say you can see what [Lionel] Messi sees – not just on the side of the pitch, also running with him live on the pitch – we believe that that is a catalyst to the experience that will drive this industry into a multi-billion dollar industry.

“If you’re sitting in a hospitality booth, you’ll be able to get a unique experience live during the match because of the way the content is structured. If you’re a fan watching at home, you’ll be able to see it during or post the match with your friends. Imagine that: sitting in a pub where it is transmitted as a hologram onto the middle of the centre table and everybody is around it cheering.”

Has the wearable ship sailed?

Not so long ago, internet-connected wearable devices were being hailed as the next big thing. As a result, the industry witnessed a worldwide explosion in all manner of fitness trackers, smart watches, skin patches, sensor-embedded clothing and other hardware, with a legion of well-heeled entrants and budding startups quick to jump aboard the bandwagon.

In recent times, however, the wearables market has fallen flat. Major brands like Nike, Adidas, Under Armour, Microsoft and Intel have either scaled back their hardware divisions or abandoned them altogether, while last year’s demise of Jawbone, a pioneer in the consumer wearables market, led some tech geeks to pronounce the death of the industry. Meanwhile, the continued dominance of globally recognised players such as Apple – whose highly successful Apple Watch recently supplanted Rolex as the world’s best-selling watch brand – and FitBit, the leading wrist-worn fitness tracking company that has itself seen product sales plateau, have raised doubts over the prospects for new entrants.

“You go to CES [the annual Consumer Electronics Show in Las Vegas] and these shows where there is every single wearable company, from the big boys in the US all the way to all of the Chinese knock-offs,” says Kulkarni. “I mean, literally, the last two years that I’ve been at CES I may have walked past 100 different vendors that are selling a wrist-fit wearable device.

The likes of Nike, Adidas, Under Armour, Microsoft and Intel have either scaled back their hardware divisions or abandoned them altogether

“We’re sitting there going: ‘Who’s buying all of these different wearable devices that people are building?’ I think there is a market for if you can figure out some of the holy grails, like blood sugar. If you can figure out someone’s glucose level without having to actually draw blood and prick someone, there’s a massive market for that. But as far as the wearables we look at, we’re very bearish on any of these companies being able to beat out the big boys at this point and feel like that ship has sailed.”

Even if some wearables have captured the public’s imagination, Kulkarni notes that the limited market capital of professional sport presents a dilemma for investors. With a finite number of prospective team and athlete buyers out there, many venture funds – including Courtside – remain hesitant to enter the space.

“A lot of the times VCs have ignored sports because they thought if you’re selling sports technology to teams or athletes, it’s just not a big enough market, which we agree with,” says Kulkarni. “Instead, we’ve had to look for opportunities that are more mass-market – so applications in fitness where you’ve got hundreds of millions of 20-plus-year-olds around the world that are now more focused on their fitness and wellness and nutrition and are willing to spend money on it.”

Can tech and media startups compete in the era of the FAANGs?

Despite their already massive scale, the world's largest technology firms continue to record staggering growth. In 2017, according to a ranking compiled by WPP, the planet’s six most valuable companies – Google, Apple, Amazon, Microsoft, Tencent and Facebook – all saw their brand values skyrocket, demonstrating the importance of the tech sector in today’s data-driven world.

For startups operating in tech and media, the formidable might of these global players has rendered the future all the more uncertain. Kulkarni says that for around 90 per cent of the fledgling companies Courtside invests in, acquisition is clearly the endgame. But given that the tech giants are now looking to acquire content and software applications to bolster their offerings, entice new users and drive advertising revenue, there are no shortage of opportunities for smaller players to make their mark.

“I think what you might start to see is the larger media companies and the platforms like Facebook, Amazon, Netflix looking for more original content, and a lot of that content is going to be sports content,” says Kulkarni. “It provides a great opportunity for startups that are creating unique content to cut deals with players like that instead of going the usual route of either having to put it up yourself or trying to get a media company like ESPN to buy your content. Now you can do a deal. Now you have four or five guys competing and that can drive the price up.

“I think there are a host of acquirers in the media companies out there that are all sort of struggling now and looking for what comes next. I mean, ESPN, CBS, everyone laid off tons of writers, they’re getting killed by the cord-cutting that’s taking place, at least in [the United States], and they need to figure out their digital strategy for the next several decades. I think a lot of that is going to involve buying technology companies in this space that have created a little niche for themselves and could be plugged into an ecosystem like an ESPN to provide mass distribution.”

Social platforms like Facebook are better suited to how younger, mobile-first generations are interacting with the sports content they consume

Is the future of broadcasting in direct-to-consumer distribution?

While the jury might still be out on some of the industry’s emerging trends, over-the-top (OTT) content delivery is well past the point of being just a fad. The evolving way today’s multi-device viewers consume and experience sport, not to mention the rise of mobile and social video, has helped OTT stand shoulder-to-shoulder with traditional linear television.

For now, the two are deemed complementary, but as technology continues to advance and streaming platforms conquer their teething problems, there is a sense that sports broadcasting could be on the verge of a tipping point.

“The quality of the video experience will surpass anything that will ever be available from cable or satellite, if it hasn’t already,” says Chris Wagner, co-founder and executive vice president of NeuLion, the US-based digital video technology specialists. “TV is really whatever screen you have in front of you – I don’t think you can define television as just the screen in your living room anymore.

“The whole trend is going to be driven even more significantly, and there are three things that are going to improve the experience of direct-to-consumer broadcasting: one is personalisation, second is localisation, and the third is how fans are going to interact with live sport across the different devices they own.

“Those three things will continue to expand the urgency around connecting directly with the fan, and the historical video platforms like cable and satellite are not going to be able to connect to the fan in those ways.”

As broadcasters and rights holders move to create more viewing options than ever before, sports fans are faced with ever more choice in terms of the platforms, formats and devices at their disposal. More and more rights holders are now operating their own streaming platforms in what is becoming an increasingly saturated OTT market, and the pressure to stand out is only set to grow.

A recent media report by PwC said that OTT services in the US generated an estimated US$20.1 billion in revenue last year, and Wagner adds that rights holders who don’t tap into the trend will miss out on significant opportunities to monetise.

“Sports rights are expensive, so your ability to connect with more fans for longer is going to provide a better return on whatever fees you’ve paid for those rights,” he says. “If you can get people to watch more and watch longer because the experience is overall better and the experience works on any device, then you’re maximising the value of your rights.

“Rights owners that buy rights for a single platform like cable or satellite are going to lose revenue opportunities significantly because their viewers are not going to be happy if the only option to watch is on their satellite receiver. So you actually make more money as a rights holder by making your content available on all screens – if you just choose one screen then you’re significantly missing the revenue opportunities that are out there.”

The quality of the video experience will surpass anything that will ever be available from cable or satellite, if it hasn’t already
Chris Wagner, NeuLion co-founder and executive vice president

Will the tech giants upset the paradigm?

Over the last few years, the titans of the tech industry have started moving for rights that have long been the preserve of traditional media companies. As SportsPro went to press, for example, Amazon added one of the Premier League’s domestic rights packages to its exclusive coverage in the UK and Ireland of tennis’ US Open and ATP World Tour, while in 2017 Facebook entered an unsuccessful bid of some US$610 million for rights to the Indian Premier League (IPL).

As the so-called FAANGs continue to make their presence felt, the wider implications for the sports rights landscape are likely to be far-reaching.

“There are more distribution options today than ever before,” says Peter Hutton, who recently left his role as chief executive of Eurosport to become Facebook’s new head of global live sports programming. “In some ways, this democratises the landscape, as rights holders and broadcasters without access to traditional distribution can reach global audiences on Facebook.

“In others, this opens up new opportunities for established players. For instance, on Facebook, mainstream broadcasters and rights holders can connect with new fans and experiment with productions optimised for emerging consumer behaviours such as mobile and social consumption.”

What’s more, says Hutton, rights owners now have to consider that social platforms like Facebook are better suited to how younger, mobile-first generations are interacting with the sports content they consume.

“How and where young fans are watching live sports are changing,” he explains. “In terms of the how, young fans increasingly want to be a part of the broadcast. They embrace an active viewing experience, in which they can ask commentators questions and see their comments integrated on the screen.

“As for the where, young fans want to watch live sports on whatever device is most convenient. Oftentimes, that's on mobile, so we're working closely with our partners to rethink how they shoot and employ graphics for smaller screens.”

Will the tech giants upset the paradigm?

Over the last few years, the titans of the tech industry have started moving for rights that have long been the preserve of traditional media companies. As SportsPro went to press, for example, Amazon added one of the Premier League’s domestic rights packages to its exclusive coverage in the UK and Ireland of tennis’ US Open and ATP World Tour, while in 2017 Facebook entered an unsuccessful bid of some US$610 million for rights to the Indian Premier League (IPL).

As the so-called FAANGs continue to make their presence felt, the wider implications for the sports rights landscape are likely to be far-reaching.

“There are more distribution options today than ever before,” says Peter Hutton, who recently left his role as chief executive of Eurosport to become Facebook’s new head of global live sports programming. “In some ways, this democratises the landscape, as rights holders and broadcasters without access to traditional distribution can reach global audiences on Facebook.

"In others, this opens up new opportunities for established players. For instance, on Facebook, mainstream broadcasters and rights holders can connect with new fans and experiment with productions optimised for emerging consumer behaviours such as mobile and social consumption.”

What’s more, says Hutton, rights owners now have to consider that social platforms like Facebook are better suited to how younger, mobile-first generations are interacting with the sports content they consume.

“How and where young fans are watching live sports are changing,” he explains. “In terms of the how, young fans increasingly want to be a part of the broadcast. They embrace an active viewing experience, in which they can ask commentators questions and see their comments integrated on the screen.

“As for the where, young fans want to watch live sports on whatever device is most convenient. Oftentimes, that's on mobile, so we're working closely with our partners to rethink how they shoot and employ graphics for smaller screens.”

For rights holders in sport, mounting demand for content among the FAANGs and other new contenders undoubtedly spells good news, not least since the tech giants, who generally see sport rights acquisitions as a catalyst for growing user numbers and advertising revenue, certainly have pockets deep enough to blow their traditional rivals out of the water. Yet Hutton believes it will be the nature of the way rights packages are carved out, not the value of the rights per se, that will be altered most by their interest.

“Rights will always be valuable, no matter how fans are consuming live sports,” he says. “After all, sports comprise some of the best-performing content in the world. But while the value of sports rights may not drastically change, how buyers and sellers extract value from them will.

“For example, the value we deliver to broadcasters and rights holders for live sports extends beyond just a cheque. We're helping our partners prepare for the future by reinventing production and distribution as they transition to a digital, social and mobile world.”