Economies of Scope in Entertainment, Media, and Sports

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May 19, 2019

https://www.ap.org/en-us/formats/data — Photo Courtesy of the Associated Press

First, a quick economics lesson. Economies of scope refers to when businesses implement a strategy of diversification of services, assets, or products offered through entry and growth into a new area or by mergers and acquisitions, either vertical or horizontal integration. Vertical integration is where one business combines or reduces the processes and people to complete the production and/or sale of a service or product. Horizontal integration is where one business purchases another business that competes in the same industry, which may lead to a monopoly and antitrust issues with the United States Justice Department. Economies of scale refers to volume in terms of expanding operations and production of one existing service or product generally already under control of the business.

In applying the economic principles discussed above to the entertainment, media, and sports industry today, there has been a combination of the industry talent and content production and distribution. Meaning, a sports star today is just as likely to become a Hollywood Star in film, television, or news broadcasting as the athlete is to make into the hall of fame. Also meaning that streaming and digitalization has allowed more people, ideas, services, and products to expand into new areas of content development and production.

In sports, there are four areas where sports leagues and teams are capitalizing on additional revenue through economies of scope by international team and league development, esports, and sports gambling/betting typically though the vertical integration model. In media and entertainment, however, economies of scope has been acquired through horizontal integration mergers, acquisitions, while new business entrants start streaming platforms to develop, license, and distribute content for consumption. In breaking that down, look at each area individually.

1. International Team and League Development

The list of owners in the five major professional American sports (MLB, MLS, NBA, NFL, and NHL) who also own international professional sports franchises is growing. The list of teams who play games overseas is also growing. While Major League Baseball has opened their seasons and played midseason games in Japan, Australia, Puerto Rico, and Mexico, with plans for London, the National Football League has played in London, Mexico, and had a previous flirtation with NFL Europe. International play and growth is a priority of major professional sports leagues and teams in America, while the MLS is already a part of the international scene.

2. Esports

A growing spectator and participant sport where many of the professional American sports franchises and leagues have created their own esports teams to grow revenue and tap into a new and growing audience and list of sponsors. Esports venues will be the next wave of real estate development.

3. Sports Betting/Gambling

Since the United States Supreme Court opened the door, professional sports franchises and leagues have jumped at the opportunity to include betting as a part of their sponsorship partners and offerings depending on the state where the franchise is located and whether the state has implemented a regulatory scheme. Even where a regulatory scheme has not been passed through legislation and enforcement, teams have prepared for the opportunity.

4. Mergers, Acquisitions, and Streaming of Content

With Apple, Amazon, and others entering the content space by expanding their offerings, while Disney/FOX and AT&T TimeWarner have merged or acquired much of a company’s assets, there is a golden age of content, but it does come at a cost in terms of choice. Where the future is concerned, there is likely to be more cross-partnerships through licensing deals between entertainment and sports properties, e.g., live sports content on entertainment streaming platforms. It is also likely that these streaming platforms will have gambling and betting opportunities for traditional and esports properties.

Beilein: Cleveland’s new man in town

By

Stephen Patrick

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May 14, 2019

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The winningest coach in Michigan basketball history is making the move to the NBA. Last year, John Beilein expressed interest in coaching the Detroit Pistons. But this year, he accepted the Cleveland Cavaliers’ offer.

Beilein agreed to a five-year deal with the team. His departure ends the run of basketball excellence outside the Fab Five in Michigan basketball. Beilein went 278-150 in 12-years at the helm of the Wolverines. His tenure included two trips to the national title game, two Big Ten titles and two Big Ten tournament titles.

His coaching style meshes well with the NBA. Beilein’s offense relies heavily on player movement without the ball around the perimeter. The option is still there for players to drive to the basket, but his signature strategy is the drive and kick to the corners for 3. Very Golden State Warriors.

Plus, the Cavs still have some sharpshooters from their Finals team of last year. Collin Sexton improved over his rookie year from the land of 3, setting the Cavalier’s all-time rookie record.

Cedi Osman has shown promise as a sharpshooter, and Kevin Love is as good a stretch four as any when he’s healthy. Although there’ve been rumors the Cavs might look to trade him.

Additionally, there’ll be a couple of first-round picks coming to the franchise next month. Consequently, the Cavs should be a team to be reckoned with. So much so they could fight for the 8 spot next year as approximately 40 wins makes the playoffs in the east.

The Social Media Paradigm & Difficulty

By

Jeremy Evans

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May 12, 2019

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Facebook Political Ads Q A — Image courtesy of the Associated Press / Richard Drew

“When an irresistible force such as you
Meets an old immovable object like me
You can bet just as sure as you live
Something’s gotta give”
Johnny Mercer, 1954

A song always tells a story. In this article, the story is about the problem presented by social media when it on the one hand is the greatest communication distribution platform ever created outside of the printing press. On the other hand, it is a free communication platform where everyone is free to share information, along with their privacy. Within the aforementioned context, the quintessential question of our time will be and is surrounding the power of tech, entertainment, and media companies, social or otherwise.

The First Amendment to the United States Constitution and privacy law in this country are both, admittedly, at war with social media and each other. Social media wants more information to help drive engagement with their platforms, but also to collect information to help sell more things. Social also wants to limit what information gets shared for fake news and intellectual property reasons, namely, copyright infringement.

To date, social media has not been deemed at public forum by the U.S. Supreme Court where free speech can only be restricted with strict scrutiny being applied and generally only allows for time, place, and manner restrictions. Social media giants like Twitter and Facebook, and content streamers like YouTube, deleting accounts and content that it deems inappropriate, which can be and is brushed broadly and specifically, is up to this point an allowable act. It should no less, however, be cause for trepidation.

There is also an issue of social media platforms becoming dangerous places in terms of physical safety because of terrorist networks utilizing it to post videos and connect with potential marks. What should be the response? Two not mutually-exclusive options come to mind.

1. Regulation or Lawsuit: U.S. Government challenges Social Media through Court and Congress

In this scenario, social media will be forced to act as a public platform. Meaning, it can continue to make money, but the platforms will not be able to remove accounts or content without satisfying the strict scrutiny threshold when implementing restrictions. The above could be completed through legislation or a lawsuit.

2. Self-Regulation: Social Media Goes the Subscription Route

This is where social media takes the privacy and first amendment problem into its own hands and solves it by forcing users to subscribe to the platform for a fee and by agreeing to assent to specific terms and conditions. Accessing content would become more like a private posting dashboard versus a place where everyone can post and say what they wish. Think of this as the social media of Netflix. Moreover, maybe there is a paywall for one “premium” platform that can be controlled with a free one that is less controlled based on Constitutional issues. Interestingly enough, there are also some additional opportunities for entertainment and sports talent and influencers to monetize their content by implementing the subscriber model.

In this story, the irresistible force is social media in all its distribution glory. The immovable object is the people protected by the First Amendment and wanting to keep certain information private.

“You can bet just as sure as you live . . . Something’s gotta give.”

In Lue of Events: The Lakers’ downward spiral

By

Stephen Patrick

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May 10, 2019

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AP NBA DRAFT LEBRON FACTOR BASKETBALL S BKN FILE USA OH — Image courtesy of USA Today

And just like that, the Los Angeles Lakers may be the worst-run franchise in the NBA. The aftermath of LeBron James’ first season in the Purple and Gold was nothing anyone expected.

It’s no secret the Lakers are going through massive turnover. Tyronn Lue seemed to be the best man for the job setting the table for free agency and the draft. But, how can you draft or recruit with no coach? At this point, who’d want to be part of this franchise?

A perfect storm

Let’s be honest. It shouldn’t have taken this long. Lue rejected the latest offer from the franchise, so now the Lakers are back to square one. From the beginning, the Lakers fronted like Lue had real competition.

Lue would’ve reunited with James who lead the Cleveland Cavaliers to three NBA finals and won a championship in 2016. Some Lakers brass felt that hire gave power to James. But, who cares if it gives you the best chance to win?

Lue has the knowledge of James’ playing style few in the league do. He knows what kind of players and playsets are best for James. With Lue on board, the Lakers can recruit and draft outside shooters, enabling James to play at his best.

The Lakers decided to move on from hiring Lue after determining he isn’t a long-term fit for the franchise outside of LeBron James. Lue sought a five-year deal and declined a three-year, $18 million offer.

Overall, Lue had a 128-83 regular-season record with the Cavs. He’s been an assistant with three different organizations. After six years of missing the playoffs, Lue and the Lakers are expected to be back to contention. ‪

The worst part is, the Lakers wanted to put Lue’s staff together instead of allowing him to assemble his own cabinet. Lue played 11 years in the NBA (1998-2009) and won two championships with the Lakers. As a player, assistant and championship coach, Lue was truly the only guy for the job.

Three Things About the Disney/FOX sale of RSN’s to Sinclair

By

Jeremy Evans

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May 5, 2019

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Amazon — Image Courtesy of the Associated Press

Disney was forced to sell its 21^st Century FOX-acquired Midwest-based regional sports networks (RSN) to a third party. The third party winner of the bidding process was a joint bid by Sinclair Broadcasting Group (Sinclair) and Amazon. Disney sold the RSN’s as part of an agreement with the SEC and U.S. Justice Department to avoid monopolistic practices and getting sued for such activity.

Rapper and entertainment mogul Ice Cube along with his bidding group lost in the process, but his group’s entrance was a fascinating development and an encouraging note for what the future may hold.

Besides Sinclair expanding its sports programming beyond The Tennis Channel and being one of very few new players in the sports streaming content space along with DAZN, a major accomplishment in its own right, there are three things about the Disney sale to Sinclair that may have gone unnoticed.

1. Amazon will be Streaming more Live Sports

Upon first glance and without noting the specifics, one might miss that Amazon, yes the growing streaming ecommerce giant, will now be the distribution partner with Sinclair for the RSN’s sports content. This is important because it means a traditional broadcast partner may be involved through Sinclair, but the streaming aspect would one of the first of its kind for major professional sports franchises. To the previous point, YouTube, social media outlets like Twitter, Facebook, and streamers like Hulu, DAZN, and Amazon have licensed very specific sports packages of ten to fifteen games, but not entire teams and seasons like an RSN going to a streamer. It is a sign of things to come where instead of MLB.tv being the only permanent streaming outlet for sports content, there is now competition with Amazon and ESPN+. It also plays well with the idea that Major League Baseball (MLB) will be giving streaming rights back to the teams and no surprise why the MLB wanted to purchase the RSN’s.

2. The Yankees are a Pioneer in Television Sports Broadcasting

As a peripheral move of the Disney-Sinclair sale, MLB’s New York Yankees purchased back the remaining ownership stake in their YES network. The Yankees now become one of the first professional sports franchises to own and control outright their sports content. Most franchises utilize a third party to distribute content. This makes sense because the YES network is one of the most successful in terms of viewership. Interestingly, in terms of showing the value of the pinstripe product, the Yankees purchased back the final remaining stake in YES for nearly $4 billion, while the entire 21 RSN’s sale from Disney to Sinclair was for $10 billion.

3. Hulu may Add More Sports Content

With the Disney sale to Sinclair with Amazon as a distribution partner, it may provide the path for Disney-owned Hulu to become a more consistent streaming partner for sports content. With Hulu adding more subscribers through partner relationships, it will need to add content to the platform and not every consumer will want to go through Disney-owned ESPN+.

Overall, Disney has offloaded 21 RSN’s, while Sinclair and Amazon may continue their rise in the live sports content streaming space.

High Horsepower

By

Julian Shipp

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May 3, 2019

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Game Winner10 — Image courtesy of USA Today

Commenting on 145th Kentucky Derby horse “Game Winner” sports reporter Jason Frakes asked, “Do you trust a horse who hasn’t won a race since November?”

Psalms 20:7 reads, “Some trust in chariots, some trust in horses, but we trust in the name of the Lord our God.”

Up in Smoke: Weed bust clouds Russell’s pending free agency

By

Stephen Patrick

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May 3, 2019

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636465387536466394-AP-Nets-Jazz-Basketball — Image courtesy of USA Today

Brooklyn Nets guard D’Angelo Russell was busted at LaGuardia International Airport Wednesday while reportedly attempting to slip marijuana in a hidden compartment inside an Arizona Iced Tea Can.

Russell, 23, was headed to his hometown of Louisville, Ky. for Kentucky Derby festivities. It couldn’t come at a worse time. While the marijuana stigma is certainly not what it used to be, it’s still illegal in many states.

The summer of his discontent

This summer, Russell is seeking a huge deal as he’s one of the more interesting free agency stories this offseason. If the Nets fail to land an elite free agent, D’Lo should be back with a nice, new, contract. As a restricted free agent, the Nets can match any offer that puts them in the driver’s seat.

However, things might get dicey between the two parties if they go after other free agents before taking care of him. For a team that’s slowly dug itself out of the hole following the Danny Ainge fleecing of the Brooklyn Nets in 2013 that resulted in the acquisition of most of their 1st round picks in the coming years, they can’t make a mistake again.

Two teams have more cap space than the Nets this summer; the Los Angeles Clippers and New York Knicks. Kevin Durant has been linked to both teams and Russell made his first All Star team this year. As such, he expects a deal starting at $20 million.

And, after seeing Russell average 21.2 points and 7.0 assists while leading the Nets to the playoffs after years of being the laughing stock of the league, it would be hard to see him walk. Especially considering how many teams need high-quality point guard help this summer.

While Russell’s maturity has been an issue dating back to the Lakers, he’s been in no real trouble to date and this latest incident should only result in citations and fines. But, for a team that’s invested at least $20 million annually, it’s time for Russell to become the man off the court that he is on the court.

Hello Content: Retreat to Your Corners

By

Jeremy Evans

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April 28, 2019

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AP Hulu Goodman — Photo Courtesy of the Associated Press (Dan Goodman)

Recently, it was reported that Comcast/NBCUniversal was interested in selling its 33% stake in Hulu, the streaming platform, to Disney, which currently controls 67% after AT&T/Warner Media sold its 9.5% stake to the aforementioned.

Soon enough, Disney will control 100% of the Hulu platform leading to the heavily reported notion that the platform will run in competition with the Disney+ platform set to launch and will include the 20^th Century FOX entertainment content plus live sports streaming (i.e., NHL playoff hockey among others). The two platforms will provide a good internal competition and choices for the consumer in terms of traditional Disney content including children’s titles versus adult oriented FOX content. By comparison, companies often own two competing products yet profits are collected under one roof.

Interestingly, the question was raised recently regarding the success and profitability of Hulu to date. How is it that a platform that was raised up as the darling of the entertainment world and owned partially by major studios in Hollywood could not be a significant player in the content game? One idea presented in the article was that Hulu was not as successful as it could be because the major studios failed to learn how to play well together despite the availability of the distribution platform. This makes sense on the surface because most content distributors would like to stream the best content on their own platforms.

However, there are three potential consequences to the above approach and more specifically the prospective Comcast/NBCUniversal – Disney/Hulu sale.

1. More Content on Fewer Platforms

As studios get bought and sold, theatrical windows tighten, and streaming makes distribution easier through the subscription method, it has become somewhat easier to make and distribute content. Where the power players, or power platforms rather, have the financial backing and the studios creating the content, or by purchasing or licensing content, the haves will have more content for the consumer to consume.

2. Less Sharing of Content on Multiple Platforms

As individual platforms become more independent (or less dependent) of each other in terms of being willing to share (license) and distribute content, the various platforms controlled by fewer larger companies, and with several new (e.g., Apple, DAZN, and Warner Media) and established Hollywood players entering the entertainment, media, and sports content streaming space, there will be less sharing of content on multiple platforms. Meaning, consumers are less likely to see and watch the same movie appearing on Netflix, Amazon, and Hulu. Depending on the reader’s view, this could signal the end of the golden age of content sharing, meaning the ease and low cost at which content can be consumed will decrease. Consequently, history repeats itself by the streamers becoming like the cable companies of old.

3. Focus of Power in the Control of a Few

While consumers celebrate the mass availability of new content, they also frown, as will the Justice Department and the courts eventually, that more control means less choice and competition. Companies would be wise to find ways to release content on multiple platforms to increase their distribution versus being so focused on exclusivity. A distributor would not want less theaters to feature its film, especially where distribution today is paid for by the licensee (the theater, or the modern day platform). Companies would also be wise to fight the urge to control everything as that result inevitably means unhappy customers and government intervention.

In other words, content creators and distributors should rally against saying hello to more content, while simultaneously retreating to their respective platform distribution corners.

The crucial off-season of the L.A. Lakers

By

Stephen Patrick

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April 26, 2019

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The fanfare was at an all-time high when LeBron James donned the Lakers’ purple and gold. But in their lost season, James suffered a serious injury for the first time, Lonzo Ball again got hurt, a blood clot was discovered in Brandon Ingram, the Anthony Davis trade fiasco occurred and Magic Johnson stepped down. Other than this, it was a great year for the Lakers. Truth be told, this was never a championship season. However, many still anticipated the Lakers would be in the playoffs.

That’s because last year was the set-up. With money to spend and pressure to win, the Lakers worked hard trying to recruit a top free agent. But, after all that’s happened, free agents might now be turned off. Looking at the landscape of free agency, there are three players just a notch below KD Klay, Kyrie Irving, KlayThompson and Kawhi Leonard. Hopefully, the Lakers pay attention to last year’s mistake and sign DeMarcus Cousins. He probably won’t get a max deal following another injury, but the Lakers are desperate to get a second superstar and are likely willing to beat Cousins’ best offer on the market this summer.

Before agreeing to join the Golden State Warriors, Cousins gave the Los Angeles Lakers an opportunity to sign him. But, the Lakers were scared off by his injury. Cousins is one of the best centers in the league and can actually space the floor, having the ability to knock down 3’s. LeBron desperately needs players who can work off his drive-and-kick game. He’ll have a whole off-season to rebound from a groin injury an eye a bigger contract in a couple of years.

Charlotte is not a team that can contend for a title and Kemba Walker is a free agent. The Lakers seem to be a couple of players away from being contenders. Especially if Golden State loses Durant or Thompson. Walker, a three-time All-Star, is coming off averaging 25.6 points per game and 6 assists per game. Scoring is one of Walker’s best traits and he can take pressure off James for the scoring lead. He competed in the 3-point contest and while not his best attribute, he can get hot from the distance. He’s a crafty guard who can create his own shot and has one of the nastiest crossovers in the league.

The Lakers need a shutdown perimeter defender to hold down elite guards and wings, especially come playoff time. This is when Jimmy Butler comes into play. He’s been named to the NBA All-Defensive Team four times. His defensive presence also raises the edge of the younger players. Brandon Ingram has the potential to become a defensive stopper on the wing. Butler, Ingram and James would be interchangeable at the wing. One thing is for certain, the Lakers must sign a star this off-season for them to become any kind of success.

New Heart, New Spirit

By

Julian Shipp

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April 23, 2019

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As a high school sophomore, Joe Mansary had a heart transplant.

Currently a 12th grade starter on his East Pennsboro soccer team, he says, “not a day passes without me wondering whose heart beats inside my chest.”

In Ezekiel 36:2 God says, “I will give you a new heart and put a new spirit in you.”

Let’s be grateful that we know WHO gives us a new heart and spirit!

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