NHL and how not to transition to new media

Before continuing back-office operations, we will take a short detour into a case study of how not to transition to new media.

As we all know, media properties have been suffering greatly, especially broadcast media. Advertising revenue is down, and enormous numbers of viewers have moved to what is termed new or interactive media, i.e. the Internet. Most media firms have been trying, with varying degrees of success, to find ways to make money on the Internet. Some studios have banded together, with hulu.com providing online streaming video for NBC, FOX and a few others. Other networks provide their content on their own Website, such as cwtv.com and abc.com. Still others provide their shows via iTunes or in partnership with existing video sites like YouTube. Finally, several have simply put their heads in the sand and said, “we don’t believe the Internet exists.” Every one of the properties that has gone online has come to some form of agreement with their local affiliates, who rely on the networks for content, advertisers for revenue, and worry that the availability of the shows online would further cannibalize from their viewers. The networks with better foresight used a mixture of muscle and diplomacy to come to an agreement with their local partners. 

Among the most lucrative broadcast franchises over the years have been the sports leagues: NHL, NFL, MLB, MBA. The strong fan loyalty and excitement of a game are good draws, and, unlike scripted shows or “reality” TV, one really never does know the outcome of the “show” until it is over. Combined, these are a great combination for viewer draws. However, the sports franchises suffer from several fragmentation issues:

  1. Geographic fragmentation: Fans are mobile. A New York Rangers hockey fan might live in New York, but travel on a regular basis on business to Chicago, Los Angeles or Singapore, and yet want to see his games. Similarly, a Montreal Canadiens fan might actually live in New York, or Beijing, whether for a short period as an expat or diplomat, or permanently.
  2. Broadcast fragmentation: Even without fans moving around, games for the same team are often broadcast on different networks. One day it will be local broadcast; they next day on a regular channel on Cablevision; the next day on a regular DirectTV channel; the next day on NHL Network, a special paid add-on channel on many cable/satellite systems; the next day it is not broadcast at all. Fans who do not bother with cable – cost, boredom, religious objections, or any reason at all – are huge untapped market.
  3. Fan fragmentation: Many fans actually support different teams, sometimes in the same sport, sometimes in different sports. In theory, someone who already pays $60 per month for cable might pay an additional $160 per season for NFL or NHL. Almost no one will pay for both of those, plus NHL Network, plus another package, plus… all to view fewer games than they want to.

Given the twin challenges of declining viewership and increasing fragmentation, the Internet would appear to provide a beautiful solution. A league – or a conglomeration of leagues, like the hulu.com model – could sell packages online. If you remove the overhead of base cable or satellite, many fans would be happy to pay a monthly fee of $15-30 to receive all of the games in their league. Indeed, this is the price point that many leagues have come across, from NHL (a latecomer) to MLB. The key challenges are:

 

  • Technology: Online video is not easy to implement if you have no experience in this space.
  • Partners: Leagues sell rights to various broadcast and cable or satellite networks to broadcast live games. These partners will be unhappy if online availability moves viewers away from their advertising or subscription supported channels. This is exactly the same problem that networks have vis-a-vis their local affiliates.

 

So how has the NHL managed this transition with their NHL GameCenter Live? In a word: disastrously.

Technology

There are two ways to solve the technology problem. Either build (or buy) the expertise in-house, or get a partner. The NHL has partnered with NeuLion of Plainview, NY, to provide online streaming. About a year ago, I met an executive and founder of NeuLion. The video broadcasts themselves are sometimes great, sometimes choppy, sometimes terrible. To be fair, this cannot totally be the fault of NeuLion, as it is dependent on the bandwidth and latency of each customer, something they cannot entirely control.

Partners

Many leagues, including the NHL, solve the problem problem by creating blackouts. If you live in an area where the game is already broadcast, you cannot watch it online. This pleases all its partners: we won’t let anyone see it, unless it cannot take away from your viewers. NHL, however, has done this far worse than anyone could have predicted.

 

  1. The blackout lists are enormous. Anytime a viewer could possibly view it in their area – it is broadcast on-air, it is on any cable or satellite channel anywhere that might reach the area – it is blacked out. In other terms, the chances are greater than 50%, and sometimes as high as 80-90%, that the game a fan wants to see will be blacked out. This may make the partners happy, but it infuriates the fans who, in the end, are the real source of league revenues. Most other leagues have a far more limited blackout regimen.
  2. The blackout lists are secret. The entire league season schedule, and most of its broadcasting, is known well in advance. It would be quite simple for the NHL to post the blackout list prior to viewers signing up. The fact that it declines to – indeed, it hides the blackout terms quite well – speaks volumes about the respect the league has for its viewers… which is the real root cause of the league’s decline in the last several years.

 

Customer Service

Here, indeed, the NHL has exceeded everyone’s expectations for abysmal customer service. In a day of wireless carriers and their legendary poor customer services, this is pretty impressive. 

 

  1.  Blackout: As listed above, the NHL seems to realizes, perhaps only subconsciously, that posting an extensive blackout list will only turn off potential customers. Thus, it actually hides the list. It simply cannot be found online prior to (or after) purchase. Every business tries to paint itself in the best light. However, a business that hides a material negative of a sale from a customer is asking for trouble. 
  2. Subscription: Somewhere hidden in the terms and conditions of the signup is an automatic renewal. If someone buys the 2008-09 season for $160, they will receive a nice charge for another $160 in October 2009, unless they explicitly follow up and cancel. Automatic renewal does make sense with month-over-month sales, or sometimes even annual sales with explicit warnings and pre-approval. The NHL – and its partner, NeuLion, who actually does this billing, and thus takes equal share of the blame for these disgraceful business practices –  simply renews without agreement and without warning. Again, it appears that the NHL and NeuLion are afraid that if they gave customers the option, they would opt out. Generally, if your customers wouldn’t otherwise buy it, the problem is you, not your customers.
  3. Cancellation: Cancellation is equally egregious. NHL.com offers two subscription models: pay once $160, or pay $20 per month over the season. Many people choose $20, despite the overall greater cost, for two reasons. First, it is easier on the cash flow. Second, it makes cancellation easier. If you do not like the broadcast quality, or the games, or anything at all, you can always cancel for next month. Theoretically, if you pay $160 for a season’s subscription and do not get the quality that you paid for, you should be able to get a full or, at least, a pro-rated refund, but it is always easier to just stop next month’s subscription. And here is the rub. Buried in its terms and conditions, NHL redefines the $20 monthly plan as actually just a payment plan for the entire $160 season. If you sign up, you are committing to the entire $160, just spreading out the payment terms. Additionally, they give viewers five days, yes, just five days, to cancel, after which no cancellation is possible. Five days is not enough to try out a bicycle, let alone a season-long online subscription. If on day 6 you discover that 80% of your games are blacked out, and the other 20% are choppy or poor quality, NHL will try to make you pay the rest. A short warranty period, which is what this is, is always a strong sign that a seller knows its product is garbage. 
  4. Civility: Unsurprising when coming from a company that views its customers this way, its customer service reps are abysmal. They are rude and condescending to the viewers who call their customer support number. This point has been reinforced by legions of frustrated viewers across the Internet. At this point, it is unclear if the representatives are NHL staff, NeuLion staff, or a third-party provider. Either way, the NHL will suffer from the poor reputation.

 

Summary

In order to claim that it is getting “into the Internet,” the NHL has done so in a manner that gave the maximum number of its business partners the most short-term satisfaction (i.e. avoiding conflict), at the direct expense of its viewers, while doing its best to seduce them into buying something they would not spend a penny on if they had known what was really inside the box, then locking them into it under onerous terms and renewing them surreptitiously and without approval. If I am not mistaken (and I am not an attorney), I believe the phrase is “fraud.” Most people call it “bait and switch.” Either way, the NHL smacks of desperation. The real pity of it is that it could do so much better, gaining revenue, fans (for the game and the league as a business), and consumer protection kudos. How it could do that is something I will not explain here; any business strategist with a real understanding of the Internet could do that (but apparently not NHL).

Perhaps the NHL’s new tagline should be: “watch us drive our Zamboni… right over the cliff.”

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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