[SPORTS & BUSINESS] Korean broadcasting deals make hard pivot

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[SPORTS & BUSINESS] Korean broadcasting deals make hard pivot

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For companies outside Korea, especially in the United States and United Kingdom, sporting events such as the National Football League (NFL)’s Super Bowl generate fortunes for television networks such as CBS. In Korea, the market is still growing, but steadily, the right to broadcast certain sporting events is becoming a lucrative business for Korean broadcasting companies, as well.

According to a CNN Money report early this year, CBS and NBC are together paying about $450 million per year for the next two years to broadcast Thursday Night Football. Together, the two will air 10 Thursday night games each season, meaning the cost of broadcasting per game will be about $45 million. All told, the contract, set to last from 2014 to 2022, that the NFL signed with four American television networks - CBS, FOX, NBC and ESPN - is worth about $40 billion.

But American football isn’t the only type of football that generates astronomical sums. According to ESPN FC, the English Premier League (EPL) landed a windfall prior to this season as the broadcasting deal for the world’s most popular association football league is estimated to be worth about £10.4 billion ($11.3 billion), only about half of which, or £5.3 billion, will come from the sale of domestic rights. As the deal will last from the 2016-17 season to the end of the 2018-19 season, the EPL will earn about £1.7 billion per season from the domestic market.

Other than football, the National Basketball League (NBA) will be paid about $24 billion from 2016 to 2025 by ABC, ESPN and TNT, while Major League Baseball (MLB) is set to earn about $12.4 billion over eight years, or 1.5 billion annually, from 2014 to 2021 from FOX, TBS and ESPN.

Compared to previous contracts, all four sports leagues have seen substantial price hikes, with the NBA seeing the greatest increase at 170 percent. The reason behind this is simple - the demand for watching these sports events is higher than ever.

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Looking at the Super Bowl 2016, or Super Bowl 50, for example, about 111.9 million people watched via television the game between the Carolina Panthers and Denver Broncos. The viewing rate of the game was 49 percent, the third most-watched U.S. program in history. The base rate for a 30-second advertisement during the event set by CBS was $5 million, a record high for any Super Bowl in history. Back in 1967, during Super Bowl 1, a 30-second advertisement base rate was about $42,000. Looking at that alone, it’s easy to see that broadcasting rights for these games are cash-cows for broadcasting companies.

Other than the competition amongst TV networks to gain these rights, the diversification of consumers’ viewing patterns also plays a part in the increase of the value of broadcasting rights. The emergence of on-demand services such as Netflix has caused a substantial decrease in the demand of live television, which means sporting events, which viewers prefer to watch live, are the only means for broadcasters to lure consumers in.

According to a Financial Times report, young viewers, or millennials born from the 1980s to the early 2000s, are slowly migrating from live television shows to on-demand services. This has caused the ratings of some broadcasters such as Viacom to plummet. FT said, “At Viacom, the ratings decline is not only putting pressure on ad sales, but reducing the company’s leverage in negotiating with pay-TV providers that carry its channels.”

Compared to markets in the United States and the United Kingdom, the broadcasting market in Korea is much smaller, but it’s growing. Baseball, for example, is at its peak in terms of popularity as the Korea Baseball Organization (KBO) has hosted a record number of attendees, over 8 million, at its games this season. The KBO in March signed a five-year deal with three major broadcasting companies - KBS, MBC and SBS - worth 180 billion won ($158 million), which translates to 36 billion won annually. This is about twice what the KBO made in 2010.

The value of broadcasting rights for Korean professional baseball was around 7 to 8 billion won in the early 2000s. But with the Korean national team winning gold at the 2008 Beijing Summer Games, the popularity of the sport soared, reaching the 10-billion mark per year, the first among any Korean sporting events. The ratings of regular-season games are about 1.1 percent on average, while those of postseason games recorded 10 percent. “The sports broadcasting market in Korea has been diversified and departmentalized with the appearance of new media channels such as cable television and mobile devices,” said Sung Dong-kyoo, a professor in the Department of Mass Communications at Chung-Ang University. “Recording more than 1 percent in terms of viewing rates in such a structure has more meaning than meets the eye.”

Other than baseball, the viewing rates of men’s V-League, domestic volleyball league, stood at 1.07 percent for the 2015-16 season. Along with this hike came an increase in the value of broadcasting rights, which went from 300 million won per year in 2005 to four billion won per year this year.

Women’s golf, or KLPGA, is also seeing a similar trend with its broadcasting rights valued at one billion in 2013 to 4.7 billion after a three-year deal was newly signed in 2014.

Akin to the United States and the United Kingdom, the standards of valuation for broadcasting rights are based on viewing rates for each sport. In the case of the Korean Series last year, the viewing rate was about 15 percent. The 2010 FIFA World Cup round of 16 match between Korea and Uruguay in Seoul was recorded at 67.1 percent, demonstrating the potential that a sporting event holds in Korea in terms of its marketability.

Although the Korean market may not be large enough to generate as lucrative a profit as those of the United States or the United Kingdom, certain strategic approaches such as selling broadcasting rights to nearby countries could potentially lead to further growth. For instance, Japan implemented a similar measure when the Japanese football league recruited star players from countries such as Thailand, Vietnam and Australia, and sold broadcasting rights to those countries, building an image of itself as the No.1 football league in Asia.

“Such a case is something that any Korean sports league should pay attention to,” said Kim Do-kyun, an associate professor who specializes in sports marketing in the Department of Physical Education at Kyung Hee University. “Korean baseball, which is looking to spread its wings in the Chinese market, should consider recruiting players from the Chinese national team as a tactical approach.”

BY SONG JI-HOON, PARK LIN AND CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]

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