The emergence of over-the-top and streaming services into the increasingly crowded competition for sports rights has upped the ante for league programming, but analysts are split on whether the inclusion of deep-pocketed tech companies like Amazon, Google and Facebook will be enough to maintain the hefty increases of the most recent past.
That could be good news for pay TV distributors, but not so much for content owners — especially as two well-known sports rights properties are up for grabs in the next year: the National Football League’s Thursday Night Football package and the Ultimate Fighting Championship mixed martial arts package now owned by Fox Sports.
Thursday Night Football rights, currently shared by broadcasters CBS and NBC (and simulcast on the league’s own channel, NFL Network), are slated to expire later this year. The property got a taste of what could come when online retailer Amazon won the bidding for streaming rights for the package in April. Its $50 million offer, which puts games on the Amazon Prime Video platform, was five times the $10 million Twitter paid last season and, to some, set the tone for negotiations for larger, more popular packages.
The math is pretty simple, according to Pivotal Research Group senior research analyst – advertising Brian Wieser. “More demand for the same amount of rights should be inflationary,” he said.
Essential Appeal of Sports
Sports has become even more of a hot property for programmers as viewership has fragmented and with consumers just as likely to watch content on their phones or tablets as their living room TV screens. As audiences have scattered, sports watching has been the one constant.
Games are appointment viewing and best watched on larger screens in the home, complete with commercial interruptions, in step with the prevailing business model for most traditional networks.
But declining subscriber numbers at networks such as ESPN indicate that sports may not be quite as invincible as once believed. Telsey Advisory Group media analyst Tom Eagan pointed to declining ratings for NFL games last year — down 9% in the regular season and 6% for the playoffs — as an example.
While some of that ratings decline may have been due to a rather contentious presidential election that drew more viewers to news channels, poor matchups and the absence of big stars early in the season, Eagan said that digital video services are putting more resources into other types of content.
“It seems that most of these companies, ironically enough, are more comfortable with original programming,” Eagan said. “I think it’s because it casts a wider net than sports does.”
The length of most sports deals — 10 years, in some cases — has caused some distributors to pause, Eagan added, especially since the TV business is changing so rapidly. Ten years ago there were no virtual MVPDs and Netflix was just beginning to offer streaming media, making most of its money by selling DVDs through the mail. Who knows what new distribution platform could emerge in a decade’s time?
“I think media companies want as much flexibility as they can get right now,” Eagan said. “When you sign these deals, you have to be specific about what the rights are. And it’s hard to be specific about rights if you don’t know what the platform might be.”
In the past, rightsholders have been well aware of their power in the ever-evolving TV landscape and have been more than willing to wield it, as evidenced by the huge premiums networks paid for sports rights over the past few years. But as other big rights deals come up for renewal in the next five years, there is an increasing belief that the big premiums paid for sports rights in the past won’t be maintained.
It wasn’t so long ago that hefty increases were de rigueur in the sports rights business. In 2014, when ESPN, Fox Sports and Time Warner Inc.’s Turner networks agreed to pay a collective $1.52 billion per year for the rights to Major League Baseball games, that price was double the $760 million paid for the same rights previously. Last year, when Turner and ESPN agreed to pay $2.54 billion per year for National Basketball Association rights, that figure was 173% higher than the $930 million per year the parties previously paid for the same games.
With tech giants like Amazon and Facebook — which offers college football games via its Stadium: Live home page and has rights for 20 Major League Baseball and 22 Major League Soccer games this year — getting into the game, those prices were only expected to get higher.
Canaccord Genuity senior equity analyst Michael Graham isn’t convinced that Amazon and other streaming companies will invest heavily in sports programming, though. While he acknowledged Amazon’s willingness to pay top dollar for TNF streaming rights, he finds it a big leap to go from that level of spending to the billions of dollars that would be required to be a serious bidder for major sports like the NFL, NBA or Major League Baseball.
“Amazon came to the table in a strong way to get those rights, but it’s mostly just a test case,” Graham said of the TNF investment. “It’s possible they may move more into sports, but it’s super-duper expensive and there is no direct revenue associated with that content spend.”
Graham said that for services like Amazon Prime and Netflix, which have no advertising, the payback for investing in content is in the number of additional subscribers that content brings. He doesn’t think making a big commitment to sports will translate into enough new customers. Other analysts feel the same way, but note that digital companies could invest in smaller packages, like perhaps Monday Night Football, which is currently locked up by ESPN until 2021.
ESPN paid about $1.9 billion per year for MNF rights, according to MoffettNathanson senior analyst Michael Nathanson.
In a presentation to team owners and executives at Evanta’s Global Sports Summit conference in July, BTIG media analyst Rich Greenfield said that he believed Monday Night Football would be a good fit for either Amazon or Apple. He observed that Amazon Prime uses content most often as a retention tool.
“Even if there is nothing on Amazon Video that you care about this month, you’re still a subscriber for shipping, or you’re using your Alexa for music,” Greenfield said at the July conference. “They’re trying to make it so that there is always something. That’s why Monday Night Football would fit in great. Just another reason to be a Prime subscriber.”
Amazon did agree to pay $50 million for Thursday Night Football streaming rights — five times the earlier price — but would it be willing to pay the same premium for the full Thursday-night package or for Monday Night Football or Sunday games?
Stepping Up to Monday Nights?
Graham said a Monday Night Football bid might make sense for Amazon or another streamer, but he isn’t expecting a big commitment.
“It makes sense directionally,” Graham said. “Amazon does things on a small scale. Sometime in the next several years, with the exception of Netflix, there is likely to be more intensive experimentation around sports content. It might be most logically with Facebook, because you can have the social media commentary and sharing around that content which could help to monetize it more fully.”
As always, competition will be key. Pricing has a tendency to go higher the more bidders that are involved. And with traditional networks desperate to keep their dwindling subscriber base intact, the entrance of an Amazon, Apple or Facebook into the bidding can only be good for the content owners.
“Will there be the competition among the digital companies to drive those rights values up?” Greenfield said. “I don’t think we know yet, but I think that will be the single biggest swing factor in determining the future of sports rights values from where we are today.”
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