What Amazon’s New Deal with the NFL Means for Amazon
The NFL’s recently announced 10-year distribution agreements with CBS, ESPN/ABC, FOX, NBC, and Amazon are true blockbusters. The whopping $110 billion agreement set to begin in 2023 sets in motion the bourgeoning revolution for digital sports media consumption.
Here are some major highlights:
- Amazon Prime and TNF: Starting in 2023, Amazon will have exclusive rights to both produce and broadcast Thursday Night Football, rights that reportedly cost $1 billion per season.
- Simulcasting Rights Granted. In addition to their linear rights, CBS, FOX, NBC, and ABC will be permitted to simultaneously stream games on their digital-first platforms.
- Super Bowl Rights for Traditional Broadcasters Only: Super Bowls will be hosted on a rotating basis: CBS (2023, 2027, 2031), FOX (2024, 2028, 2032), NBC (2025, 2029, 2033), and ABC (2026, 2030).
- NFL’s Option for Early Termination: The NFL has a unilateral right to opt out of its deals with its partners after a certain period of time has lapsed. With NBC, CBS, Fox, and Amazon, the League can opt out after the seventh year, in 2029. With Disney, the opt out kicks in after eight years (in 2030).
- 17-game season is now a reality: The collective bargaining agreement between the League and the NFLPA stipulated a new media deal as a pre-condition to increasing the season length.
While we’re seeing the traditional linear broadcasters continue to eke out a footing in the fight for digital content, Amazon is making a statement with its TNF bid.
One of these things is not like the other…
Amazon’s relationship with the NFL begun in 2017 when it signed on as an syndicator to distribute Thursday Night Football as produced by FOX. Amazon is reportedly paying $1 billion per season for exclusive TNF production and distribution rights for showcasing the iconic property. While live production isn’t a core competency (although its acquisition of Twitch should certainly help bridge the gap — more on that later), Amazon has proven that it can foray into other, seemingly disconnected, industries and come out successful.
Linear broadcasters beware: the Amazon-NFL partnership signals the dawn of a new era where traditional sports distributors are forced to compete not only against each other but also against a new group of much better capitalized opponents in big tech. The new NFL deals pits Amazon up against four established names in the live sports broadcast business: (1) Fox Sports (a subsidiary of Fox Corporation); (2) CBS (a subsidiary of ViacomCBS); (3) NBC (a subsidiary of Comcast); and, (4) ESPN/ABC (subsidiaries of The Walt Disney Corporation).
The Fox of today is a much leaner beast than it was back in 1994 when it first bought the licensing rights to NFL games. Left out of Disney’s acquisition of Fox as a pre-condition to receiving DOJ approval, Fox lost some of its regional sports networks, maintaining its legacy news network and national sports division, Fox Sports. Fox will continue airing the NFC package of Sunday afternoon games and will also be permitted to simulcast on its advertising-based video on demand service, Tubi. After selling its stake in Hulu to Disney, Fox’s $440 million acquisition of Tubi in March 2020 was a well-timed move, giving Fox access to a growing audience of cable-cutting viewers.
CBS will retain its rights to the AFC’s Sunday afternoon games, with simulcasting rights for its Paramount+ streaming platform. ViacomCBS’s recent history of corporate in-fighting and volatile stock performance in the last few years is troubling for a once venerable broadcaster. Its entertainment business is a hodge-podge of related-yet-disparate divisions ranging from its TV-related properties (including the CBS Television Studios, CBS Interactive, CBS Films, CBS Television Network), its cable divisions including Showtime, CBS Sports, Smithsonian), and publishing through Simon & Schuster. Renewing its NFL contract at a higher annual price tag will be difficult to support financially, even with its latest rounds of equity raising, but Wall Street analysts seem to believe that ViacomCBS can leverage its portfolio of NFL, NCAAF, and NCAAB rights to attract premium ad sponsorships, offsetting these increases.
Comcast’s NBC will maintain its control over the highest priced time slot: Sunday Night Football. Peacock will also gain access to some exclusive for a select amount of games over the course of the 10-year agreement. It remains unclear whether Comcast can afford to keep Peacock afloat or continue to spend lavishly on licensing deals. With 33 million accounts, $118M in ad revenue, and $914M in losses in 2020, the platform is already under pressure and will need billions more in capital investment to remain competitive in a multi-sided market, where it must compete not only with the other three licensees and Amazon for football content but also with Amazon, Netflix, and Disney for other entertainment content as well. We are already beginning to see some cracks in Comcast’s ability to spend with its peers following Disney’s new deal with the NHL, where it is paying close to $400 million per season for secondary broadcast rights in the US, about double NBC’s current annual licensing fees of $200 million.
Of the non-Amazon licensees, Disney benefits from having developed a highly diversified media conglomerate, with higher margin income streams like its parks business generating cash to invest in growth segments (like Disney+ and ESPN+). When you factor in its iconic IP catalogue, the owner of Star Wars, Marvel, and Pixar seemingly has all the ingredients needed to continue creating first-class programming. The aforementioned NHL rights package is proof of yet another example of Disney using its financial position to torpedo its competition. With its new deal with the NFL, Disney ABC/ESPN, will maintain its rights to Monday Night Football and will be able to simulcast on ESPN+.
While each of these conglomerates have their own answer for the “Amazon question”, it’s difficult to imagine a scenario where any of them can (individually) outcompete Amazon. In recent SEC filings, Amazon generated free cash flow of $31 billion for calendar 2020 and has over $40 billion in cash on its balance sheet. For context, the equity value of ViacomCBS as of the start of April 2020 is sitting around $30 billion — and that’s up significantly over the last 12 months. In other words, Amazon could buy ViacomCBS, in its entirety, with the spare change sitting in its checking account (if anti-trust laws didn’t exist)…It’s even tougher to imagine a scenario where any of the traditional broadcasters can out-muscle Amazon when the NFL’s opt outs begin kicking in seven years from now. The latter has a valuation greater than the sum of each of the former combined and a dynamic data-driven business model that is leaps and bounds more sophisticated.
The Twitch Experiment
Amazon has used its lofty valuation as currency to finance some of the most ground-breaking M&A deals in the live media landscape. Amazon’s acquisition of the popular live streaming platform, Twitch, in 2014 created a landing pad for product testing with a younger, more tech savvy demographic. In the last few years, Amazon has used different programming tactics for Twitch and Prime Video when it comes to NFL content. Prime’s broadcast focused on inclusivity, featuring the first female broadcasting duo, Andrea Kremer and Hannah Storm, as well as commentary for non-US audiences.
Twitch, for its stream, chose an informal watch party style that featured everyone from ex-NFL players to musical artists like Action Bronson and Quavo. Twitch streamers could also engage with the show and with each other directly through Twitch chat. The social element behind Twitch’s delivery provides a fresh take on the traditional broadcast where network commenators control virtually all forms of sports-related messaging.
The demographic differences in audiences inherent in the two platforms of Prime Video and Twitch social media integrations made for a very digitally seamless form of A|B testing, which Amazon can use to improve its offerings, season after season, leading into the option year.
The Twitch story is an exciting opportunity for Amazon to fully immerse itself into the converging worlds of traditional sports and e-sports. In February 2021, the e-sports Madden league, Fan Controlled Football, kicked off its inaugural six-week season on Twitch. Backed by team owners like Richard Sherman, Mike Tyson, and Marshawn Lynch, the league gives fans votes on matters ranging from play calling to logos and jersey designs. The fact that Quavo is involved both in Amazon’s Twitch NFL stream as talent well as its football gaming streams as an owner of a Madden e-sports team really hammers home the obvious synergies between both viewership bases. Amazon has an opening to really bridge the two audiences and build a large community of devoted streamers.
Leveraging AWS and Amazon’s Big Data Capabilities
AWS-powered Next Gen Stats provides some glimpse into the sorts of value-add that a partner like Amazon can provide for major league sports. A constant feature in NFL broadcasts, Next Gen Stats uses a network of RFID tags in player equipment and footballs and machine learning to crunch real-time data. Using Amazon SageMaker to decipher patterns and develop models, Next Gen Stats can give insights into everything from play formations, to hot routes, and other in-game events.
While Next Gen Stats creates a flashy feature for coaches, players, and fans to better engage with the game, Amazon has built an arsenal of data mining capabilities, which it can use to drive additional revenue from its loyal Prime Member customer base. The sheer breadth of information that Amazon can collect from the broadcast stats, to game-day grocery shopping habits, and beyond is staggering.
Amazon already has terabytes upon terabytes of data on consumers through its legacy online marketplace as well as its expansion into other industries like grocery (through its acquisition of Whole Foods). Its knowledge of its customers will give it an edge in selling targetted advertisements to go along with its broadcast. These ad sales should — at very least — offset some of Amazon’s annual minimum guarantees and could end up becoming a major pillar in its content delivery strategy. While the presumption is that Amazon will (at least initially) restrict its broadcast to Prime Members only, Amazon is well positioned to let users stream TNF for free using an AVOD model. Amazon’s existing AVOD offering has already been extremely successful, growing its viewership base from 20 million to 40 million from January to March 2021. There are ample reasons to test out its TNF content using a similar approach.
Live Production is Characteristically Chaotic. Amazon is the Antithesis of Chaos.
Success in the broadcast business is a team sport. From color commentary to on-field production staff and ad sales partners, Amazon has some big shoes to fill when it takes over from Fox Sports. While Amazon may have mastered the software and data side of its business model, it will need to beef up its roster on a production side in order to compete with established players like CBS, NBC, ESPN, and FOX. If we thought the competition for licensing rights was tough, the battle for top broadcast talent is even more fierce. Amazon will need to find a team of experienced technical directors, camera operators, live video editors, producers, and all sorts of on-field staff to meet the expectations of fans. They will also need interviewers, commentators, and analysts. And, to top things off, the people they’ll be hiring will have to be experienced in organizing production teams that move from location to location every week for more than four months.
While Amazon is known for its logistical prowess, it does not have a stellar reputation for fair treatment of its blue collar employees. Amazon should not (and simply cannot) treat live video production like an assembly line process. Yes, live production requires impeccable attention to detail and regimented resource management — much like running a shipping facility — but it is fundamentally a creative business. It relies on human ingenuity to deliver meaningful storytelling through images, video, and sound. The process, while rehearsed, is inherently chaotic, with last-minute changes and improvisation being the rule rather than the exception. These human elements are part of what makes productions difficult to cut and paste. Moreover, the grueling schedules and short labor supply will make finding replacements at any position a nightmare for line producers. Amazon will need to embrace the fact that live video production is a poetic mess — something that flies in the face of the to-the-minute accuracy of Amazon’s legacy e-commerce business or the scientific sophistication of AWS’ data models. Thankfully, Amazon has a couple more years to build its competencies as it will not be taking over live production until the 2023 season.
Turning TNF Into a Must-Watch Will be Tough
There’s a reason why TNF rights are the least expensive of the bunch: they attract the fewest eyeballs. It’s no secret that the NFL often puts the proverbial “undercards” to face off on Thursday nights. The first three TNF games of the season (i.e. Cincinnati-Cleveland, Miami-Jacksonville, New York Jets-Denver , respectively) had abysmal viewership numbers, ranging from a high of 6.68 million to a low of 5.41 million. But viewership numbers picked up later in the season when wins mattered and better head-to-head matchups were scheduled, like Wilson-Murray in Week 11, which attracted over 14 million viewers.
Amazon has the marketing spend capabilities to buy itself viewers. It also has an existing viewership base on Prime Video, reportedly above the 50 million range according to Statista. While this pales in comparison to Netflix and Disney+, the audience growth potential is clear. The cross-marketing potential between Prime Video viewers and Prime subscribers is undoubtedly a major area where Amazon can flex its scale and attract eyeballs. Twitch also provides an opportunity to fill the programming void between Thursdays. Events like Madden tournaments or additional commentary segments, similar to what DAZN has done with the Ak and Barak Show for generating buzz between weekly boxing matches, are just some possibilities that Twitch and Amazon can lean into to continually engage its audience throughout the week, in anticipation for Thursday night.
The Quest for the Next Holy Grail: NFL Sunday Ticket
The real prize that every player in the market is vying after is the license to package every single out-of-market Sunday afternoon game across the league — otherwise known as “NFL Sunday Ticket”. Sunday Ticket is currently under contract with DirecTV but is set to end after the 2022 season comes to a close. With AT&T having recently divested itself of its DirecTV assets after taking a $15.5 billion impairment charge, it seems unlikely that the newly minted DirecTV spinoff will have the capital needed to make a competitive bid for its renewal.
It’s unlikely that any of the traditional broadcasters, apart from perhaps Disney, have the financial wherewithal to make a competitive bid either. Amazon, on the other hand, will be locked-and-loaded with its massive war chest to make a big splash when Sunday Ticket comes up for auction.
With the playing field opened up to big tech, however, Amazon may be looking at a situation where it comes into an arm wrestling match with opponents in its own weight class. For now, Apple, Google, Twitter, Facebook, and other Silicon Valley giants have sat on the sidelines with NFL rights negotiations. With the incredible ad sale potential that a professional sports league licensing deal brings with it, it’s difficult to imagine a future where mega cap tech doesn’t get itself involved with the NFL.
First & 10: The Road Forward for Amazon
Amazon is a reslient company with a stellar track record for innovation. It has flourished over the last twenty years and has not missed a beat through the DotCom Bubble, Great Recession, and the Covid Pandemic. Its financial and strategic position would be the envy of most Fortune 500 companies. Be that as it may, the path forward is expected to be punctuated by major existential obstacles. Amazon has so far proven itself capable of weathering periods of prolonged global economic stagnation but has yet to truly be tested by externalities such as heightened US anti-trust scrutiny, fears of hyperinflation reducing consumer propensity to spend, and climate change induced black swan event. How Amazon will respond to these challenges and the challenges posed by attempting to uproot the traditional sports broadcast model is something we all look forward to seeing play itself on the field!
