How Amazon Could Use Prime To Change The Sports Rights Game

Amazon made waves in the sports rights game earlier this month when they struck a $50 million deal with the NFL to stream Thursday Night Football, outbidding Twitter, Facebook, and whatever’s left of Yahoo. The deal is Amazon’s first major sports deal after the NBA rejected its bid to be the exclusive home of NBA League Pass in December.

It’s also the first Thursday Night Football streaming deal in which the games will be behind a paywall; only Amazon Prime members will be able to stream the games. That said, there are a lot of Prime members out there.

In its filing with the Securities and Exchange Commission (in February), Amazon added a new line item to its annual report: retail subscription services.

The company said it generated $6.4 billion in revenue related to that item last year.

Guggenheim Securities analyst Robert Drbul estimates that shakes out to about 65 million Prime members. Cowen & Co. analyst John Blackledge calculated an even higher number of subscribers. His estimate pegs the Prime subscriber base at closer to 80 million globally.

The $6.4 billion in Prime revenue is more revealing number here, as it provides Amazon with a war chest nearly on par with ESPN’s. The cable behemoth will collect roughly $8.5 billion in pay TV subscriber fees this year from ESPN and ESPN2 alone. No other cable sports network comes close to either ESPN or Amazon in this regard; Turner Broadcasting gets less than $3 billion from TNT and TBS, Fox Sports will collect less than $1.4 billion in subscriber fees from FS1 and FS2, while NBCSN will collect a mere $321 million.

Here’s what sets Amazon apart from ESPN and other cable networks, though: nearly every Amazon Prime member actually wants Prime — even if they only use it for the free two-day shipping. Not every cable subscriber that pays for ESPN wants it in their cable bundle, which is why ESPN has lost nearly 13 million subscribers in the last 6 years. Prime’s high customer loyalty has already allowed Amazon to build up its streaming video service with original series, popular cable TV series, and feature films, including a recent foray into getting exclusive rights to Sundance Film Festival selections. Adding Thursday Night Football will only help increase Prime Video’s visibility among Prime members.

But can Amazon succeed in taking sports rights away from ESPN? And if they could, how long would it take them to do it?

Consider this: the NFL’s current TV deals, including NFL Sunday Ticket, run through 2022, and the next Sunday Ticket deal will likely cost more than the $1.5 billion per year that AT&T is currently paying. Major League Baseball deals are also locked in for another five years and already cost $1.55 billion per year. ESPN and Turner have the NBA until 2025. The NCAA Tournament is locked up through 2030, and most major college conferences are committed to cable TV for the next decade or so.

Amazon’s attempt to get exclusive rights to NBA League Pass could signal that it’s more interested in streaming rights than full broadcast rights. Amazon could certainly add streaming packages like League Pass, MLB.TV, NHL Center Ice, and MLS Direct Kick to Amazon Channels, its a la carte video service that already offers HBO, Showtime, Starz, and a wide variety of niche subscription services.

If Amazon is serious about getting fully exclusive sports rights deals, however, its best bet might be to pursue two sports in particular:

1. Hockey. NBC currently pays a mere $200 million per year for the NHL. If Amazon came forward with a comprehensive package that allowed Prime members to see all of the NHL, including the Stanley Cup Playoffs, it could rip one of NBCSN’s signature properties away. The challenge, though, will be how well Amazon can deal with regional sports networks and blackout rules. Would Prime subscribers in Chicago be allowed to watch the Blackhawks, or would they be forced to pay for a service that includes Comcast SportsNet Chicago?
2. Soccer. U.S. TV deals for soccer are still cheap. NBC pays $160 million per year for the Premier League. ESPN, Fox, and Galavision pay a combined $90 million per year for MLS. Turner Sports only had to pony up $60 million per year to take the UEFA Champions League away from Fox. Fox’s rights for the FA Cup and German Bundesliga, and BeIN Sports’ rights for the Spanish La Liga and Italian Serie A, among other competitions likely cost much less. Again, it would take about five years for most current contracts to expire, but if Amazon wanted, it could set aside about a billion dollars and make Prime the home for both domestic and international soccer, with every Premier League game, every MLS game, and every Champions League match, and a lot more — all available for a $99/year Prime subscription.

What’s more, Amazon has one key advantage over most cable networks:

More Prime members probably means more people regularly using Amazon, and regularly ordering products from them, and regularly giving them profits that way. And Amazon has another advantage in that they’re also gaining data (at the very least, on which of their customers watch the NFL and how long they watch it for) that they can then use to try and sell those customers products. They’re a broadcaster, a research firm, an advertiser and a subscription service all in one, and that’s a pretty incredible edge.

Amazon’s retail dominance would allow it to use sports rights as a means of generating revenue from sales of team gear and memorabilia, and targeted advertising could push its retail edge even further. Cable networks don’t have that sort of synergy. Neither does Netflix, which might be one reason why it continues to show zero interest in streaming live sports.

With Thursday Night Football, Amazon is signaling its intent to be a major player in sports broadcast rights, and it has both the platform and the war chest to give ESPN, Fox, AT&T, and Comcast a real fight — perhaps enough of a fight that it will continue to inflate broadcast rights contracts through the next decade. If Amazon does win any deals, though, don’t plan on watching those games with a Chromecast or an Apple TV.