Why big tech plays an important role in sports

LOS ANGELES — More than a decade after Apple disrupted the music industry and Amazon upended retail, tech heavyweights have set their sights on a new arena ripe for change: live sports.

Emboldened by their deep pockets and looking to increase the audience of their streaming subscription services, Apple and Amazon have entered into negotiations over media rights owned by the National Football League, Major League Baseball, Formula One racing and college conferences.

They’re vying to replace DirecTV for the rights to the NFL Sunday Ticket, a package the league wants to sell for more than $2.5 billion a year, about $1 billion more than it’s currently worth, according to five people. familiar with the process. Seeking to seize the opportunity, Google has also invited YouTube to apply for the rights starting in 2023, two people familiar with the proposal said.

The interest of tech companies is awed by sports leagues and horrified by media companies, which fear competition from competitors raking in tens of billions of dollars from dominating positions in other businesses. Last year, sports accounted for 95 of the 100 most watched programs on television.

“It’s hard to compete with organizations that don’t adhere to the same financial rules,” said Bob Iger, former chief executive and chairman of The Walt Disney Company, which controls ESPN, referring to the tech companies’ bankroll.

The NFL Sunday Ticket Package, which features NFL Sunday games not aired on local television, is available because DirecTV chose not to bid. The company loses up to $500 million annually on this package, although it has also benefited from a solid base of about 2 million subscribers.

Apple is considered a leader, according to a dozen representatives of the sports, media and technology industries. But the final deal has been delayed by talks to simultaneously sell NFL media assets, including the NFL Network, RedZone Channel and NFL+, a new subscription service that provides access to live games on mobile devices.

Apple has made winning the package a priority. Tim Cook, Apple’s chief executive, met with league officials and powerful team owners such as Dallas Cowboys owner Jerry Jones and the New England Patriots owner Kraft, according to three people familiar with the process. Apple declined to comment.

However, Amazon, ESPN+ and YouTube, which considered the rights bid in 2014, continue to hunt, some of these people say. Brian Rollapp, the NFL’s director of communications and business, said the league expects to complete the deal in the coming months. “A number of companies have every chance to get their hands on the Sunday Ticket, but we still have a lot to do in this process,” he said. Rolapp added.

Some details of the negotiations were previously reports the Sports Business Journal.

Fans will still be able to access all games on Sunday no matter who wins the rights, but they will likely pay more to add the service to their Apple, Amazon, ESPN+ or YouTube service, some of the dozen people said. It’s not yet clear if that surcharge will be more or less than the $294 DirecTV charges per year, they added.

Apple and Amazon are trying to position themselves in a cable-free future. Since 2015, traditional pay TV has lost a quarter of its subscribers — about 25 million homes — as people traded cable TV packages for apps like Netflix and Hulu, according to MoffettNathanson, an investment firm that tracks the industry.

But it is predicted that the price of live broadcasting rights will only increase. Major media companies, including Disney, Comcast, Paramount and Fox, will spend a total of $24.2 billion on rights in 2024, nearly double what they spent a decade earlier, according to MoffettNathanson.

The fragmentation of a distribution model that has existed for decades has opened up new opportunities for Apple and Amazon. Companies want to go deeper into media by selling subscriptions to Apple TV+ and Amazon Prime. These services not only host their own exclusive shows and sports, but also serve as portals selling additional streaming offerings such as Starz and HBO Max, which pay Apple and Amazon 15 percent or more on every subscription sold.

Investment bank BMO Capital Markets estimates that Amazon earns more than $3 billion annually from selling subscriptions to third parties. For the business model to work, Apple and Amazon must attract more viewers, and sports are the most powerful source of media. Companies may be willing to lose money on the Sunday Ticket in order to attract new customers to other parts of their business, the same calculation that DirecTV has historically made.

The challenge for Apple and Amazon will be to convince a few skeptical sports leagues that they can produce high-quality streams, stream games flawlessly to millions of concurrent viewers, and keep sports fans accustomed to switching between games with a remote control rather than switch to a new application. .

Their interest marks a move into the streaming industry. For years, many executives agreed with Netflix chief executive Reed Hastings, who said his company was not interested in sports or news because it was only seen once live and never seen again.

But many streaming companies are reconsidering as competition for subscribers intensifies, stock prices have fallen and profitability remains out of reach for many.

Their newfound interest in the sport was showcased last Monday during the MLB Home Run Derby at Dodger Stadium in Los Angeles, where executives from Apple, Amazon, Google and Facebook spoke to sports leaders, disrupting a party historically monopolized by the television industry.

The dominance of technology in sports is not a foregone conclusion. Many of the most sought-after rights are with broadcasters under contract for a decade or more. Leagues are choosing to sell tertiary packages to streamers, wary of trusting them with important properties like Sunday Night Football because traditional TV still offers the largest audience.

Reaching a large audience is critical for leagues looking to attract the widest fan base possible to ensure the long-term viability of their sport.

“The death knell of the cable harness is greatly exaggerated,” said Jerry Cardinale, founder and managing partner of Redbird Capital, which has invested heavily in sports media. “This is the best place to find all available sports in one place.”

Apple launched its $4.99 Apple TV+ streaming service in 2019, and there are about 16.3 million paying subscribers in the US, according to Antenna, a video-on-demand analytics firm. Amazon claims over 200 million subscribers on Amazon Prime, which started in 2006 as a fast delivery service and later added on-demand movies. Today, some customers pay $8.99 per month just to access Prime Video.

Tech companies were willing to pay more to add sports to their services. Over the past year, Apple has agreed to more than double its annual Major League Soccer rights payments with a 10-year, $2.5 billion deal for global rights for 1,000 games. It also contributed about $85 million annually to a new package of two weekly MLB games on Fridays.

Amazon has agreed to pay $1 billion a year for NFL games on Thursdays, up 50 percent from its previous deal with Fox. He also offered over $100 million a year for Formula One racing rights in the United States in a negotiation that he lost to ESPN, who extended the rights for $75 million, 15 times more than the previous contract. Sports Business Journal.

However, for all their disruptive potential, Apple and Amazon have yet to secure a basic rights package in the United States. It’s reminiscent of 20 years ago when sports leagues feared losing viewers by moving games from network TV to cable. But the change gradually became standard.

Traditional TV companies are trying to stave off Apple and Amazon by launching their own streaming subscription services. Last year Comcast, which owns NBCUniversal, closed sports network NBC to support his channel in the US and encourage people to pay for Peacock, where he exclusively aired some of the English Premier League football matches. Likewise ESPN made a deal with the National Hockey League broadcast some games on its ESPN+ service, and CBS aired important football games on Paramount+.

But these services have only a fraction of the more than 100 million cable TV subscribers that media companies once reached. As a result, the bulk of sports programming goes to traditional pay-TV channels, where it can guarantee leagues and advertisers a larger audience.

The National Basketball Association will be the first major test of the new competitive landscape. His deals with ESPN and Turner run through the 2024-2025 season. Most sports and media executives predict the league will stick with traditional broadcasters for most of its games, while allocating a small fraction of the technology company’s rights.

“It hedges them for the future and introduces the product to a new audience,” said George Pine, founder of sports private equity firm Bruin Capital and former chief operating officer of NASCAR. “They can still have long-term relationships with network partners, but dip into new media.”

Until then, the best opportunities for Apple and Amazon may be overseas, where European football leagues resell their rights every two to three years. Amazon recently acquired the rights to Europe’s premier tournament, the UEFA Champions League, in the UK and Italy. It also has French Ligue 1 rights, which it offers to Prime Video subscribers for an annual fee of around $90.

Media companies will be forced to expand geographically to compete, said Daniel Cohen, who heads global media rights consultancy at sports agency Octagon. TV companies can also team up to pool their financial power, or buy each other outright to compete with tech giants willing to pay billions for rights like the NFL Sunday Ticket.

“It all comes down to Silicon Valley selfishness,” Cohen said of the high-dollar NFL deal. “I don’t see a path to profitability. I see a path to victory.”