Why Big Tech is making a big play for live 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 eager to grow the viewership of their streaming subscription services, Apple and Amazon entered into negotiations for the media rights held by the National Football League, Major League Baseball, Formula 1 races and university conferences.
They are competing to replace DirecTV for the rights to NFL Sunday Ticket, a package the league wants to sell for more than $2.5 billion a year, about $1 billion more than it currently costs. , according to five people familiar with the process. Keen not to miss out on this, Google also offered YouTube a bid for the rights from 2023, two people familiar with the bid said.
Interest from tech companies is a thrill to sports leagues and a terror to media companies that fear competition from rivals raking in tens of billions of dollars from dominant positions in other companies. Last year, sport accounted for 95 of the 100 most-watched programs on television.
“It’s tough when you’re competing against entities that don’t follow the same financial rules,” said Bob Iger, the former chief executive and chairman of the Walt Disney Company, which controls ESPN, referring to the funds of the companies. technology companies.
The NFL Sunday Ticket package — which shows out-of-market Sunday NFL games that aren’t shown on local TV — is available because DirecTV chose not to bid. He lost up to $500 million a year on the package, although he also enjoyed a reliable base of around 2 million subscribers.
Apple is considered the frontrunner, according to a dozen people in the sports, media and tech industries. But a final deal has been delayed by negotiations over a simultaneous sale of NFL media assets, including the NFL Network, the 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. Apple chief executive Tim Cook has met with league officials and influential team owners like Dallas Cowboys owner Jerry Jones and the Kraft family, owners of the New England Patriots, according to three people familiar with the process. . Apple declined to comment.
Still, Amazon, ESPN+ and YouTube, which explored a bid for the rights in 2014, remain in the hunt, some of those people said. NFL director of media and affairs Brian Rolapp said in a statement that the league expects to finalize a deal in the coming months. “A number of businesses are in a strong position to potentially land Sunday Ticket, but we still have a ways to go in that process,” Rolapp added.
Certain details of the negotiations have previously been reported by SportsBusiness Journal.
Fans will still be able to access all games on Sunday, regardless of rights holder, but will likely pay a premium to add the service to their Apple, Amazon, ESPN+ or YouTube service, some of the dozens of people said. It’s not yet clear whether that premium would be higher or lower than the $294 charged by DirecTV for one year, they added.
Apple and Amazon are trying to position themselves for a cable-free future. Since 2015, traditional pay-TV has lost a quarter of its subscribers — about 25 million households — as people swapped cable packages for apps like Netflix and Hulu, according to MoffettNathanson, an investment firm that tracks the industry.
But the price of live sports rights is only expected to rise. The biggest media companies, including Disney, Comcast, Paramount and Fox, are expected to spend a total of $24.2 billion on rights in 2024, according to MoffettNathanson data, nearly double what they spent a year. decade earlier.
The fragmentation of a decades-old distribution model has created an opportunity for Apple and Amazon. The companies want to expand further into media by selling subscriptions to Apple TV+ and Amazon Prime. In addition to containing their own exclusive shows and sports, these services also serve as portals selling additional streaming deals like Starz and HBO Max, which pay Apple and Amazon 15% or more of each subscription sold.
Amazon generates more than $3 billion annually from third-party subscription sales, according to estimates by investment bank BMO Capital Markets. For the business model to work, Apple and Amazon need to attract more viewers, and sports is the most powerful attraction in the media. Businesses may be willing to waste money on Sunday Ticket to expose new customers to other parts of their business, the same calculation DirecTV has made historically.
The challenge for Apple and Amazon will be to persuade somewhat skeptical sports leagues that they can produce high-quality broadcasts, stream games for millions of concurrent viewers, and keep sports fans accustomed to switching between games with a remote – not navigate to a new app. .
Their interest marks a departure for the streaming industry. For years, many executives agreed with Reed Hastings, Netflix’s chief executive, who said his company didn’t care about sports or news because it was only watched once. once, live, and was never watched again.
But many streaming companies are reconsidering as competition for subscribers intensifies, stock prices have fallen and profitability – for many – remains out of reach.
Their newfound interest in the sport was on display last Monday at MLB’s Home Run Derby at Dodger Stadium in Los Angeles, where executives from Apple, Amazon, Google and Facebook socialized with executives. sportsmen, provoking a party historically monopolized by the television industry.
The dominance of technology over live sports is not a foregone conclusion. Many of the most sought-after rights are under contract with broadcasters for a decade or more. Leagues have favored selling tertiary packages to streamers, hesitant to give them branded properties like “Sunday Night Football” because traditional television still offers the biggest audiences.
Reaching large audiences is crucial for leagues, which seek to woo the widest possible fanbase to ensure the long-term viability of their sports.
“The death knell of the wire harness is vastly overblown,” said Gerry Cardinale, founder and managing partner of Redbird Capital, which has made numerous investments in sports media. “It’s the best place to get a unique offer of as many sports as you can get.”
Apple launched its $4.99 streaming service, Apple TV+, in 2019 and has about 16.3 million paying subscribers in the United States, according to Antenna, an analytics firm for home video services. request. Amazon claims more than 200 million subscribers to Amazon Prime, which started in 2006 as a faster shipping service and later added on-demand movies. Today, some customers pay $8.99 per month for Prime Video access only.
Tech companies have been willing to pay a premium to add sports to their services. Over the past year, Apple has agreed to more than double Major League Soccer’s annual rights payments with a 10-year, $2.5 billion deal for global rights to 1,000 games. He’s also committed about $85 million a year to a new Friday night MLB two-game weekly package.
Amazon has agreed to pay $1 billion a year for Thursday night NFL games, a 50% increase from the previous deal with Fox. He also offered more than $100 million a year for Formula 1 racing rights in the United States in a deal he lost to ESPN, who renewed the rights for $75 million, a raise from 15 times compared to the previous contract, according to Sports Business Journal.
For all their disruptive potential, Apple and Amazon have yet to win a US trademark rights package. It’s reminiscent of 20 years ago when sports leagues feared losing viewers by moving games from network TV to cable. But change gradually became the norm.
Traditional TV companies are trying to stave off Apple and Amazon by launching their own streaming subscription services. Last year, Comcast, owner of NBCUniversal, shut down NBC Sports Network to bolster its US channel and encourage people to pay for Peacock, where it exclusively broadcast English Premier League football matches. Similarly, ESPN has an agreement with the National Hockey League to televise select games on its ESPN+ service, and CBS has aired marquee football games on Paramount+.
But those services have only a fraction of the more than 100 million cable subscribers that media companies once reached. As a result, the bulk of sports programming is broadcast on traditional pay-TV channels, where they can secure larger audiences for leagues and advertisers.
The National Basketball Association will be the first major test of the new competitive landscape. His deals with ESPN and Turner run through the 2024-25 season. Most sports and media executives predict the league will stick with traditional broadcasters for most of its games, while awarding a small chunk of the rights to a tech company.
“It protects them for the future and exposes the product to new audiences,” said George Pyne, founder of sports private equity firm Bruin Capital and former chief operating officer of NASCAR. “They can still have a long-term relationship with network partners, but delve into new media.”
Until then, the best opportunities for Apple and Amazon could be overseas where European soccer leagues resell their rights every two to three years. Amazon recently acquired the rights to Europe’s top tournament, the UEFA Champions League, in Britain and Italy. It also has rights to the French Ligue 1, 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 leads global media rights counsel for Octagon, a sports agency. TV broadcasters could also team up to pool financial firepower, or buy each other outright, to compete with tech giants willing to pay billions for rights like NFL Sunday Ticket.
“It comes down to an ego thing in Silicon Valley,” Cohen said of the big-ticket deal with the NFL. “I don’t see a path to profitability. I see a path to victory.