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NFL + Amazon: a Hedge Against an Uncertain Future

To quote Bob Dylan, “The Times They Are A Changin’.”

Three weeks before the draft and six months before the kickoff of the 2017 season, the NFL made headlines with the announcement that Amazon will replace Twitter in 2017 and stream 10 Thursday night regular season games. You heard that right: a company that originally started by selling books on the Internet purchased streaming rights to one of the most valuable sports leagues in the world.

This deal with Amazon marks the third significant digital broadcast partnership for the NFL. In 2015, they reached a $20 million agreement with Yahoo for the streaming rights to a lackluster matchup between the Jaguars and Bills in London. Last season, Twitter entered the scene and paid $10 million for rights to 10 Thursday night games.

Amazon will pay $50 million this year, up considerably from the $10 million Twitter paid last year. You might scratch your head as to why the NFL would broker such a deal given $50 million is small potatoes when you consider the NFL net over $5 billion per year from their other broadcast partners. The Thursday night games aren’t a lucrative draw for the league, so this move is a further toe dip into over-the-top (OTT) content for the NFL. This is a disverisification play as they prepare for an inevitable increased role for OTT content, which is poised to supplement traditional TV revenues.

The NFL saw its 2016 TV broadcast ratings drop an average of 8%, and while there’s no need to hit the panic button yet, if this trend continues each year it could start to diminish the value of NFL broadcast rights, the primary gold mine across the league’s vast revenue streams including sponsorship, ticket sales and merchandise.

Beyond the overall viewership numbers on Twitter last season (2.7 million views), there were two key stats that stood out for the NFL:

1) 70% of Twitter’s NFL audience was under the age of 25

2) Nearly 25% of the audience was international

When you look at where the league needs to grow, those areas are certainly a key focus. The Amazon agreement is almost a carbon copy of the previous year’s deal with Twitter, but with an increased cost of 400%. What’s interesting is unlike Twitter, which made the streamed NFL games open to anyone – with or without a Twitter account – only Amazon Prime subscribers, who pay a $99 annual fee for the service, will get access in 2017.

The NFL is still testing the waters of the new digital world. The next few years will be decisive ones for the NFL as their rights deals with ESPN expire in 2021 and CBS, Fox, NBC and DIRECTV in 2022. These contracts collectively make up nearly $48 billion in rights fees paid to the NFL.

Will the broadcast right fees diminish when it comes to negotiate? No, but we are going to see a much greater focus placed on OTT distribution and many more bidders coming to the table.

The NFL is in the spotlight, but they’re in a similar situation to many others. Let’s face it: media models can’t match the pace of technology. Newspapers have been painfully trying to keep up to the digital evolution for years, and TV is just coming late to the club.

We’re a mobile-first, connected society with consumption habits vastly different than just a few years ago. U.S. Internet penetration is now at 88.5% (Internet Live Stats) and smartphone penetration, which was once 2% in 2005 is now 81% (Comscore). 2016 was also the first year that consumption on mobile devices surpassed television across any demographic (Nielsen).

The shift from traditional to new media has created an incredibly fragmented landscape. Internet content distribution has lowered the barriers for providers and has resulted in a land grab for rights of all kinds against the traditional giants and a slew of new competitors. Netflix is planning to spend $6 billion on original content rights in 2017 alone.

In just the past two years, we’ve seen the emergence of major players in the OTT content landscape. PlayStation, Sling, Hulu, DIRECTV, YouTube, Twitter, Facebook, Amazon, Netflix, and Apple have all come forward with distribution models, large checkbooks and the goal of satisfying the endless content appetite of today’s connected consumer. Several of these companies lost out to Amazon in the most recent NFL rights bid, and they’ll no doubt be going up against each other moving forward in the continual play to acquire more streaming rights.

All of these companies provide a list of viable options for cord cutters, but it’s certainly not a one-stop shop. Plans need to be purchased a la carte to provide the right mix of programming for the majority of users. In the end, not all of these players will survive, and it will be a long and challenging climb to the top. Regardless of the winner[s], it’s clear that they’ll need a breadth of major live sports programming at the core.

The value of live sports programming has never been greater, but our mediums for consumption have never been this vast. For traditional broadcasters, it’s time to adapt or die.

And in the meantime, no one should feel sorry for the NFL. With increased competition from broadcast and OTT distributors, not to mention a growing global audience, the golden egg isn’t likely to shatter any time soon.

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