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When the NFL announced in April that it had reached a deal to stream 10 of its Thursday Night Football games next season on Amazon Prime Video for a reported $50 million, you’d be forgiven for thinking $50 million is a lot of money for 10 football games.
In one sense, it is. That’s five times the $10 million that Twitter paid for the same package of games last season, and that $50 million is closer to $80 million to the NFL when the marketing and promotion that Amazon has committed to do is taken into consideration. In a broader sense, though, $50 million is nothing. That’s a rounding error to the NFL, which hauls in an estimated $5.6 billion a year in broadcast rights from CBS, FOX, NBC and ESPN. Bloomberg BusinessWeek noted in a recent cover story that the roughly $100 million that ESPN pays per game is more than HBO pays for an entire season of Game of Thrones.
If you are a satellite or cable service subscriber and don’t watch a lot of football, basketball, baseball, etc., you’ll be irritated to learn that sports accounts for 24.1 percent of all programming costs (according to a recent report by the research firm SNL Kagan). And you’ll be super irritated to learn both that sports accounted for only 5 percent of programming costs in 2001 and that SNL Kagan projects it will be 30 percent by 2020.
“We live in a time-shifted world where the value of live events has never been greater,” Bonnie Hammer, the chairwoman of cable entertainment at NBC Universal said recently. But what happens when the networks pay so much that consumers reject cable outright? Televised sports give CBS, FOX, NBC and ESPN a sugar rush of live, popular programming — a hot commodity in the ad-zapping age of DVRs and streaming video — but are driving cable bills into the triple digits at a time when subscribers have more alternatives than ever.
Sports programming costs are growing at a faster annual rate than satellite and cable bills, which are already $103 a month on average. ESPN alone is $7.20 of that, and subscribers who have ESPN in their plan pay that $7.20 whether they watch ESPN or not. The big sports-programmed networks have become digital diabetics that are squeezing off the rest of the cable bundle with escalating programming costs.
And consumers are dropping out of the cable bundle at an unprecedented rate. An estimated 1.9 million households cut the cord last year, and many of the 95 million remaining subscribers are opting for cheaper plans and streaming bundles like Sling TV and DirecTV Now. ESPN, which has lost 12 million subscribers since 2011, laid off 300 employees in 2015 and 100 more at the end of April. “This isn’t over,” James Andrew Miller, who wrote a 2011 book about the history of ESPN, said last week on Sports Illustrated’s Media Podcast. “There could be more layoffs. There could be more layoffs this year.”
Research firm eMarketer projected in January that 1.7 million U.S. households would cut the cord this year, and that forecast is already outdated. Analyst Craig Moffett reported last week that 762,000 households cut the cord in the first three months of 2017. So will the system bend or break? Will the NFL drive ESPN off a cliff, or will the network get a better deal when the current packages expires in 2021? Will YouTube, Apple or the NFL itself be broadcasting Monday Night Football in 2022?
That’s a generation from now in TV years, but two recent developments provide some clues to where things may be heading.
STREAMING, MOBILE, AND COCKTAIL NAPKINS
Although the bulk of its broadcast revenues come from four TV networks, the NFL is adapting to different models and platforms as the digital landscape changes:
- CBS, which had already been broadcasting NFL games to Roku and other connected-TV devices on its CBS Sports app, gained access midway through last season to broadcast those games on its CBS All Access streaming service.
- DirectTV pays $1.5 billion for the rights to the NFL Sunday Ticket package, which is partly supported by subscribers who pay $240 or more per season for Sunday games that CBS and FOX aren’t airing in their local market.
- Verizon has been paying the NFL more than $1 billion a year since 2013 for exclusive smartphone streaming rights to NFL games and highlights through the NFL Mobile app and will pay $21 million for a single game this season.
- After experimenting last season with 10 Thursday Night Football games on Twitter, the NFL is moving that package to Amazon Prime Video, which has millions of subscribers already watching other Amazon content on their living room TVs, tablets and smartphones.
“Amazon paid the NFL a lot of money, Amazon is on television, and Amazon will help the NFL sell a lot of gear — jerseys, hats, cocktail napkins, whatever — which is where the NFL makes a lot of its money,” says Alan Wolk, lead analyst for the streaming business site TV[R]EV.
Wolk said he sees the NFL/Amazon deal as an experiment on all sides — for the NFL as a revenue stream and a new platform, for Amazon as a retail play and tech rehearsal for a bigger deal down the road, and for viewers as an alternative to watching NFL games on cable. “The NFL’s mantra is to be everywhere,” says Wolk, who notes that Amazon will be sharing half of those games with NBC and the other half with CBS.
The Thursday Night Football deal makes marketing sense for Amazon even if very few subscribers actually watch the games. “All Amazon needs to do to benefit from this relationship is plaster the NFL logo and a picture of Tom Brady’s face on the side of a bus next to the Amazon Prime Video logo,” TDG Research analyst Joe Espelien wrote in a recent research note. “The NFL relationship instantly makes Amazon’s video offering both more visible and more differentiated” from Netflix and other streaming services.
Bidding on ESPN’s Monday Night Football package, though, would be a much bigger lift for a tech company like Amazon, Verizon or Apple than the $50 million Amazon will pay this season for for nonexclusive rights to a handful of Thursday night games. That’s roughly 2 percent of the $1.9 billion a year that ESPN pays for for Monday Night Football, and it’s tough to imagine a global streaming service committing such a huge sum to such a narrow slice of programming.
A $2 billion-a-year NFL package is nearly the amount of Amazon’s $2.4 billion in operating income last year and would add nearly 50 percent to the company’s $4.5 billion budget this year for original programming. Netflix is leery enough of TV sports that the company told investors in a recent earnings report that pursuing the NFL “is not a strategy that we think is smart for us.” A Monday Night Football package makes a lot of sense for a lot of companies, but $2 billion is an astronomical amount to pay for broadcast rights to 17 football games.
CUTTING SPORTS OUT OF THE EQUATION
Streaming bundles like Sling TV, PlayStation Vue, DirecTV Now, YouTube TV and Hulu Live TV run $20 to $40 a month — less than half the cost of a typical satellite or cable plan — and offer different enough channel lineups that you can generally find one that has most of the channels you want. (Decider has a handy guide here.)
If you want a comprehensive sports package on a streaming budget, the new YouTube TV ($35 a month) and Hulu Live TV ($40 a month) services — which are the only streaming bundles that includes CBS, FOX, NBC and ESPN — are your best bets. Decider tagged YouTube TV “the ultimate streaming plan for sports fans” before Hulu Live TV launched, and YouTube TV still has the edge on price. (One huge caveat here is geography: YouTube TV is only available in New York, Los Angeles, San Francisco, Chicago and Philadelphia, and Hulu Live TV has the broadcast network live feeds in certain markets. Both have said they’ll expand to more local markets over time.)
There’s no low-cost streaming bundle without sports yet, but one may be coming soon. Bloomberg reported that three cable groups are exploring the possibility of a sports-free bundle of networks — none of which are available on YouTube TV or Hulu Live TV — for less than $20 a month that could include the major channels from Viacom (Comedy Central, MTV, VH1, BET, Spike, TV Land, Nickelodeon, Nick Jr.), Discovery Communications (Discovery, TLC, Animal Planet, Investigation Discovery, Science, OWN) and AMC Networks (AMC, BBC America, IFC, SundanceTV and WE).
That hypothetical bundle would include only four — Discovery, AMC, Investigation Discovery and TLC — of the 20 most-watched cable networks, but it could be the perfect bundle for a few million viewers and would pair well with Hulu’s $8 tier, which includes next-day availability for most ABC, NBC and FOX shows plus Hulu’s solid and growing lineup of originals.
In a TV landscape where U.S. households have easy access to a lot of different streaming services, are increasingly subscribing to multiple services, and can add and delete them with a few clicks, the more expensive services may become a harder sell than the less expensive ones. For the cost of Hulu Live TV ($40 a month), you could subscribe to Netflix ($10), Showtime ($11), Starz ($9) and Hulu ($8).
SERIOUSLY, THOUGH, WHAT’S GONNA HAPPEN?
The NFL’s $1.9-billion-a-year deal with ESPN runs through 2021, and its $3.5-billion-a-year package with CBS, FOX and NBC runs through 2022. There are a lot of minutes left to play in this game, and the NFL’s prospects going forward depends a lot on what’s left of cable — and what TV even is — when those deals come up for renewal.
ESPN has an estimated 90 million U.S. subscribers generating $7.8 billion a year in subscriber revenue, and more than half of that money is committed to to the NFL ($1.9 billion), NBA ($1.4 billion), NCAA football ($1.1 billion) and MLB ($700 million). As ESPN’s subscriber base continues to erode and the sports leagues seek richer deals, something will have to give. That could mean ESPN dropping some of those deals or trying to convince some of those leagues to take less money, or it could mean ESPN migrating some of those leagues to a fee-based streaming service.
The NFL and other leagues could try and move more viewers to their own fee-based streaming services, but those wouldn’t come close to replacing the TV money. To take Monday Night Football in house and match the revenue it gets from ESPN, the NFL would need 19 million subscribers paying $100 a year. That’s more than the total number of people who watch those games on ESPN. And the NFL is already soaking the likeliest payers — viewers who pay for DirecTV’s NFL Sunday Ticket — for $240 a year or more.
When the current deal with ESPN expires, a radically changed TV landscape will make it much more difficult for the NFL to monetize viewers who aren’t interested in watching — or paying for — TV sports.
Scott Porch writes about the streaming-media industry for Decider and is also a contributing writer for Playboy. You can follow him on Twitter @ScottPorch.
