Amazon.com (NASDAQ:AMZN) is making a big play for live sports.
According to the Wall Street Journal, the e-commerce giant has been in talks with professional leagues large and small, from the NBA, NFL, and MLB all the way down to college conferences and even organizations like the World Surf League, about streaming live sports content.
It's unclear if Amazon would package such content with its $99/year Prime service or sell it separately as a "skinny bundle."
The news comes at a time when the company is making a big push for its Prime Video service. Amazon is doubling content spending in the second half of the year, expanding into new countries, and just launched its new show, "The Grand Tour" with Jeremy Clarkson, which it supposedly paid $250 million for. Amazon is releasing "The Grand Tour" globally, but the implications of that for Prime's future are unclear.
But getting into live sports makes sense for Amazon, perhaps more than any other potential streamer. It's already sold millions of devices like Fire tablets, Fire TVs, and Fire TV sticks that would serve as companions for a live sports service, and with Prime Video it has proven it has the capacity and audience to deliver such streaming content to tens of millions of viewers.
Disrupt or be disrupted
Amazon's entree into sports could also spell trouble for the current industry leader, Walt Disney Co (NYSE:DIS), which owns ESPN. Subscription to ESPN has been declining since 2010 as cord-cutting has gained momentum, and Disney's stock plummeted last summer when CEO Bob Iger acknowledged that its cash cow was losing customers.
Viewers seem to be clamoring for ESPN to go over the top, and Disney has already made the sports network available as part of DISH Network's Sling TV, a streaming bundle available for $20/month. However, the entertainment giant has been reluctant to break the cable bundle by making ESPN available directly, in part because the traditional pay-TV model has been very lucrative for the company.
As other Amazon rivals have learned, harvesting profits from a declining model instead of disrupting yourself to prepare for the future is a mistake. Big-box retailers like Wal-Mart and Target ignored the e-commerce space for years, all but yielding it to Amazon, and are now paying the price. Amazon also beat tech giants like Microsoft and IBM in the burgeoning cloud computing industry, gaining a valuable head start. Amazon has made a habit of plowing headlong into new industries and technologies, much like it's doing in video streaming, to the chagrin of the ensconced industry leaders. It hasn't always paid off, but when it does it's caused significant problems for the competition.
Can Amazon pull it off?
Sealing such a deal may prove harder for Amazon, however. The biggest obstacle may be that the rights to stream and broadcast games from the highest-profile leagues are already locked up for several years. ESPN and TNT recently won the rights to air NBA games until 2024-2025, and NFL games will be doled out to ESPN, CBS, FOX, and NBC for the next five to six years.
What's more likely for Amazon is that it pulls a page from ESPN's early days and starts small with international deals and smaller sports at home like soccer and lacrosse. ESPN started out in a Connecticut backwater, with the original idea of focusing on just Connecticut sports. Early programming consisted of wrestling, college soccer, and softball.
Amazon, as one of the most valuable companies in the world, has much more firepower than ESPN did at its dawn, so it's likely to build momentum once the program gets off the ground. While the company may scrape together live sports packages at first, it's known for being cutthroat and launching headlong into new markets, and live sports would make a good companion for Prime.
It won't happen overnight, but Disney may one day wish that it had cut the cord sooner and cultivated a streaming audience when it had the field to itself. Amazon's success has a way of making its rivals face harsh truths.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Walt Disney. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.