Amazon.com (NASDAQ:AMZN) has been willing to spend quite a bit of money on the rights to stream live sports events. It agreed to pay the NFL $50 million for 10 Thursday Night Football games in 2017. And it renewed that contract for two years this year (possibly paying even more). It also signed a deal with the Premier League to stream 20 soccer matches in the U.K. (broadcast rights cost between 18 million and 30 million pounds per match, or between $23 million and $38.5 million).
But Amazon could be about to make its biggest sports move yet. The retail giant reportedly made an offer for Fox's 22 regional sports networks, which have an estimated value of around $20 billion. The U.S. Department of Justice is requiring Disney to divest the regional sports networks shortly after it completes the acquisition. Disney wants to get a buyer lined up before it closes to ensure there are no hangups with the rest of the deal. Amazon could be that buyer.
Sports remain one of the few must-watch television events. Last year, Sunday Night Football was the most popular regularly scheduled program in the U.S., and 85% of the top broadcasts were sports events.
Amazon wants to capitalize on the popularity of live sports for its Prime service, which includes access to streaming video. Only Prime members are able to watch its streamcast of Thursday Night Football on Amazon (although anyone can stream the same broadcast on Amazon's Twitch service). British Premier League fans can watch the 20 matches Amazon holds the rights to on Amazon only with a Prime membership.
Amazon sees the expensive sports rights as a loss leader for what could potentially be a great customer in the long run.
But there's another reason for focusing on sports. Most sports broadcasts have built-in commercial breaks. Amazon can use those commercial breaks as a testing ground for its burgeoning ad business. Reports so far are that Amazon's two minutes of commercial time per hour of its NFL streams have produced positive results for advertisers. Amazon is looking to scale that by expanding to more sports rights.
Regional sports networks are a whole different beast
Regional sports networks are quite a bit different than anything Amazon has done so far in sports. Amazon is buying a set of cable networks, not the rights to broadcast specific sports events.
Owning the networks will give Amazon a better pipeline to win digital distribution rights for the MLB, NBA, NHL, and other sports leagues, but it's no guarantee; the company would still have to negotiate the rights as part of its regular television broadcast distribution deal. What's more, Amazon could face conflicts with first-party streaming services for sports leagues or other sports deals with digital partners.
Overall, it's very unlikely that the regional sports networks will tip the scales when it comes to attracting more customers to subscribe to Prime. Offering Prime members access to regional sports could massively deteriorate the value of the assets Amazon would be buying, hampering the distribution deals with pay-TV distributors that throw off tons of cash every year.
But controlling the regional sports networks opens the door for a massive amount of advertising revenue. Instead of just two minutes per hour during its football broadcasts, Amazon would have around 20 minutes per hour on each of its networks throughout the day. That's a lot of commercial time to fill, and Amazon could develop systems to improve on existing ad sales at the networks by using its shopper data and cloud computing capabilities.
The success Amazon has had with sports rights on Prime so far is encouraging enough that it sees opportunities to scale the idea to traditional television. For now, it's only a move to scale its advertising business, but it could eventually lead to closer relations with sports leagues that provide additional streaming content for Prime and keep growing its Prime membership.