YouTube agreed to pay a whopping $2 billion per year for the NFL's Sunday Ticket package, and now it needs to figure out how it can make the offering profitable.
Sunday Ticket has historically been a loss leader for DirecTV, which used its exclusive rights to lock customers into long-term pay-TV subscriptions. The Alphabet-owned (GOOG +2.00%) (GOOGL +1.71%) streaming service may go about things a bit differently, likely eschewing long-term contracts. Instead, the premium package could be used to support two existing efforts (and a third currently in development).
Ultimately, Sunday Ticket could become a gateway for many to find more uses for the YouTube app across their devices and particularly on their televisions.
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Key Data Points
Taking over TV
YouTube transformed from a viral-video hub into a new way to watch TV, and NFL Sunday Ticket can help cement that transformation.
First of all, Sunday Ticket will be available to YouTube TV subscribers as an add-on premium subscription. In this way, it'll operate similarly to how Sunday Ticket did for DirecTV. It can attract more customers to YouTube TV, which produces revenue from subscriptions and a small amount of advertising.
But consumers will also have the option of subscribing a la carte through YouTube's new Primetime Channels hub. Launched in November, Primetime Channels allows customers to subscribe to premium streaming services directly through the YouTube app. The service makes it easier to sign up, manage, and watch various streaming services instead of creating new logins and providing payment information for each one individually.
Primetime Channels is located in YouTube's movies and TV hub, where users can buy or rent digital movies or TV shows or watch a selection of films free with ads. This premium video experience is a growing part of YouTube's business as it increases viewing hours on connected TVs. And adding NFL Sunday Ticket as a Primetime Channel should help boost it further.
The next step for YouTube
YouTube is reportedly working on another source of premium content for its viewers: a free ad-supported streaming TV (FAST) service.
FASTs offers a lean-back viewing experience. Instead of users actively selecting what they want to watch, it's more like a linear TV experience, where programming is put into time slots. Users select the kind of content they want to watch -- e.g., home renovations or sports -- and then watch whatever's on.
The FAST experience is growing in popularity and attracting tons of ad dollars as well. In fact, analysts at TV Rev expect FASTs to generate 42% of ad spend across the combined linear and streaming TV ecosystem by 2027. That's a massive opportunity.
So, where does Sunday Ticket come into play?
Sunday Ticket could drive more viewers to YouTube's channel hub, where it can promote its FAST service. What's more, Chief Product Officer Neal Mohan pointed to the amount of NFL content on YouTube already and the potential for the Sunday Ticket deal to expand on that, some of which could be excellent for a FAST channel.
Getting subscribers in the door with a sports-centric FAST channel could give them more reasons to use YouTube when they're searching for general entertainment as well.
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Key Data Points
Winning eyeballs any way it can
YouTube wants to command more of your TV time any way it can: NFL Sunday Ticket, other Primetime Channels, YouTube TV, or its forthcoming FAST service. Each one can have a spillover impact on the other, and the broader the ecosystem, the more chances it has at attracting viewers.
YouTube already has billions of monthly viewers, and accounts for 8.7% of all TV time in the U.S., according to Nielsen's The Gauge report. So, it's starting with a very strong base. An investment in NFL Sunday Ticket and some FAST content should push it to take more TV viewing time, especially as more consumers cut the cord and look for alternative sources of video entertainment.
While YouTube saw a drop in revenue in the third quarter, that may be a temporary setback amid a weakening ad market. As YouTube expands to become a greater part of TV viewing, and more ad dollars shift to ad-supported streaming, it's well positioned to grow over the long run. And with the stock of its parent company trading at a historically low valuation, it's just another reason to pick up shares of the leader in digital advertising.
