Source: Verizon Wireless.
The price for National Football League rights has moved steadily higher with each new network contract, even as the league has expanded inventory by adding Sunday night as well as Thursday evening games to its traditional Sunday afternoon/Monday night package.
That's partly because the sport continues to grow in popularity, but it's mostly due to the fact that live sports offer advertisers a chance to reach viewers in a world where many prefer to DVR shows and then skip the commercials. None of the other major televised sports -- not even Major League Baseball, the National Basketball Association, or the National Hockey League -- are even close to drawing the audience that professional football does.
That loyal audience has built big businesses. FOX (NASDAQ: FOX) managed to legitimize its broadcast network with a football package, and DirecTV has become a leading pay television company on the back of its NFL Sunday Ticket product.
As the league looks to dip a toe into the world of digital streaming, two wireless companies that have been stepping up their content spending, AT&T (NYSE: T) and Verizon (NYSE: VZ), are leading suitors for the NFL's first digital rights package.
How big is the NFL?
Even if people do watch a traditional television show live, only the most prime of prime-time shows even approach the numbers put up by the average NFL game. For example, on Thursday, Feb. 4, the top-rated weekly program, The Big Bang Theory, pulled in just over 15 million viewers, while nothing else that aired on broadcast television that night topped 10 million, according to TVByTheNumbers.com.
The ratings for NFL games routinely smash those numbers. Here are the average viewers per telecast, according to a mid-season report on viewership from USA Today:
- Sunday, NFC late afternoon games (FOX): 26.8 million
- Sunday, AFC late afternoon games (CBS) (NYSE: CBS): 24.1 million
- Sunday Night Football (NBC): 23.7 million
- Thursday Night Football (CBS/NFLN): 17.6 million
- 1 p.m. games on Fox and CBS: 16.3 million
- Monday Night Football (ESPN): 13 million
What is happening digitally?
Because the NFL has strong broadcast partners that pay billions to air games, the league has moved very slowly into digital streaming. It did run some tests during the 2015 season and even allowed CBS to stream the Super Bowl, which pulled in about 4 million free viewers, according to Re/Code.
In 2016 the league is selling streaming rights to its Thursday package. At the moment Verizon and AT&T appear to be the two bidders most likely to score a deal. The league only wants to sell streaming rights to that very limited package as a way to test the market. It's not looking for a long-term deal mostly because it's unclear exactly what streaming games will be worth in a world where cord cutting is increasing.
But even though the package is very limited and will likely only run for a single season, that doesn't mean a deal will come cheaply.
What will the rights cost?
When the NFL began shopping the streaming package, a number of big-name technology companies took a look but passed due to price, Bloomberg reported, noting that "the league commands the highest per-game price for any sport on American TV."
CBS aired the Thursday package in 2015. Source: CBS
There is very little precedent for what the NFL will charge, but the league did sell streaming rights to a single game -- which was played in London and aired at 9:30 a.m. on the East Coast -- for $17 million. That game, between the Jacksonville Jaguars and the Buffalo Bills, was hardly a premier contest, and it was the first of four time slots for games airing that day.
So, you can assume that $17 million per game will be the starting point for Thursday night rights. That package, which is being split between CBS and NBC, cost $225 million per network, with each network getting five games, according to Variety. That's about $45 million per game to air them on television.
Streaming rights will, of course, cost less than that, but they will almost certainly top the $17 million per-game cost of the London experiment.
Why do AT&T and Verizon want them?
Television networks want NFL rights because they bring in ratings, command extremely high ad prices, and provide a platform to promote the rest of the schedule. AT&T and Verizon might sell some ads if they win the streaming rights to the Thursday package, but the reason they want the games is closer to why DirecTV (which is now owned by AT&T) pays around $1.5 billion per year for Sunday Ticket.
For the satellite company, its NFL package serves as a way to attract and hold customers. The service is generally free, or relatively cheap, in the first year of a two-year contract. That strategy has helped the company build its subscriber base, and it has been successful enough for DirecTV to keep paying higher prices with each new contract since the deal started in 1994.
For both AT&T and Verizon, NFL rights could be an important differentiator in a wireless market where the differences between the various companies are mostly disappearing. Either wireless company could offer games only to its subscribers -- much like the DirecTV model -- and gain an important draw for current and prospective customers.
Will it be worth it?
NFL rights have been constantly escalating for decades, yet the league always has multiple bidders when a package comes up for renewal. That's because as pricey as the games are, they are one of the few sure things in media -- buying NFL packages is expensive for networks, but it has always paid off.
There is no reason to think that won't be the case here. If AT&T or Verizon wins the rights to Thursday Night Football streaming, the price will likely be more than either company wanted to pay, but not so much that the deal does not make sense. The NFL has always delivered and there is no reason to believe it won't as it moves into new methods of delivery.
