Football fans everywhere will have a chance to watch games in primetime this season through their smartphones, tablets, and computers thanks to Twitter (NYSE:TWTR). The social media company paid around $10 million for the rights to stream 10 of the NFL's Thursday Night Football games, according to Bloomberg. Those are the same games CBS and NBC paid a combined $450 million for the broadcast rights.
The price discrepancy comes from the fact that Twitter will be rebroadcasting CBS and NBC's national advertisements, and it will only be able to sell ads against the inventory reserved for local broadcasts. Moreover, Twitter wasn't even the highest bid the NFL received. The league reportedly heard bids from Amazon and Verizon among other major tech companies vying for the content, but it chose Twitter for its global distribution capabilities.
A loss leader
Even with the deal Twitter got on the Thursday Night Football rights, it's still hard see Twitter making a direct profit on the streams. As mentioned, it will only be able to sell the ad inventory reserved for local broadcast affiliates. And while it may be able to juice a good amount of revenue out of that inventory with its user data, Twitter will be hard pressed to generate $1 million per game out of its viewers.
But Twitter doesn't need to make a profit on the deal with the NFL. Investors aren't asking it to make a profit on its day-to-day operations; they just want to see continued revenue growth and user growth. Thursday Night Football has the potential to provide both, but it's more of a long-term bet than a short-term content grab.
In his fourth-quarter letter to shareholders, Twitter CEO Jack Dorsey said that the company will be putting a greater emphasis on live content this year. Indeed, Twitter thrives during live televised events, with many users opting to use it to discuss sports, awards shows, and other major happenings. People that use Twitter often know that Twitter is most fun and interesting at those times.
Twitter's problem is that there are a lot of people that know about Twitter -- perhaps they've even signed up for an account -- but they don't know why they'd use Twitter. CFO Anthony Noto, who was recently put in charge of marketing, says management needs to answer the question, "Why Twitter?"
The deal with the NFL will draw viewers to Twitter. Those could be users, former users, or people that have never signed up for Twitter before. The goal for Twitter should be to highlight the experience of watching football and using Twitter as a second screen. It needs to highlight the interesting content on its various platforms, which is why it's also planning to host a pregame show on Periscope. It needs to show users the value of Twitter, so that they keep coming back.
This could be just the start
The NFL has limited appeal. While the NFL has been making strides to expand globally, the majority of football fans are American men. That also happens to be Twitter's strongest demographic. Some may look at that fact and say the NFL is the perfect fit for Twitter, but if Twitter's goal is to become a global platform encompassing all interests, then it needs to expand beyond that.
When it launched Periscope, many content companies had worries that users would use the platform to pirate content -- from sports games to concerts to broadcasts of Game of Thrones. And indeed, there were several high-profile cases of mass piracy on Periscope. The NFL is getting out ahead of those issues with this deal to stream content on Twitter, and other companies may be inclined to strike similar deals. On the flip side, it provides another avenue for those companies to monetize their content.
If the NFL deal is a success for Twitter, we could see it try to strike more deals with more content owners. That would be the surest sign that the experiment worked and Twitter is seeing an improvement in its potential for growth.
Adam Levy owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com and Twitter. The Motley Fool recommends Verizon Communications. 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.