Sports rights prices accelerate as Digerati join the party

It may be true that premium sports viewing has passed a historic peak but there is no sign yet of an end to inflation in the cost of the top packages. Premium sports remain the one category that can bring together massive diverse audiences live, in the modern fragmented viewing world, and present an attractive target for advertisers. At the same time, it exerts the strongest pull for gaining subscribers, which is why it has drawn attention from all the big OTT players except Netflix, which sees it as an unwelcome distraction from its core business built around series and binge viewing.

The question for the others is the extent to which they can and will compete globally on all fronts, with each of the main digital giants – Amazon, Google and Facebook – having different strategies.

This is of interest now as the auction for the world’s second or third most valuable TV sports package, UK rights to the English Premier League (EPL) football, concludes with results due to be announced early February. Whether or not the big internet players come in with a bid is just a matter of timing and tactics, given that they are certainly circling. The world’s most valuable sports rights deal was for 9 years of the US National Football League (NFL) between 2014 and 2022 shared between CBS, Fox, NBC and ESPN. That is worth $4.5 billion a year or around $11 million a game, totaling $39.6 billion for the period. Almost joint second are the US National Basketball Association (NBA) at $2.6 billion a year and the EPL at $2.4 billion a year, or around $10 million a match. But the EPL is likely to cost at least $8 billion for the new three-year package running from the 2019/2020 to 2021/2022 seasons.

That would still leave NFL as number one but the EPL would overtake the NBA into second place, and that is just counting its UK rights. The EPL has already succeeded in boosting its earnings from foreign rights, notably through a deal with Chinese video streamer PPTV for $240 million a year, 14 times more than for the previous period. That reflects China’s overall push towards becoming a football superpower, but the EPL’s overall popularity looks set to double foreign earnings from $1.4 billion a year currently to almost $3 billion a year, so it could well overtake NFL in worldwide earnings.

This gives a clue to the outcome of the current auction, making it unlikely any of the global OTT players will put huge sums on the table to acquire a substantial slice of the EPL pie just for the UK. They are more likely to come in for overseas rights and build an international portfolio that will help pull in subscribers and advertising worldwide. Meanwhile though British Telecom (BT) is in retreat, having failed to dent Sky’s monopoly or make as great an impact in sports broadcasting as it had hoped, reflected in its share price falling by a third during 2017. BT chief executive Gavin Patterson, who led the aggressive push into sports, has conceded that he has a plan B in the event of losing rights to EPL games. Sky then will remain the dominant holder of UK EPL rights for another three years, but it too has had to acknowledge the impending forces by agreeing to share EPL matches with BT sport, so that football addicts do not need to subscribe to both anymore.

The approaches of the OTT players are very contrasting, with only Amazon and possibly Facebook likely to compete for EPL rights, although from the legacy TV side Liberty Global may also show up, having reversed its earlier distribution-only model. In the global sports power play, only a few major pay TV groups, such as Sky, Liberty Global, Vodafone and Telefonica, can compete. Telefonica also came in to acquire Spanish domestic and Champions League TV rights in a $2.61 billion three-year deal currently running.

Of the global internet players, Twitter lacks the resources to compete on the big stage and is content to forage for niche sports rights, which suit its model anyway. Facebook has huge resources, but is playing a long game based around exploiting the migration away from linear viewing to alternative platforms, making its platform sticky and attractive for advertisers. Unlike the others, it attracts most of its sports content from broadcasters and rights holders deciding to distribute through Facebook and acquiring just a token EPL UK rights share would play into this strategy.

Google has a mixed strategy that also involves attracting content from rights holders, but in this case on a direct commercial basis. For example, the YouTube streaming service in the US costs $35 a month including a variety of sports content from ESPN, NBC and Fox as well as some regional outlets.

Amazon is a different beast and arguably the biggest when it comes to sports, having already signaled its intent by paying $50 million to stream 10 Thursday night NFL games live, as well as paying $13 million a year for the exclusive UK rights to the tennis ATP World Tour. That admittedly is small money compared to what it would have to spend for any EPL packages, but its whole focus is on the underlying Amazon Prime service. This means it is not necessarily looking for an immediate pay back on rights costs but again is playing a long game.

Its main objective with all its video content investment, now running at $4.5 billion a year, is to draw new subscribers onto the Amazon Prime membership program and then nudge up the subscription costs as the perceived value increases. On this basis, Amazon does stick loosely to a formula relating membership revenues to rights’ costs. It reasoned that it needed to attract just 500,000 new members in the US paying $99 a year to offset the $50 million paid for NFL rights and that advertising plus ecommerce purchases made by such members would then generate profits. It would need to attract over 5 million new members in the UK alone by that count to justify paying for even a small package of EPL games. But there is also the prospect of selling sports merchandise, tickets and other items via its ecommerce service, so a small EPL package could unlock a lot of revenue there.

Currently Amazon has about 9 million Prime members in the UK, or about 37% penetration depending how that is counted, compared with 50% in the US, so there is scope for growth. At any rate the outcome of the EPL auction is eagerly awaited because it could serve as the clearest pointer yet to how the battle for premium sports rights will play out in the context of the larger video services war.