Analysis: Amazon and the Premier League football rights

Amazon is on a quest for sporting content rights. Earlier this year, Amazon successfully took the ATP Tour UK rights away from Sky, as well as winning the NFL’s Thursday Night Football streaming package for this season from Twitter and Facebook. Now, Amazon has apparently set its sights on the Premier League.

The expectation in part stems from comments made by Manchester United Chairman Ed Woodward. During a call with investors he was asked if Amazon and Facebook were likely to bid for the rights, to which he replied “Absolutely, I think they will enter the mix.”

The impact of online giants such as Facebook and Amazon on a host of industries - media and entertainment included - should not be underestimated, warned analysts. 

David Mercer, Vice President and Principal Analyst for the digital consumer practice at Strategy Analytics said it is a “struggle to find any company in any industry that isn’t worried about Amazon in some way.

“Obviously [Amazon] wants to drive demand for its video services; that raises the question of what that’s going to look like going forward.

”Amazon has dipped its toe into live sports, which has to be a key part of its overall video offer. Maybe it’s testing the water. However, Sky has held these rights for 25 years solid, so it will be difficult for anyone to challenge it. If anyone could it would be one of these cash-rich firms like Amazon, so it is certainly one to watch out for.”

”Amazon has been steadily increasing its coverage of sport, driving people towards Prime” - Paolo Pescatore 

CCS Insight Vice President of Multiplay and Media, Paolo Pescatore, describes sport as a “hot area, a genre that people have shown a lot of interest in paying a lot for.”

He says: “Amazon has been steadily increasing its coverage of sport, driving people towards Prime.” However, Pescatore adds: “ATP tennis rights differ somewhat to Premier League rights.

”With its ATP win, Amazon is effectively taking a production feed and distributing it to its Prime audience. With Premier League rights, Amazon would have to set up what BT and Sky have; a full production operation. It’s one thing to pay £10 million for ATP rights, and it’s another thing to pay around £10 billion, as BT Sport has for 40 Premier League games, and then have to add full production facilities on top of that.”

Business plan

Ted Hall, Research Director, television, technology, media and telecom at IHS Markit, also highlights the difference between televising ATP tennis and the Premier League. “The ATP tennis rights cost £10 million a season; live Premier League football costs around £10 million a game.

“If Amazon wanted to acquire one or two Premier League rights packages on an exclusive basis (unless the structure of the tender changes, there are no separate live streaming rights) it would have to spend serious money to outbid Sky and BT. The move would represent a significant step up in terms of investment and competitive ambitions.”

He adds: “Generating a return on this investment will be a challenge, with Amazon being unable to subsidise through bundling to the extent Sky and BT can. Having said that, Amazon, with its level of spending on original content for Prime Video, has shown a willingness to invest in original content with little regard for the profitability of its video business.

“Should it secure Premier League rights, I do not envisage a significant departure from its current model of selling it through Prime Video and Amazon Channels, both of which are most commonly taken with the broader Prime offering. Prime membership is likely to be mandatory for those wishing to watch live Premier League football on Amazon, with an additional subscription charge also likely, though I’m sure Amazon would offer some very attractive promotional deals, perhaps waving any additional charge for an introductory period, to make an impact,” Hall said.

Making it pay

Rethink Technology Research CEO Peter White drew attention to Amazon’s strategy of being a low margin business. “[Amazon] has about $26 billion in cash, which is about 10% of what Apple can muster. It spends that wisely for both global and long term payback. Its last quarter was net income of $867 million on $30 billion of revenue, under a 3% net margin. What Amazon is about is moving into businesses with a higher net margin. Selling books is low margin, AWS is a slightly higher margin. Having original content is a much higher margin, but smaller businesses owning sports rights is another high margin business, but it can only be capitalised at a single point in time.”

He continues: “Amazon is less able to capitalise at a single point in time than say Facebook, which can alert more people. As a result we feel that Amazon’s business only pays benefits when the audience is global. Buying rights to the English Premier League for the UK is expensive, and would deplete cash supplies somewhat and we feel that it is more likely to adopt a Discovery Eurosport approach, of buying secondary rights out of market for sports.

”We know that PCCW sells English Premier League in Hong Kong, and it does it plenty of good, but it does not cost what BT and Sky pay. You either satisfy a discrete diaspora of one country, like Indians outside India for Indian Premier League, or you go for sports which have interests overseas from native viewers, but at a lower level. The money stretches across a greater number of global customers.”

Yet Pescatore considers that perhaps the Premier League could come up with an alternative way of providing rights to new players. He says: “Who knows if the Premier League may make a set of rights applicable to digital players? The Premier League won’t want to cannibalise rights from UK and overseas rights holders. They need to think about it very carefully; it’s a fine, delicate balance.”

”From a Premier League perspective, the more bidders the better, as new entrants will drive up the value of the rights” - Ted Hall

Juniper Research Senior Analyst Lauren Foye raises the prospect of a bidding war. She says: “Sky, who is the established provider, will want to maintain as much of its current coverage as possible through fear of losing customers, whilst BT is trying to take marketshare from Sky (hence it will want to purchase the rights to as many games as possible).

”In the meantime, Amazon is a potential new player; to enter the market effectively it will want to create a clear distinction between itself and the other players, and hosting matches during the week is a good way to achieve this,” she notes.

Hall agreed: “From a Premier League perspective, the more bidders the better, as new entrants will drive up the value of the rights. The consumer question is trickier to answer,” he adds. “On one hand, the entry of BT, combined with wider evolution in the way subscription TV content is sold (Sky unbundling content on a more flexible, lower cost basis via Now TV), has made Premier League football more accessible. The entry of Amazon would fit this trend. However, fans wishing to access a full Premier League football offering are, in many cases, paying much more than they were prior to BT’s entry.

“Although BT significantly discounts BT Sport for its broadband and TV customers, it stopped offering the package at no extra cost in April this year, and non-BT customers must pay at least £22.99 a month to receive the channels through Sky,” notes Hall. “Meanwhile, Sky has been passing some of the increased rights cost on to its customers through price rises. The addition of Amazon to the mix would result in a likely increase in the overall price of a full Premier League football subscription across three providers.”

Sky, BT and Amazon could be a good thing for the Premier League market, claims Foye, yet she agrees that it could also result in prices for consumers rising as they are forced to sign up to ever-more services: “The addition of a third player offers greater choice for consumers, however for those who want to watch all of their team’s games, its means that they may have to sign up to all three providers, making the process even more costly than it already is. This could have the knock-on effect of causing viewing figures to decline.”

IHS Markit’s Hall thinks the amount incumbents are prepared to pay for the most sought-after sports rights could be reaching a threshold.

He says: “It is becoming increasingly difficult to justify a business case around the escalating costs, especially considering that the popularity of Premier League football appears to be waning, evidenced by a 14% drop in average viewing of live games on Sky in the 2016/17 season. This is part of bigger picture challenge facing Sky and other pay TV operators; competition from low cost streaming services from Netflix, Amazon and others that are undermining the appeal of traditional, ‘full-fat’ pay TV subscriptions tied to long term contracts. Premier League football remains a prized asset to both Sky and BT, of course, but it is possible that we could see Sky come away from the next auction with a lion’s share that is less than five out of seven packages, and BT can fall back on its other key attraction, exclusive Champions League football.”

As to where this increasingly frenzied bidding for sports broadcast rights may end up, Foye states there will be a point where some players drop out, once it becomes unviable for them to purchase these rights. However, she says “players with a lot of cash will be happy to bid on these events, safe in the knowledge that should they be successful, they have a significant monetary stream in one of the most profitable areas of live media”.

Hungry for more

As to whether we can we expect to see Amazon bidding for more sports rights traditionally held by the big broadcasters, as well as other online retailers and video on demand providers getting in on the act, Hall says online players moving into sports rights is definitely a trend to watch, with both advertising (Facebook, Twitter) and subscription (Amazon) models being utilised. He notes that companies like Perform, through its DAZN service, are already building subscription sports offerings distributed purely online.

“We might not see an internet player secure a landmark acquisition of real marquee premium sports content on an exclusive basis just yet,” Hall says. “There are still some question marks over the internet’s viability as a platform for reliably streaming at scale. If you talk to streaming technology vendors, they will tell you that they can stream to audiences of any size, providing they provision for the expected demand in advance.”

However, Hall adds that sports streaming services have been hit by some high profile technical issues, for instance, Discovery’s Eurosport Player live online broadcasts of Bundesliga matches in Germany, and Sky’s online PPV broadcast of a boxing match in May.

“Amazon is better prepared than most to handle high volumes of live streaming; in buying Twitch, it gained a platform with infrastructure designed for streaming at scale, one of the key motivations for the acquisition. Netflix, meanwhile, is in a weaker position; in spite of its massive scale as a global video streaming player, its infrastructure is not built for live streaming, so moving into live broadcasting would pose technology challenges and costs outside of content,” Hall says.

White says that at some point Amazon will do a ‘Netflix’ and sell more people on video directly instead of giving much of its video away with Prime.

He says: “At that point it will struggle unless it has exclusive rights and original content. That move put Netflix in the wilderness for 18 months, and Amazon is trying to avoid this by doing this changeover gradually, but almost no-one buys Amazon Video without Prime right now.

“At some point that will have to change. It is then that it will up the ante and push for primary, in-country rights, one country at a time. English Premier League rights recently went for £8.3 billion (not dollars) and that’s for one country; French, Spanish and Germany football would be needed for Europe alone. Amazon has no need to go after these rights until it has enough regular video viewers spending two hours a night on its service. Right now it is closer to two hours a week.”

Right now, says White, Amazon has to get customers to watch what they already pay for. Only around 40% of Prime customers watch any Amazon video, says White.

“This is because they want to watch on the large screen at home (TV usually) and Amazon has not got all its ducks in a row to make this easy by paying for app integrations on devices like Roku. You need to be on all games consoles, your own devices, all iOS devices, and all media adapters and every brand of smart TV. Amazon needs to complete this so that is viewing footprint can broaden naturally. As such we see Amazon a few years away from buying primarily in-market sports, but it will bid for them to get used to the process and in case it lands some minority rights in-market cheaply,” he concluded.