Streaming companies can’t stop spending their money on live sports. Amazon paid $1 billion to be the exclusive provider of Thursday Night Football. Apple signed a 10-year deal with Major League Soccer. Now, YouTube has agreed to pay about $2 billion a year for exclusive rights to certain Sunday afternoon National Football League games.
Maybe Alphabet CEO Sundar Pichai is an American football fan? This is an expensive way for YouTube’s parent company to buy an audience. YouTubeTV costs $64.99 per month. If NFL games charge a $25 add-on, it takes 1.85 million subscribers to breakeven. That means an increase in the subscriber base by around a third. It will hope to gain subscribers from former NFL Sunday Ticket rights holder DirecTV.
There’s a reason Apple and Amazon don’t separate the profits and losses of their own streaming services. Alphabet only reports ad revenue from YouTube (which is down year-over-year). Subscriptions to YouTube Premium and YouTube TV are included in “Other” — a huge category that also includes Fitbits in-app purchases and sales.
According to Alphabet, the division’s growth will be led by YouTube. Given that the increase was less than 2 percent for the nine months ended September 30, that’s not particularly impressive.
Look at the results published by competitors and the brutal impact of the competition is clear. Disney’s direct-to-consumer media and entertainment unit — also known as Streaming — reported a $4 billion operating loss on revenue of nearly $20 billion for the 12 months ended Oct. 2. Charging low monthly rates while buying expensive programs is expensive.
Alphabet has the means to compete. The NFL deal accounted for about 3 percent of free cash flow last year. Using sports to retain long-term subscribers could mitigate Netflix’s reported US streaming viewership slump. YouTube has a seven-year deal with the NFL.
But sports broadcasts are not automatic revenue generators. Check out BT’s exit from the game. The crush of competitors will make it difficult for YouTube to prevail.
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