Monday 14 August 2017

Investopedia/Mark Kolakowski: How Amazon, Facebook May Crush the TV Networks


How Amazon, Facebook May Crush the TV Networks

By Mark Kolakowski | August 9, 2017 — 6:00 AM EDT

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Once the domain of TV networks, the lucrative empire of sports television is on the cusp of an invasion by content-hungry Internet giants Amazon.com Inc. (AMZN), Facebook Inc. (FB) and Alphabet Inc. (GOOGL), the parent of Google and YouTube, as reported by Barron's.

Amazon's streaming of National Football League (NFL) games this fall is almost surely the first step of many incursions to come from the Internet horde. This presents a potential threat to established sports broadcasters such as: Twenty-First Century Fox Inc. (FOXA); The Walt Disney Co. (DIS), which owns ABC and ESPN; Comcast Corp. (CMCSA), the parent of NBC; CBS Corp. (CBS); and Time Warner Inc. (TWX), which operates TNT and TBS.

The problem for the TV networks is that they are suffering from an overall decline in viewership, Barron's indicates, making the retention of key sports broadcast contracts critical. Internet giants' invasion of sports viewing has the potential to boost the earnings growth - and share prices - of Amazon, Facebook, Google and others, while depressing growth for the losers.
Bidding War Ahead

Sports broadcast contracts that will expire in the next five years include those covering most National Football League (NFL) games, as well Major League Baseball (MLB). Contracts with the National Basketball Association (NBA) extend through the 2025 season; The pact with NCAA College Basketball ends in 2032.

Not only are Amazon, Facebook and Alphabet sitting on massive piles of cash right now, but their combined annual free cash flow is forecasted to be $50.8 billion in 2017, growing to $101.6 billion in 2020, per data from FactSet Research Systems Inc. (FDS) cited by Barron's. By contrast, the combined free cash flow for Fox, Disney, Comcast and CBS is projected to be only $23.3 billion in 2017 and $30.2 billion in 2020, according to the same sources. This huge gap in financial resources sets up the prospect of an "unwinnable bidding war" for the networks when these contracts come up for renewal, Barron's says.

Source: Barron's, FactSet
Amazon Kickoff

For the 2017 NFL season, Amazon.com already has paid $50 million for the rights to stream 10 Thursday Night Football games to air simultaneously on the NFL Network, NBC or CBS, according to Barron's. Already established as a major video streaming service provider offering movies and TV programs, Amazon.com's move into live sports represents a logical extension. Moreover, media market research firm eMarketer Inc. projects that Amazon Prime Video will have 96.5 million subscribers by 2020, per Barron's.

Alphabet's YouTube video streaming service has branched out into live TV and original programming with established stars, Barron's adds. Moreover, Alphabet indicates that YouTube viewing time on TV sets has roughly doubled during the past year, per Barron's. Meanwhile, Facebook has tapped video as a growth and investment priority, Barron's says. Against this background, it's not a stretch to anticipate entry into the sports field by either or both of these players.
Advertising Shift

For the first time, advertisers spent more on digital ads than on TV ads in 2016, per data from eMarketer cited by Barron's. Looking ahead, eMarketer projects that $10 billion more will be spent on digital ads than on TV ads in 2017, with the gap growing to $50 billion by 2021. The shift of sports programming online is bound to accelerate the movement of advertising dollars, making the networks' financial position ever more precarious.

Comcast has more protections than its broadcast rivals, Barron's says, because it also is a major cable TV and broadband services provider. If its NBC subsidiary loses viewership to streaming services, or if Comcast loses cable subscribers, viewers still need Internet connections. In that case, Comcast would have the option to boost prices for internet service, but subject to regulatory and competitive pressures.
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