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January 10, 2023

Investigating the Potential of a Standalone Amazon Sports App

Amazon.com (NASDAQ: AMZN) has

reportedly

discussed introducing a stand-alone app for its sports content. The company currently streams live NFL, EPL and New York Yankees games within its robust Prime Video platform.

Isolating sports from the remainder of the Prime Video library would, in theory, improve content navigation and discovery for current subscribers. It could also help the company to expand its reach, as well as open the door to a new subscription revenue stream and perhaps even drive additional Prime subs.

It isn’t clear what programming would reside in the app, if viewers would have to be Prime subscribers to access it or how much additional money the company might charge to watch live game broadcasts. So, it is premature to predict how a stand-alone sports app might deliver on those initiatives. Amazon did not respond to our request for comment on the reports.

But fundamentally speaking, a decision to segment sports out of the Prime Video app makes sense if you believe that Amazon Prime is already fully distributed in the U.S. and/or there a reasonable amount of money the e-commerce giant could spend on additional live rights that would deliver value inside of its core e-commerce business.

To be clear, just because Amazon may have discussed the introduction of a stand-alone sports app does not mean that one is necessarily on the way. Large companies are constantly kicking ideas around.

But there are reasons to believe the smoke is indicative of a fire this time. Amazon’s share price has fallen by more than 40% over the last four plus months and activist shareholders are pressuring the company to figure out how to make “[media] revenues balance out with some of these costs,” media consultant Patrick Crakes said.

Amazon’s media experiment has been expensive. The company will pay the NFL $1.2 billion per year over the next eleven for the rights to Thursday Night Football games and it has spent tens of billions more on scripted programming, including its Lord of the Rings series and the acquisition of the MGM content library.

And to date, the money spent doesn’t appear to have generated the returns investors had hoped for. While AMZN has not disclosed how live sports programming has impacted engagement within the Prime Video platform or purchase activity on the e-commerce site, “the upside case for subscriber [growth] looks complicated at best,” Crakes said. The company has not made any announcements regarding new subs it can attribute to TNF since Week One of the NFL season.

That is less a reflection on its bundling strategy and more likely indicative of the Prime service being close to fully penetrated in the United States.

Segregating sports content from the remainder of the Prime Video library could allow Amazon to charge extra for it. “It’s hard to understand how they gauge ROI on a billion-dollar rights deal just saying it is part of the Amazon Prime fee,” former Fox Sports Networks president Bob Thompson said.

Of course, the company does not necessarily have to build a separate application to do that. Thompson said one way would be to create a unique section within the existing Prime Video app that would house sports. “You don’t want to give up selling all that other stuff to [the viewer] by forcing them to go outside of the Prime Video app.”

But one benefit to creating a standalone app is it could help Amazon to expand the potential audience, particularly if it were ad-supported. Presumably there are people, like young sports fans, who are not currently interested in signing up for a Prime subscription that would be willing to download an app with premium sports content inside.

Once under the umbrella, Amazon could try to motivate some of those individuals to sign up for the Prime service. It is reasonable to assume a percentage would eventually convert. That is naturally a longer-term growth strategy.  

Expanding the audience of engaged viewers would seemingly be helpful in attracting future rights packages. Nielsen reported that Amazon’s slate of TNF games averaged 9.6 million viewers in ’22, down 41% from the 16.2 million Fox and NFL Network averaged last season (note: the '21 figure includes a Christmas Saturday game that drew nearly 29 million viewers). It is easy to imagine sports leagues focused on their long-term health being spooked by that decline.

TNF on Prime did draw a younger audience (median age: 47 vs 54), with a higher median household income ($98,500 vs. $82,800), than the linear networks that carried league games this year.

Increasing viewership is also necessary if the company is going to generate the advertising revenue it projected. The company reportedly promised advertisers 12 million viewers per TNF game. The shortfall means AMZN could be forced to provide partners with ‘make goods’ for the first time.

Amazon would also benefit from the earned news coverage an announcement regarding a standalone sports app would receive. “Activity, when it comes to getting large leagues attention, shouldn’t be underestimated,” Crakes said.

AMZN currently holds the exclusive U.S. rights to 15 TNF games and 20 EPL games in the U.K., and it simulcasts 15 YES Network broadcasts within the New York Yankees regional home footprint. The company could build out and stand up a new app with just those rights inside of it. Doing so would likely give viewership a slight lift and provide the company with a destination to place any additional sports rights it acquires in the future.

But the company’s existing rights portfolio is not currently large enough to scale a sports-specific app–even if it were ad-supported. “The only real stand-alone sports app of any note is ESPN+ and it has a boat load of exclusive tier-two and tier-three content, some lower quality tier-one content and a few simulcasts of strategic tier-one events,” Crakes said. 

He estimated it would cost at least another $3-4 billion annually to sufficiently populate the app.

There are also tier-one rights packages coming up for renewal should the company want to try and beef up its offering (see: NBA, NASCAR and Pac-12). 

The question is, are they good investments for the e-commerce company?

The answer depends on if you believe Prime is fully distributed in the U.S. and if you believe sports will ultimately help grow Amazon’s retail business.