YouTube’s NFL Bet May Be About Becoming Sports Content Filter

YouTube’s NFL Bet May Be About Becoming Sports Content Filter

YouTube’s successful technical launch of NFL Sunday Ticket has turned industry observers’ attention to the business rationale behind the company’s $14 billion bet on American football.

DirecTV held the exclusive broadcast rights to the league’s out-of-market package from 1994 through the 2022 season. While the service helped to drive subscriptions, and credibility to the satellite-delivered “cable TV” service in its early years, the company is widely believed to have lost tens of millions of dollars on the quarter century plus long relationship.

DirecTV was paying $1.5 billion annually to the league over the last eight years of the relationship. Reports have stated that just 10% of company subscribers bought the football specific service.

It is challenging to make a direct business case for YouTube paying $2 billion a year to acquire the product given this context. And that is before one realizes YouTube is not requiring NFL fans to be YouTube TV subscribers to purchase their Sunday Ticket offering (as was the case with DirecTV). The streaming service can be bought on an a la carte basis.

However, Google may not be looking at it that way. The company may see investing in the tier-one produced content as a means of “driving more eyeballs and driving up CPMs to its traditional YouTube platform,” Matt Rosenberg (managing director & head of media finance, Monroe Capital) said. “Google can afford the large price tag it takes to do this.”

It is also suspected that the Google subsidiary is using the NFL package to anchor the sports content discovery platform it is building. Stratechery’s Ben Thompson theorized the company may be planning to monetize the rights by turning YouTube into a ‘filter’ for sports content, similar to what its search engine does for internet content.

Of course, Google acquired YouTube in 2006. Both companies are now part of the holding company Alphabet.

YouTube and the Google Press Team did not respond to a request for comment on the speculation.

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The internet made it easy for people to create content. But the rapid proliferation of it quickly made discovery a challenge.

Google became the internet’s dominant search engine by making it easy for people to find the content they were after. Millions of people now use it daily to navigate the internet.

The company monetizes the traffic it generates by serving as a referral engine to product, service, and content providers, primarily through search engine ads. And it generates a fortune (see: $42.6 billion in Q2 ‘23).

Sports fans are now facing their own content discovery challenges.

The emergence of countless new properties, the rise of streaming services (think: YouTube TV, ESPN+, AppleTV, and Amazon Prime) and the fracturing of rights packages have made it increasingly challenging to find the game one wants to watch.

At the same time, sports content costs are rising (annual rights fees cost billions of dollars) and unlike entertainment programming, the content is usually only shown once.

Google found being the filter for content, rather than the primary creator of it, to be a lucrative strategy for its internet search business. Logic suggests YouTube may be trying to replicate the model around digital sports programming.

The main difference this time around is that YouTube made a substantial investment in content to bring users to its platform. Presumably, the hope is NFL Sunday Ticket draws fans into the centralized content marketplace and that they’ll continue using the platform to find the games they’re looking for.

The company will then likely pursue a commission each time it refers a fan to a third-party platform (e.g., ESPN+).

Amazon, Apple, and Roku charge similar fees for referrals to other platforms. Affiliate has become a profitable revenue stream for those companies, generating billions of dollars in combined revenues.

“YouTube isn't taking this exclusively to YouTube TV because it wants to build YouTube Primetime Channels–[this is] its answer to Apple and Amazon's channel stores,” John Kosner (president, Kosner Media) said.

Google’s ‘late’ entrance into the marketplace should not be an issue given that it has overcome similar competitive dynamics before. It was not the first search engine when it launched, but was able to make up the time lost by delivering a better experience.

Combining NFL content with YouTube/Google search capabilities would seemingly have the company in position to become sports’ preferred discovery solution. If it can achieve those ambitions, generating a return on the Sunday Ticket investment shouldn’t be an issue.

“YouTube TV is far more than just one of the Virtual Multichannel Video Programming Distribution (vMVPD). It is becoming one of the largest TV distributors period,” Kosner said.

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About The Author: Adam Grossman is the Vice President of Business Insights & Analytics at Excel Sports Management. He works with companies, sports properties, media rights holders, athletes, agencies, and events to determine the value of their most important assets. Grossman is also a professor at Northwestern University Master’s In Sports Administration program and the co-author of The Sports Strategist: Developing Leaders for a High-Performance Industry. You can find him at [email protected].