Can The NFL Deal Improve User Engagement On Twitter?
Twitter (NYSE:TWTR) recently announced that it had entered into a deal with NFL to acquire broadcast rights to ten Thursday night National Football League (NFL) games during the 2016 season. Reports suggest that Twitter paid $10 million for this package and its closest competitor Facebook was also interested in these broadcast rights, but later withdrew from the bidding process. In addition to live streaming of the games, the NFL-Twitter partnership includes in-game highlights as well as pre-game Periscope broadcasts from players and teams. The NFL is indeed very popular, such that the Thursday night games alone attracted 17 million users in the last season. Twitter has struggled to increase not only the number of users on its platform, but their engagement as well. This deal should enable the company to leverage its “live” platform and keep users engaged for longer, as they watch and tweet posts about the games on its platform. However the advertising revenue potential from this deal is limited as the company will not be able to sell any national advertising spots during the game and advertising revenue will be limited to local ads. We believe the NFL streaming should popularize this platform and increase user engagement in the short term. However the company might have to focus on several such initiatives in future to create a longer term impact.
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Innovation Around Leveraging The Deal Key For Twitter
The NFL broadcast is just a part of Twitter’s strategy to provide high quality live video content to its users. The company’s ability to create an immersive user experience around the games will be key for the success of this experiment Twitter’s platform. The company’s CEO believes that this deal is about “transforming the fan experience with football”. Twitter has already witnessed several NFL related conversations on its platform and management believes that live broadcast should improve the engagement and enhance its position as a destination for live video. Success of this partnership could pave the way for other live content, such as entertainment events and other professional sports. However the company’s ability to leverage this deal and build a unique viewing experience on its platform will be the key for its success. A survey from Cowen and Company published in Q1 2016 estimates that U.S. digital video ad spending will reach $28.1 billion in 2020, up from $9.9 billion in 2016 and Twitter can capture this growth if it is able to establish a successful live streaming platform with engaged users.
However, the company currently is struggling to improve user engagement. According to a recent report by Morgan Stanley, Twitter’s user-engagement has fallen 20 percent year on year and its app download data confirms this deterioration in user growth. As the company struggles to improve user engagement, it is banking on ‘Periscope’ (the company’s live video streaming platform) to drive growth in future.
We expect Twitter’s average monthly active users in the U.S. to increase steadily from 65.5 million in 2016 to nearly 86 million by the end of our forecast period.
If the company is able to attract more users to its platform by providing a socially immersive NFL viewing experience on its platform, it will lead to an upside to our price estimate.
The current NFL experiment appears to be part of the company’s strategy to engage users with popular live content. We believe this should improve engagement in the short term whether this will improve Twitter’s user growth and overall engagement on the platform depends on the company’s ability to innovatively use this content on its platform.
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