Why Amazon Is Investing Heavily In Live Sports Streaming

Recently, Amazon (NASDAQ:AMZN) announced that it had entered into a one year deal with the National Football League to stream 10 Thursday Night Football games for a total value of $50 million, taking over these streaming rights from Twitter. While this deal is being considered an experiment, given that it is only for ten games, it gives Amazon two clear benefits: 1) The company will stream these games for its Prime members, and the appeal of live sports streaming could attract more customers to Prime memberships – a key revenue driver for Amazon; and 2) this strategy can also drive significant advertising revenues for the company. Amazon’s wealth of user data – such as shopping history and shows/movies watched – could allow the company to sell targeted ad slots. This personalized ad opportunity should attract a significant number of advertisers to its platform.

Drive Prime Memberships, Generate Advertising Revenues

Amazon Prime Video is one of the perks of Amazon’s Prime memberships, and by including premium entertainment content on its video offering, Amazon can retain and attract more Prime customers. Estimates put Amazon prime members at around 65 million, and according to ITG analyst Steve Weinstein, these members generated nearly 60% of the company’s North American revenues. Prime members shop more frequently on Amazon’s platform and spend more than double the average non-Prime member spend. By offering live streaming events and other premium content on Prime Video, Amazon could increase its Prime memberships rapidly, which would drive substantial revenues for the company.

As advertising dollars shift from traditional TV to digital media, Amazon can benefit significantly by live streaming popular sporting events.  According to eMarketer, digital ad spending in the U.S. is estimated to grow from around $72 billion in 2016 to nearly $113 billion by 2020. Digital video ad spending in the U.S. is growing faster than search and display, and is expected to grow at a CAGR (compound annual growth rate) of nearly 22% through 2020. Amazon has not generally been focused on attracting advertisers, and according to eMarketer, the company’s share in the U.S. digital advertising market was around just 1.6% in 2016. However, recent reports suggest that the company has assembled a Google-like set of advertising tools and services, indicating that it is increasing its focus on online advertising (see Can Online Advertising Drive Revenues For Amazon In The Long Term). Amazon has a huge data base of its users’ product purchase patterns and viewing preferences, which can give advertisers options for more personalized advertising. This should allow Amazon to generate substantial ad revenues.

While Amazon offers Prime Video free as a part of its Prime membership plan, the company also launched a standalone Prime Video subscription service, competing directly with Netflix. Live streaming events could attract more members to the service. While Amazon’s investment in NFL game rights appears steep, it should also offer several benefits for the company that may not be apparent on the surface. If this experiment is successful, we expect that Amazon could enter into several other similar deals, driving growth in the long term.

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