Market Insight

Amazon eyes bid for Fox US sports networks

November 21, 2018

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Amazon has been confirmed as one of the companies in the running to buyr the Regional Sports Networks (RSNs) in the US that Fox is divesting to clear the sale of its studio and cable channel assets to Walt Disney Company. If Amazon is successful, it would add up to a huge step forward in the online retailer’s move into sports.  

In June, the Department of Justice (DoJ) approved the acquisition of Twenty-First Century Fox assets by Disney conditional on the sale of the RSNs. As majority owner of ESPN, Disney is in direct competition with the Fox RSNs in a number of local markets in the US. 
RSNs are cable channels that operate at state level, broadcasting teams that play their home games in states where the networks are based. Usually, in the US deals at national level are negotiated by the league association and the TV operators, while at state level the rights are sold directly by the franchises and do not include the games already broadcast at national level. 

Among the RSNs, Fox is one of the most important operators, owning the rights to broadcast 15 of the 30 MLB teams, 17 out the 30 NBA franchises and 12 of the 31 teams involved in the NHL. According to data presented by the DoJ in support of its analysis, Fox’s RSNs have more than 61 million subscribers and overall, they have the rights to broadcast the 48% of the games played in the three major sport leagues. 

If the Fox/Disney deal was allowed without any restrictions, the market concentration would have increased to the extent of having anticompetitive effects. In the DoJ’s counterfactual analysis, the merger would have led to price increases to the detriment of consumers.
For example, in the catchment area of Detroit – where Fox has the rights to broadcast the games played by Red Wings in the NHL, Pistons in the NBA and Tigers in the MLB – the concentration index used by competition authorities would have more than doubled, flagging serious issues for the competition.

The 22 RSNs have been valued by analysts at $22 billion—a significant chunk of the $71 billion sale price agreed by Fox and Disney. According to press reports, Amazon is one of a number of companies to express an interest in bidding this month, including broadcasting groups Sinclair and TEGNA and private equity firms Apollo Global, KKR and Blackstone. The New York Yankees, which owns a 20% stake in the YES Network, has also been reported to be interesting in buying the stake currently held by Fox. Meanwhile ‘new Fox’—the entity made up of the operations Disney is not buying, including the FOX broadcast and Fox Sports networks—could enter the bidding in a second round before the end of the year.

Separately, the European Commission (EC) earlier this month approved the acquisition of Fox assets by the Walt Disney Company on condition that it sells its interests in all factual channels currently distributed in Europe. The five channels concerned are History, H2, Crime & Investigation, Blaze and Lifetime, which are all jointly owned by Disney and Hearst through A&E Television Networks. The EC ruled that Disney’s ownership of the National Geographic channels brands it has agreed to buy from Fox would have ‘eliminated competition’ between two strong suppliers of factual channels. 

Of the channel brands, History is the most widely-distributed, with availability in more than 40 EMEA countries, while Crime & Investigation is in 28 EMEA countries, according to Channels and Programming Intelligence. Most channels are pay TV, but Blaze in the UK and Lifetime TV in Turkey are free-to-air. Press reports indicate that Hearst is the most likely buyer for the 50% of the channels it does not already own.

Our analysis

Amazon’s interest in acquiring sports rights began with the acquisition of rights to NFL Thursday night games in the 2017/18 season. Since then Amazon has opportunistically added rights: some global (like the NFL games and the ATP Next Gen tennis tournament, and others more local (UK-only deals for ATP World Tour and US Open tennis, rights to 20 games per season from the Premier League between 2019 and 2022, and an audio package for the Bundesliga in Germany). 

Amazon’s main focus has been to add value to the Amazon Prime package, although it also has the option of offering sports via Twitch, an ad-supported service. Better known for gaming videos and esports, Twitch is one of the largest services delivering live online video in the world. 

Now in its second season of streaming NFL Thursday night rights, Amazon has just reported encouraging results, with a combined 14.7 million viewers in 200 countries, a 22% increase on the same time last year. In the US, California was the state racking up the largest number of streams, followed by Washington and Texas, while North Dakota registered the largest number if per capita hours. Games are being streamed on both Amazon Prime and Twitch. 
An RSN acquisition would give access to a wealth of attractive rights that Amazon could add to its service in the US. The long-term nature of most national sports rights deals (the main NFL rights agreements in place run to 2022, the NBA to 2025 and the MLB to 2022, with Fox having just extended its deal to 2028) mean that Amazon could add to its coverage more quickly. However, it is debatable whether Amazon would risk sacrificing the revenue generated by the RSNs from distribution agreements with cable networks in the US by moving rights wholly online. 

Ownership of the RSNs could well have more of an advertising angle. Amazon is ramping up its efforts here, not only on the Twitch side. IHS Markit estimates that Amazon generated $2.3 billion from advertising in 2017, and will increase to $10 billion this year. Its emerging online video strategy appears to be two-pronged: one featuring Prime as an aggregator of streaming content (which could also feature advertising sold by Amazon), and the made up of ad sales across the ecommerce store, Twitch, RSNs and potentially Amazon Channels (via Prime).




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