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Well, now we know how much is too much for free-spending Apple when it comes to buying programming for its Apple TV+ video-streaming service.
An imminent $3 billion-a-year deal that gives Alphabet control of the NFL’s Sunday Ticket video rights beginning next season marks another lucrative milestone for the league, double what DirecTV was paying. But it also suggests that even for highly sought-after sports rights, media and tech companies are finding some limits on what they’ll pay.
The deal may indeed be accretive in lots of ways for Alphabet’s various video-delivery ventures, most especially YouTube TV, its online-delivered version of a traditional cable TV offering.
Bundling Sunday Ticket next to YouTube TV’s broader selection of entertainment, news, and sports channels won’t feel much different (minus the satellite dish on the house) for customers who long subscribed to DirecTV to get all the out-of-market NFL games they could watch.
But not everyone was entranced by the opportunity to spend around $3 billion a year for NFL rights, as Alphabet is set to do. That includes Apple
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But reports surfaced in recent days that Apple had backed out of the Sunday Ticket bidding, clearing the way for Alphabet, which was left bidding against Amazon
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Indeed, Apple is the great cash machine of this era. In October, Apple reported generating $90.1 billion in revenue for just last quarter. Over the past five years, Apple has returned $464 billion to its shareholders, through share buybacks and dividends. As Bloomberg pointed out, that’s about a third more than the entire market capitalization of a not-inconsiderable enterprise such as Chevron
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So, the money was there. But the will wasn’t, not at this price. Instead, executives told the league they “don’t see the logic” of paying that much for content (live NFL games and related programming) that the company wouldn’t own and which has no appreciable shelf life.
This from a company that’s spending an estimated $8 billion (Apple won’t say exactly how much) on acquiring or making original series and movies, including Oscar Best Picture winner CODA and two-time Emmy Best Comedy Winner. It’s had a very good three-year run with its own programming, much of which will remain very watchable for years to come.
The other problem for Apple is that $3 billion doesn’t buy much of the NFL these days. The league has smartly carved up its latest $100 billion worth of contracts among not only its legacy partners such as ABC/ESPN, NBC, Fox, and CBS, but also newcomers such as Amazon, plus its own just-launched NFL+ mobile service.
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By contrast, take a look at Apple’s plans for its Major League Soccer deal. It’s less than one-tenth the cost of the NFL Google deal. More importantly from Apple’s standpoint, it covers pretty much everything MLS is doing: in-market, out of market, mobile, online, domestic, international, and reaches an audience that’s far younger than any other major US sport.
No one would confuse MLS with the NFL in terms of reach and popularity. In fact, no other sport, and virtually no other programming on traditional cable and broadcast has the reach and popularity of the NFL. But even Apple said no mas at this price.
And that has implications for other sports leagues, media companies, and how streaming and legacy broadcast and cable outlets do their business going forward.
Will Warner Bros. Discovery, for instance, re-up its pricey NBA deal on TNT when it comes up for renewal in the coming months? With Apple’s decision to pull back, have we reached the zenith of the sports rights gold rush?
The leagues have leveraged the desperation of broadcast and cable operators to keep at least some must-watch content on their program guide as more viewers, hot shows and lucrative advertising cut the cord and slip onto streaming at increasing rates. That’s led to a bonanza of rights deals for college and pro sports, but at some point, that carousel of cash has to stop spinning.
With Apple, the deepest of deep pockets, finally saying “enough,” others may have reason to be more judicious in doling out the dollars for sports rights in the future.
Alphabet faces some other challenges even as it is plunking down three large on football broadcasts, thanks to a worsening economic climate and all that comes with it.
Needham & Company Senior Research Analyst Laura Martin lowered Alphabet Q4 2022 and FY 2022 estimated earnings and price targets, “owing to a weaker ad-spending outlook in 2023 than our prior projections,” she wrote in a note posted today.
Martin and research analyst Dan Medina pointed to drooping estimates from three big companies in the advertising ecosystem – Zenith, Magna, and GroupM – for their dramatically lower $115 price target (it was $160). Media companies are getting hit by that, too. On Dec. 16, Martin modestly reduced Walt Disney Corp.’s revenue, operating income, and earnings per share for Q4 of 2022 and all of 2023.
Those lower expectations for advertising in general all suggest that even Alphabet will make significantly less money this last quarter of the year, down 22% to $1.20 in earnings per share, and through next year.
Martin and Medina did have good news for Alphabet, though. They also announced their first 2024 projections for Alphabet: revenues ($345.1 billion), operating income ($136.2 billion), and earnings per share ($6.13) are all expected to be up double digits from 2023.
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