Amazon Sports Service Won't Eat Disney's Lunch, But It Doesn't Have To

 | Nov 22, 2016 | 8:12 PM EST
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Amazon (AMZN)  has quite the reputation for thinking outside the box and for going the extra mile to give customers incentives to sign up for or renew Amazon Prime subscriptions. Those two traits make a recent Wall Street Journal report about plans for a sports package aimed at Prime subs particularly intriguing.

However, regardless of how innovative and bold Amazon's effort proves to be, its success depends on deals with major sports leagues that have already licensed much of their best content to TV networks. As a result, the service may simply be another tool to keep Prime subs happy than a major threat to pay-TV -- at least in the U.S.

Sources tell the WSJ that Amazon has talked with the likes of the NFL, the NBA and the MLB in recent months, along with soccer, lacrosse and surfing leagues, about live game rights. It has also approached TV network owners such as Univision, niche sports provider ONE World Sports and most notably Disney's (DIS)  ESPN "about game rights they aren't using." Amazon is said to be internally debating "whether a sports package should be available free with Prime or as a premium add-on subscription."

The effort apparently extends to overseas markets: Amazon has paid $10,000 for a tender document giving it a chance to bid on Indian Premier League cricket games, and has reportedly discussed licensing "an international package of NBA games." Two months ago, Bloomberg reported Amazon "has expressed interest in sports with global appeal, such as tennis, golf, soccer and auto racing."

But as the WSJ notes, network owners such as Disney, CBS (CBS) , 21st Century Fox (FOXA)  and Time Warner  (TWX) have already locked up a lot of the most lucrative sports content for many years to come. Much of what's left consists either of niche sports, or of games from the major sports leagues that aren't broadcast locally or on national TV.

And if Amazon wants to offer all of these games from top leagues, they won't come cheap, even if it can land sweetheart deals. The NBA charges $200 for an annual subscription to its League Pass service, or $120 if a user just wants access to a single team's games. The MLB charges $120 for an annual subscription to its MLB.tv service, and $85 for a single team's games.

Thus, unless Amazon's service includes full access to networks such as ESPN and TNT, it's unlikely to convince many of those who remain signed up for pay-TV services for sports content to cut the cord. And with these networks reaping billions in monthly affiliate fees from pay-TV providers terrified of the backlash that would ensue if they no longer carried popular sports channels, they have a strong incentive not to upend the status quo by backing a cheap add-on service for Prime members.

But as Amazon Video and Prime Music have shown, Amazon doesn't need to provide content services that are superior to those of market leaders to satisfy Prime subs. It just needs to provide these subscribers, now estimated to total nearly 50 million in the U.S. alone, with something that makes their annual subscription a little more valuable.

That Amazon Video isn't (in the eyes of most observers) as good as Netflix, or that Prime Music has a much smaller library than Spotify or Apple Music, is besides the point. Netflix and Spotify cost $10 per month on their own, while a total Prime subscription, which of course also covers rapid shipping for millions of items, costs $8.25 per month when billed annually.

For this reason, an Amazon sports service that airs niche sports and less valuable broadcasts of games from the likes of the NFL and NBA could still meet with Amazon's objectives, even if few are likely to decide they no longer need ESPN because of it. And in international markets, Amazon might have some more leeway to provide popular material from top U.S. sports leagues.

Jeff Bezos famously said he wants Amazon Prime to be such a great value that "you'd be irresponsible" not to join. Anything Amazon launches that's tied to Prime needs to be looked at through that lens, and not through the lens of Amazon trying to put a well-entrenched incumbent out of business.

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