Amazon’s sports play will kill pay TV

Friday, 14 June 2019
London, UK
By Sam Volkering

  • Just because, Sesame Street
  • A blast from the past
  • EPL goes prime time

I watch a lot of content. I say content these days because it’s not just ‘TV’. It’s movies, sports, mini-series, documentaries, all the different things you can consume via streaming services and terrestrial TV.

I’d even go so far to say I’m the perfect demographic to represent the kinds of trends that we see and see coming in how we consume and distribute content.

I’ve got access to normal TV channels. But then also pay TV through Sky, which is movies, documentaries, sports, everything you can think of, Netflix, Amazon Prime, I’ll probably end up with Disney’s streaming thanks to my son, and heck why not just throw in Apple’s service as well because, Sesame Street!

As such I tend to pick up on things you wouldn’t expect. The kind of things that I see as a catalyst for market movements in publicly listed content companies.

And today I saw perhaps one of the biggest indications that traditional pay TV networks are in for a spot of bother.

Years ago I wrote a lot about how terrestrial TV stations were doomed. The ‘free to air’ channels and their companies that were going to battle to exist in five years’ time against the likes of Netflix and Amazon.

And would you believe it…I was right.

Now I’m saying it’s not just those networks that are dying, but the big pay TV companies as well. Yesterday the ones to avoid were the likes of Ten, Seven and Nine TV networks. Today it’s the likes of Foxtel (via Telstra and News Corp), Optus and Sky that are going to feel the pinch over the next five years.

I was right back in 2015 about it all, and I’m warning you now, I’m going to be right about the next wave too.

Markets

Overnight the Dow Jones Industrial Average closed up 101.94 points, or 0.39%.

The S&P 500 gained 11.80 points, or 0.41%.

In Europe, the Euro Stoxx 50 index finished up 3.87 points, or 0.11%.

Meanwhile, the FTSE 100 rose 0. 013%, and Germany’s DAX gained 53.37 points, or 0.44%.

In Asian markets, Japan’s Nikkei 225 is up 67.32 points, or 0.32%. China’s CSI 300 is down 0.13%.

In Australia, the S&P/ASX 200 is up 12.30 points, or 0.19%.

On the commodities markets, West Texas Intermediate crude oil is US$52.49 per barrel. Brent crude is US$61.75 per barrel.

Turning to gold, the yellow metal is trading for US$1,345.15 (AU$1,949.57) per troy ounce. Silver is US$14.94 (AU$21.65) per troy ounce.

One bitcoin is worth US$8,236.09.

The Aussie dollar is worth 68.99 US cents.

You were warned once, take heed again

August, 2015.

One of the biggest sports rights deals in history signed off as Sky Plc [LSE:SKY] and BT Group [LSE:BT.A] paid more than $5 billion for the rights to the English Premier League broadcasting.

Around this time I had a good look at this and the movements of some of the world’s content streaming companies. I came to a very straight forward conclusion.

…I think possibly the worst industry to invest your money in right now is anything even closely related to traditional TV networks. Ten Networks [ASX:TEN], Nine Entertainment Co Holdings [ASX:NEC]Seven West Media [ASX:SWM]. I think they’re all duds.

One of the few advantages these TV networks have is sport. When the sports leave they will die. The era of streaming is here. And in 10 years’ time there won’t be such a thing as ‘Channel 7’ or ‘Channel 9’. There won’t be ‘channels’. It will just be whatever you want, on demand, all the time.

The streaming companies started off with movies. They’re now heavily building their ‘TV’ empires. And soon they will cast their eye to sports. When they do it, streaming companies like Netflix and Amazon are where you’ll want your investment dollars. Not any of the old, sad and sorry TV networks.

That turned out to be some pretty sage advice.

In 2017 Ten Networks went into voluntary administration. Dodged a bullet there!

At the time Nine Entertainment Co was trading at $1.65. Four years later and Nine is trading today at $2.01 — a gain of 21%. Okay, we weren’t spot on there. But 21% in four years isn’t exactly setting the house on fire.

Seven West Media was trading at 80 cents back then. Four years on it’s still battling along and at least is still operational, but with a stock price of just 48 cents, it’s had a hefty 40% fall.

Streaming channels are now developing new content and exclusive content that’s simply going to continue to draw viewers away from traditional advertising networks.

And they’re going to do it from ‘pay TV’ as well.

I remember back when Foxtel first launched to the Aussie market. And unless I’m mistaken, there was a promise of ‘ad free’ TV. This after all was the great holy grail of content consumption. Make money on subscription fees, don’t need advertising, simple.

Well it didn’t last and now there are more ads on pay TV than there ever was on ‘free-to-air’.

When you jump onto a streaming service and see that most hour-long shows are really only about 40–45 minutes long, you realise you’re getting flogged a good 15–20 minutes of advertising on pay TV channels and free-to-air still.

That’s just one aspect of these content wars playing out though. The other thing is the holy grail of streaming I identified four years ago, live sports.

A lot of people solely subscribe to pay TV networks or keep watching free-to-air because of live sports. If sports existed on the likes of Netflix and Amazon Prime you would be able to hear the exodus from the likes of Foxtel.

Well, can you hear it? The march has begun.

I logged on to my Amazon account today, just the regular shopping site. But right at the top, in bold promotion was that Amazon Prime will be streaming live and exclusively 20 English Premier League football games in December. In addition to these games, they will be live and all Boxing Day Premier League games will be exclusively broadcasted.

The 2019–22 Premier League rights were bought up again by Sky and BT, this time for a whopping $8.19 billion. So they’ve still got a stranglehold on one of the world’s most popular and most watched sports.

However, the fact that Amazon is now in this arena too is something to keep an eye on. They’ve been doing non-major tennis events for a while, but EPL is a big step up.

We think that Amazon is about to get very serious about streaming. And when the EPL rights are up for grabs again for 2022–26, we think Amazon could be a huge player. Maybe even taking on the whole deal.

Of course that begs the question what happens to Sky and BT in that case? Well it’s downhill from there. And for the likes of Foxtel and Optus, expect that Amazon will take subscribers away from them too.

If Foxtel fails, you wouldn’t want to be holding Telstra or News Corp stock then either.

And we haven’t really even gone deeper into how Disney through ESPN could smash the pay TV companies either.

What’s coming is the expansion and dominance of streaming services, namely Amazon’s Prime and ultimately Disney as well. What comes for the incumbents? Pain. I said you wouldn’t want to invest in TV networks in 2015 and was right. Now I’m saying you wouldn’t want to invest in pay TV companies today.

Let’s see how that plays out in the next four years.

Regards,
Sam