Why Amazon wants to buy nearly two dozen regional sports networks

Amazon is reportedly interested in buying nearly two dozen regional sports networks. That would be a bold gamble on the future of how viewers consume sports content.
 
The e-commerce giant is said to have bid for the 22 regional sports networks that 21st Century Fox is offloading as part of its sale to the Walt Disney Company, CNBC reported, citing unnamed sources. Together, the networks air the games of 44 teams in the NBA, Major League Baseball and the NHL. An earlier report by Reuters that also cited unnamed sources suggested that the networks could be valued at over $20 billion, which would make the purchase Amazon’s biggest deal ever.

 
But what does Amazon want with 22 sports networks?
 

The simplified logic runs like this: At a time when pay TV is in decline, sports content drives viewership across platforms. Owning rights to big franchises would help Amazon market its Prime programme (which costs $119 a year), especially if that membership included access to those games. That, in turn, could add more revenue, as Prime members tend to buy more on Amazon.
 
Growth in the number of Amazon Prime members in the United States has slowed recently. A pickup in membership growth would be welcome.
 
Amazon has some experience with sports broadcasts. It streams Thursday Night Football on Prime, for which it paid $130 million for two years. But $20 billion is a big price tag. So why would Amazon pay up for a business in which it has little experience? The answer is complicated.

 
Regional sports networks are effectively the middlemen of sports rights. They are paid by cable and satellite companies that carry the network, but the network also has to pay teams for rights to broadcast their games. The problem is that cable and satellite companies want to pay less to carry these networks, because fewer people are paying for television these days, while sports teams are looking to receive higher fees. There are bargaining tools that some companies could employ to make owning the middlemen worthwhile. A big media company, like Fox, could bundle the regional sports network with other channels, like Fox News, to get higher rates, making up for the corresponding increase in rights fees. But Amazon doesn’t have such leverage, which may not matter.

 
One theory is Amazon could take the games off the cable and satellite systems and make them exclusively available to Prime members. There are two problems with that idea. First, Fox has already negotiated agreements for its 22 regional sports networks with most of the major pay-TV carriers. Those contracts will have to be honored for the next five years. Second, even after those contracts run out, team owners may not want to limit the visibility of their games to a single online service, even — or, perhaps, especially — if it’s Amazon.
 
Another option would be for Amazon to make games available to Prime subscribers in addition to the local cable system. That way team owners don’t lose out on audience. But the cable operators are sure to balk. They likely don’t want to carry a regional sports network that a Prime subscriber could get for less than $10 a month. And if the pay-TV operators refused to carry the networks, Amazon would face owners unhappy about their teams’ lack of visibility.

 
So why would Amazon want to spend so much for a business that could come undone in the next few years? The obvious answer is that Amazon expects — or plans to create — disruption.

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