By RJ Towner
Digital news firm AllThingsD broke the story that Best Ideas Newsletter portfolio holding Google (GOOG) could be in talks with the NFL over exclusive rights for the NFL Sunday Ticket package, which allows consumers to view every NFL game. Another Best Idea portfolio holding, DirecTV (DTV), currently holds exclusive rights for Sunday Ticket through the 2014 season, which costs the firm $1 billion annually.
Why It Makes Sense for Google
On the surface, such an idea seems interesting for Google. With the exclusive Sunday Ticket package, Google could really make a push into the TV business. Google could even pair the package with a purchase of the Google Chromecast, a portable online TV portal that launched with some hype, but since has faded to into relative obscurity. Or, Google could make the NFL Sunday Ticket available via its Android operating system. This would be a clever way to get users into the Google ecosystem.
Why It Doesn't Make Sense for the NFL
It sounds great for Google, but we don't think the NFL will go for it. The Google Chromecast probably doesn't have nearly the reach of DirecTV's 20 million US subscriber base. Additionally, games not viewed on local networks don't count for Nielsen ratings, meaning ratings of games do not look as attractive if more viewers are watching on Sunday Ticket. If ratings look lower, advertising demand declines, hurting the local affiliates and the large TV networks that have forked over billions of dollars to secure exclusive rights. The companies that drive the NFL's revenue such as Fox (FOXA) and CBS (CBS) would not be happy with lower advertising revenue, which is the reason these companies paid for the rights in the first place.
Further, any attempt to move consumers into the Android ecosystem may limit eyeballs, and valuable eyeballs at that. Apple's iOS (AAPL) users spend far more on apps ($0.19 avg.) than Android users ($0.06 avg.). We already know that Apple commands a large percentage of the US smartphone market, and more importantly, evidence suggests iOS users are a relatively more attractive audience to sell to.
Does the NFL really want to encroach on its largest revenue sources AND lucrative iOS users? We doubt it.
DirecTV and Apple Could Partner
Although the NFL has a deal in place with Verizon (VZ) for streaming content exclusively over its smartphones, the deal does not cover tablets. In our view, it could make sense for DirecTV and Apple to partner to help fend off Google. DirecTV could offer its Sunday Ticket mobile application exclusively to iOS users, and we doubt there would be much backlash because the iPad already dominates so much of the tablet market. It could marginally boost iPad sales, but more importantly, it would prevent Google from cornering any exclusive content.
As for DirecTV, we think a deal with Apple would help the firm move closer to turning a profit on the expensive package. In our view, DirecTV wouldn't receive much (if any) backlash for partnering with Apple, and it could pave the way for further collaboration down the road.
After considering the NFL's viewpoint, we see little reason why there would be a change in the status quo. The league generates more revenue than any other sports league, and it wants to grow its revenue as much as possible. We simply do not believe a long-term partnership with Google helps the NFL achieve that goal.
Ultimately, we suspect the status quo will remain with DirecTV as the exclusive Sunday Ticket rights holder. The NFL might not even be serious about selling the package to Google and could simply be using the threat as a way to receive a higher bid from DirecTV.
Coincidentally, we hold shares of Google, DirecTV and Apple in our Best Ideas Newsletter portfolio, so we're largely hedged from any unforeseen negatives that may come about from the situation with respect to any one particular player (as another will likely benefit).
Additional disclosure: RJ Towner is Director of Research Development at Valuentum Securities. AAPL, GOOG, and DTV are included in our actively-managed portfolios.