How Amazon is Copying WWE
Amazon (NASDAQ: AMZN) appears to have learned a few moves from Vince McMahon’s World Wrestling Entertainment (NYSE: WWE).
The world’s largest online retailer is trying to buy the streaming video rights to a wide variety of sporting events, Bloomberg Technology reported. The idea is apparently to add some live sports; or reruns of sporting events, to Amazon Prime and provide some popular content that Netflix (NASDAQ: NFLX) lacks.
Amazon is reportedly looking for the rights to popular sports that are not widely shown on cable or broadcast television. This includes professional tennis, rugby, golf and some forms of auto racing.
What Sports will Amazon Show?
Soccer was mentioned but is unlikely Amazon will be able to get the rights to the biggest name in that sport: the English Premier League. A more probable offering might be the Spanish La Liga or Italy’s Serie A.
Another likely offering not mentioned in the Bloomberg article is professional fighting such as boxing and mixed martial arts. Fighting is popular but often ignored by so-called sports channels.
What is not likely to appear on Amazon anytime soon are the major team sports including the Premier League, NFL Football, Major League Baseball, NHL Hockey and NBA basketball. Those leagues are all tied into big money contracts with broadcasters and cable channels for the foreseeable future.
Although Amazon might be able to sell those sports in other countries where they have cult followings but are not broadcast. A more interesting possibility is college sports; especially football which has a large following in the United States.
A major opportunity for Amazon is NASCAR stock car racing. Some NASCAR races have been shunted around to a variety of channels lately, leaving fans unhappy. Another is Formula One which is not widely shown in the USA.
An interesting possibility is that Amazon will show old games, races, matches and fights. The potential market for those might potentially larger than for new live sports.
What Amazon Learned from WWE
In a fascinating twist, Amazon’s interest in sports might have been inspired by the WWE; which has its own streaming video outlet The WWE Network. WWE Network shows a mix of original programming, matches, pay per views and old wrestling.
It has also been rather lucrative for the wrestling promotion. When WWE Network launched on February 24, 2014, the company reported revenues of $509.54 million. On June 30, 2016, over two years after launch, WWE’s revenues had grown to $702.5 million which seems to vindicate the digital sports model.
The network generates float for the WWE because fans a flat rate of $9.99 a month for a subscription; which is similar to Amazon Prime or Netflix. The price is less than a Pay Per View, but WWE receives all the revenue.
WWE Network is Making Money
WWE has not made much money from the network; on June 30, 2016 it reported a profit margin of .43%, a net income of $24 million, $24.2 million in cash from operations and a free cash flow of -$7.617 million. Yet that isn’t’ much of a concern for Amazon, which is more interested in attracting eyeballs to its webpage than in generating revenue from sports.
My guess is that Amazon plans to use sports as a loss leader, which has worked at WWE. The WWE Network had 1.52 million paid subscribers during the second quarter of 2016, Wrestlezone reported. WWE also projected that the network would attract 1.49 million paid subscribers during third quarter 2016.
If those numbers are correct WWE generated $15.18 million in subscriptions a month during second quarter or $45.55 million for the whole quarter. That is a nice chunk of change for a company with revenues of $702.5 million, assets of $396.31 million an enterprise value of $1.536 billion and a market cap of $1.561 billion.
Why Amazon is Interested in Sports
That indicates another reason why Amazon is interested in sports they can pay for themselves by generating subscriptions. Another obvious appeal sports have to Amazon is to generate more retail sales in the form of sales of t-shirts and other items.
Sports promotions might be attracted to this as another source of revenue. Amazon might develop a combination retail outlet and digital video service for sporting venues that has the potential to make a lot of money at some point. Another potential product to sell would be video games. This would help it attract lesser sports like college football and NASCAR; which are heavily dependent on merchandise sales for revenue.
It looks as if Vince McMahon and his family are smarter than we think. Even Jeff Bezos is apparently learning some lessons from them.
