Think the NFL has topped out on TV revenue after signing deals until the 2020s worth more than Warren Buffet? Not a chance.
At some point in the next few years, the league will begin negotiating with DirecTV on re-upping the satellite operator’s deal for the Sunday Ticket package. The opportunity to watch out-of-market games has proven to be an extraordinary brand differentiator for DirecTV since its early days in 1994.
On Wednesday, DirecTV CEO Michael White said the company would “love” to keep its exclusive rights, even as the package is more of a customer attraction and retention device than a profit center. Last year, the company offered new customers a chance to receive it for free for a year. DirecTV recently offered current customers a $199.95 price (a 40% discount).
“Given that the costs of the product are increasing, our view is use it as a loss leader, and we'll go from there,” White said on an earnings call.
DirecTV pays the NFL what reportedly averages out to $1 billion a year in a deal that runs through the 2014 season. Given the increases the broadcast networks and ESPN recently paid to hold onto the NFL, a renewal would bring a hefty jump. The league may also seek a deal as long as 10 years, lasting well into when Generation Z cord-cutters are a huge customer target.
Will it be worth it?
A lot will be determined in the next few months as DirecTV finds out how many customers who received Sunday Ticket free last year – an estimated 1 million – will pay for the package this season. The same analysis will take place a year from now as DirecTV is offering the free season again this fall.
It would be difficult to imagine DirecTV without Sunday Ticket. All those Peyton Manning commercials have made the two one and the same for sports fans.
(Speaking of which, now that Peyton’s playing again, will he return as spokesman this summer? Hopefully.)
Gambling and fantasy football will continue to attract Sunday Ticket customers, but with TV Everywhere and digital plays, DirecTV may have other less-expensive options to grow or hold its customer base. Then again, that risks becoming more of a parity player with cable and telco operators, who can also offer broadband service.
But, even if DirecTV decides it can’t live without Sunday Ticket, a bidding war may be brutal, delighting Roger Goodell and NFL owners. Cable operators have long chafed at DirecTV receiving exclusive access and wanted a piece of the action.
Comcast, Time Warner Cable, Cox and other cable operators could pool resources to make a joint bid dwarfing what DirecTV could pay.
The six largest cable companies weren’t able to make Canoe Ventures, their joint interactive advertising play work, but plenty of other initiatives have succeeded. Collectively bidding on something as coveted as Sunday Ticket would receive such close attention at the C-level that cooperation might be relatively easy.
Even as cable operators have lost video customers, DirecTV has continued to add them. Its “Get Rid of Cable” ad campaign is pretty funny.
The prospect of grabbing Sunday Ticket and giving them two major advantages over the satellite competitor (broadband service being the other) might be too tempting for cable operators to pass up.
Comcast was fearful enough about DirecTV’s “free” offer last summer that it sued it for deceptive advertising. The offer had been out a while before the suit was filed, so Comcast may have been getting a lot of calls with customers saying they were cancelling and punching a DirecTV ticket.
Landing Sunday Ticket would also deliver a blow to competitors AT&T and Verizon.
Still suffering from cable-costs-too-much-and-the-guy-never-shows-up brand trouble, Sunday Ticket would provide a marketing lift maybe more effective than the Cablevision-to-Optimum, Comcast-to-Xfinity plays.
It’s the NFL, after all. And, that’s money even as a loss leader.