“Collaboration, it turns out, is not a gift from the gods but a skill that requires effort and practice.”
― Douglas B. Reeves
When news breaks that two industry giants are having discussions, there is never a quiet ripple effect. The explosion of coverage surrounding Google and the NFL illustrates the latest example.
A quick search of the Internet uncovers hundreds of articles throwing in different perspectives and analysis. All contain truth, lies, or something in-between. This piece is meant to lay out the known facts, the assumed perspective of fans, the NFL, and Google, and my personal prediction for the final outcome.
What We Know
Every year a group representing the NFL (headed by Roger Goodell) takes a trip to Silicon Valley to spend time with some of the world’s largest tech companies. During the recent trip, the NFL group met with top Google executives and the conversation covered numerous topics including the NFL Sunday Ticket package.
The NFL Sunday Ticket package rights are exclusively held by DirecTV and cost $1 Billion annually. The current deal for exclusive rights is set to expire after the 2014-15 season. Interestingly, DirecTV actually loses money on the Sunday Ticket package.
With the $1 Billion price tag and less than 3 million people paying $225-300 a year to watch games, the best scenario is that DirecTV is losing $100 million annually. Even with this loss, the NFL package is a main marketing message for the satellite company as they struggle to remain relevant.
What’s in it for the NFL?
The National Football League is by far the most profitable sports league in the world. Of the $9.5 billion in annual revenue, about $5 billion comes from TV broadcast deals with Fox, CBS, NBC and ESPN.
These television networks are willing to pay outrageous sums of money in order to satisfy the needs of their advertisers. With very specific demographics and an engaged audience, media buyers are forced to pay a premium, ultimately leading to higher revenue for the NFL.
This traditional model of revenue via advertising has historically proven to be extremely lucrative so there is little incentive for future deviations. The NFL has also focused on growing the Hispanic and youth fan base, with hopes that a larger audience will continue to feed the advertising model for years to come.
Overall, the National Football League’s interests rely heavily on increasing audience size through fan access and fan engagement. The playbook is simple – expose fans to the game of football and have such an intriguing value proposition that they keep coming back for more.
What would Google gain?
Google started out with an extremely focused mission: to organize all the information on the Internet. Since the company’s meteoric rise to Internet search dominance, there has been innovation into hundreds of other verticals. From Gmail to Adwords and Google Glass to self-driving cars, Google is not afraid to plunge headfirst into new endeavors.
One of Google’s most well known products is YouTube, which averages about 4 billion hours of consumed video per month. This large and engaged audience is one of the largest ad revenue drivers for the company that crossed $50 billion in annual revenue late last year.
YouTube’s long-term strategy revolves around original programming and exclusive rights. Google is so convinced of this that they are willing to bet hundreds of millions of dollars on original programming that can only be viewed on YouTube. The reasoning is that by 2015, advertisers will spend $213 billion on ads that support mobile video content, according to eMarketer.
The more original or exclusive content that Google can hoard, the more dependent Internet users will become on the already Goliath service. This means that YouTube is not only competing against Vimeo, but also Netflix and Hulu.
Potential Outcomes
There are really two potential outcomes from the discussions between Google and the NFL: The first is that an exclusive agreement is reached that brings NFL Sunday Ticket to YouTube viewers around the world. This would allow Google to charge for the premium content (probably $99 or so) and bring it into thousands of additional households.
While this potential deal could increase access and decrease costs to viewers, the advertising revenues would be lower at first and the video quality could become a large issue. It is one thing to have DirecTV bring the game to your big screen TV, but it’s a whole different ball game for YouTube to stream the game to your Internet connected device.
The second potential outcome is that Google and the NFL are not successful in reaching a deal. This would keep much of the status quo, while preventing a number of large disruptions for TV networks, advertisers, and viewers. Without a deal, the NFL would continue to hold the power in naming the price for exclusive Sunday Ticket content. With so many TV networks interested, it is impossible to prevent a bidding war.
My Prediction
Google and the NFL will continue to hold discussions for another 6-10 months. This will allow both sides to get a better understanding of each business, the goals, and potential benefits. When all is said and done – no deal will be reached.
While there are many positives for this potential deal, I believe that the obstacles are too great to overcome. The largest roadblock I see is how lucrative the exclusive
TV deals are. Rumors are that DirecTV is willing to pay up to $1.5 billion for the Sunday Ticket rights and I highly doubt that Google is interested in making a larger offer.
The second issue is technical. Most regions in the United States, let alone the world, are currently not equipped with the bandwidth that is needed to successfully stream multiple games in high-definition to your desktop, laptop, or mobile device. NFL fans are picky and want the best quality on the largest screen. Bandwidth is improving at a fascinating rate but it is hard to believe that we will have the necessary infrastructure in place within 2-4 years.
So what does Google do without a deal? I think Google will keep being Google. They will innovate and create original programming that entices large audiences to pay attention. There is the potential that they revisit exclusive content rights with other sports leagues, but most wouldn’t be lucrative enough.
The development that I am most interested in is a 3-way collaborative partnership between the NFL, Google, and DirecTV. Imagine if the next Sunday Ticket offering allowed you to watch games on television via DirecTV but empowered you to consume streaming video of games on mobile phones or tablets via YouTube. To be honest, I never see this happening but it never hurt to wish for the impossible!
Anthony Pompliano is a military vet turned tech entrepreneur. He is currently founder and CEO of DigaForce, a social intelligence company specializing in audience measurement. Follow him @APompliano.