Amazon Prime Video will spend $1.8 billion per year to stream National Basketball Association games under a new agreement with the league.
That’s a lot of money, but New Street Research analyst Dan Salmon believes Amazon will recoup some of it by raising the price of Prime Video in 2025, the year the NBA deal goes into effect.
This year, Amazon transformed Prime Video into a business mostly financed by advertisements. While sports continue to attract large audiences and advertisers, expanded subscription video might help Prime become a profitable business alongside Amazon’s online retail and web services businesses.
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“We believe the addition of NBA rights puts Amazon in a better position to raise the Prime price in 2025, after promising to keep the price unchanged in 2024 as advertising rolls out on Prime Video,” Salmon said in a research note.
With most streamers, save for Netflix, losing money on direct-to-consumer operations, subscription costs have been rising across the board, which is excellent for Wall Street but bad for consumers who felt their cable bills were excessive.
Ad-supported streaming services charge lower membership fees, benefiting consumers’ wallets but subjecting their eyes to advertisements.
To be sure, fuelled by data from Amazon’s retail operation, Prime Video will most likely be able to grow up its ad business faster than streaming rival Netflix, which just announced a lower-priced tier with advertisements in shows.
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“Amazon’s access to targeting data (shopper, retail, etc.) and proprietary ad tech create the potential for superior monetization than a traditional network could achieve on its own,” according to Salmon. “Whether we will see that prove out will likely take several years to determine, but it’s easy to understand why the NBA would want to start proving that out sooner rather than later.”
Amazon will report its second-quarter profits on Thursday. Amazon’s ad sales, which were primarily derived from online retail advertising, increased by 24% to $11.8 billion in the first quarter. The Wall Street expectation is that it will rise to $11.7 billion in the second quarter.
Working with Amazon has helped the NBA increase its rights fees this season and may continue to do so in the future.
The NBA’s decision to go with Amazon, rather than long-time partner Turner Sports (now part of Warner Bros. Discovery), “shows that major sports leagues are increasingly included to play ball with the streamers (pun intended) as their legacy linear network careers are existentially weakened by accelerated cord cutting,” he stated.
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“Starting a relationship today, even at slightly less favorable economics or smaller scale, may pay dividends in the future both as a stalking horse in future negotiations and as the natural evolution of a business that remains popular with consumers, but whose legacy delivery mechanism is not,” according to Salmon.
Brad Altfest, Agora’s managing director of media and entertainment, adds that the NBA believes Amazon is a better fit for its followers than traditional, linear media.
Altfest reports that 30% of NBA fans are under the age of 35.
“The league might be looking to appeal to young, tech-savvy viewers by giving them a more interactive streaming experience,” he told reporters. “Broadcasting games on Amazon can allow fans to interact with the game they love like never before, thanks to real-time engagement tools such as live polls, selectable camera angles, and interactive stats, making each game more immersive and personalized.”
On the commercial side, Amazon may send more targeted ads to viewers, making it easier for them to purchase jerseys and other items displaying their favorite team’s insignia and players’ names.
“In a league where the stars are the brightest, this can revolutionize the way fans can watch and interact with some of the biggest names in sports,” Altfest told reporters. “It also provides a massive air of legitimacy to Amazon’s live sports offerings- previously their biggest get was the NFL’s Thursday Night Football, but they’re graduating from one game a week to more consistent offerings, including the WNBA finals, that show that it’s entry to the sports market is only just beginning.”
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