NBA can shift the balance of power in media with its next rights deal

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Jimmy Butler #22 of the Miami Heat dribbles against Jamal Murray #27 of the Denver Nuggets during the fourth quarter in Game Five of the 2023 NBA Finals at Ball Arena on June 12, 2023 in Denver, Colorado.

Justin Edmonds | Getty Images Sport | Getty Images

The National Basketball Association’s upcoming decision on which companies will acquire the TV and streaming rights for its live games could transform the entire media industry.

Based on preliminary discussions between media executives and league officials, Comcast‘s NBCUniversal, Google‘s YouTube TV, Amazon, Apple and even Netflix may challenge or join the incumbents as rights holders, according to people familiar with the matter, who asked not to be named because the discussions are private. Spokespeople at NBCUniversal, YouTube, Amazon, Apple and Netflix declined to comment.

Every media rights renewal for the NBA is an important event because it only happens about once a decade. The NBA’s current rights deal ends after the 2024-25 season. The NBA’s current rights deal ends after the 2024-25 season.

All expressions of interest between media partners and the NBA have been preliminary because league officials can’t officially negotiate with interested partners until April, when the league’s exclusive negotiating window with incumbent media rights partners Disney and Warner Bros. Discovery ends.

But with the National Football League’s media rights locked up until 2033, the NBA has a unique opportunity to play media kingmaker. Advertisers have been clamoring for live sports where commercials cannot be skipped for decades. Former ESPN head John Skipper predicted earlier this year that the league could get between 200% and 350% more in its new agreement. Former ESPN head John Skipper predicted earlier this year the league could get between 200% and 350% more in its new agreement.

“Our next set of media deals will help shape the future of our league and how fans consume NBA basketball for years to come,” an NBA spokesperson said.

Rise of ad-supported streaming

Netflix’s potential interest in the NBA could be industry-shaking. Co-CEO Ted Sarandos has repeatedly said Netflix hasn’t encountered a viable path to carrying live sports that would appeal to its shareholders.

“We’ve not seen a profit path to renting big sports,” he said in December.

But Sarandos has recently softened his stance from disinterest in the NBA to potential interest, according to people familiar with the matter. It is not clear what this means. It’s unlikely the NBA would hand over its largest package of streaming games to a provider that’s never had experience with live sports, said the people.

Netflix has contemplated buying sports rights before. The world’s largest streamer unsuccessfully bid for live Formula 1 racing rights last year.

Netflix’s Ted Sarandos attends the 92nd Annual Academy Awards in Hollywood, California, Feb. 09, 2020.

Jeff Kravitz | Getty Images

But the biggest change for Netflix is the company’s push to add customers to its advertising-supported tier, which launched in November. Netflix said in May that it made more money from subscribers who choose the $6.99 ad-supported subscription tier. This is compared to its $15.49 standard subscription tier which does not include advertising. The average revenue per user, or ARPU, for the advertising tier would likely rise even more if Netflix added a package of NBA games, which would command premium-priced ad rates unlike anything currently on Netflix’s service.

Disney and Amazon have also adjusted their streaming offerings to account for the media industry’s recent revelation that there’s enough digital advertising demand to push ARPU just as high as or even higher than their higher-priced no-ad subscription products. Disney will increase its ad free pricing for Disney+ by 27 percent later this month, while maintaining the price of Disney+ with ads. Amazon will begin to add commercials to its previously ad free Prime Video service in 2024. The NBA season lasts from October through June, which includes playoffs. That’s an effective churn reducer for fans, who won’t be able to binge-watch a season of live games like they do with on-demand entertainment series.

Global reach

Netflix sells an ad-supported plan in Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the United Kingdom and the United States.

That global reach is appealing for the NBA, which features an assortment of international stars, including Slovenian Luka Doncic of the Dallas Mavericks, Serbian Nikola Jokic of the NBA champion Denver Nuggets and French rookie Victor Wembanyama of the San Antonio Spurs.

It’s also possible the league could decide to maximize its domestic reach by striking a new deal with NBCUniversal, which has both a broadcast network and a streaming service, Peacock, that could serve as homes for live games. NBC and its fans have a long-standing relationship dating back to “The NBA on NBC” in the 1990s, when Michael Jordan dominated the sport. CNBC reported NBCUniversal’s interest in airing NBA matches again earlier this year.

Still Peacock only has 24 million subscribers – fewer than Disney’s ESPN+ or Warner Bros. Discovery’s Max, and is only available within the U.S.

Victor Wembanyama, now a rookie with the San Antonio Spurs, in action with his French team, Metropolitans 92, on April 8, 2023, in Levallois-Perret, France.

Aurelien Meunier | Getty Images

Broadening reach is important to league officials, who are intrigued by Google’s YouTube TV as a potential streaming partner, according to people familiar with the matter. YouTube TV signed a deal earlier this year to become the NFL’s “Sunday Ticket”. The people said that NBA executives were impressed by the quality of the production and the user experience. YouTube, with its more than 2.7 billion monthly active users worldwide, can reach a younger audience and market the sport better than Amazon or Apple. The average age of an NBA viewer is 49, and 26% of viewers are under 35, according to Nielsen.

Between Amazon and Apple, league officials are currently more comfortable with choosing Amazon as a potential streaming partner, according to people familiar with the matter. Amazon has shown the NBA that it is serious in its investment of live sports. This includes its $1 billion contract per year to carry “Thursday Night Football.” Apple already has agreements to broadcast Major League Soccer, and Major League Baseball’s “Friday Night Baseball.” However, the NBA does not believe Apple will prioritise marketing of the league’s matches in the same manner as other streaming services. Apple TV+ does not reveal how many subscribers they have. Apple or Netflix may get a small package of games as a trial run for a larger partnership. The NBA must balance the demand for rights with the supply restrictions to maximize price. The league probably wants to have just two or three media partners to serve broadcast, cable and streaming eyeballs, according to people familiar with the matter.

Spreading packages between too many media partners will potentially confuse and annoy consumers, who will need to sign up for multiple services and then find where games are streaming on a given day. A NBA game can be seen on Disney’s ESPN, ABC, Warner Bros. Add new streaming services to the mix, and consumers could easily become overwhelmed with options. Add new streaming services to the mix, and consumers could easily become overwhelmed with options.

Likewise, if the NBA doesn’t reach a new deal with either ESPN or TNT and goes in another direction, it may accelerate the deterioration of the cable bundle — as live sports is one of the last pillars keeping it alive.

The league hopes to mitigate some of this complexity by marketing its NBA app and NBA.com as digital “front doors” to discover content, according to people familiar with the matter. According to people familiar with the matter, the league wants to encourage fans to first open the NBA app or NBA.com and then move on to a streaming service broadcasting the game. This is a similar concept to what ESPN has considered, as CNBC reported earlier this year.

Disclosure: Comcast-owned NBCUniversal is the parent company of CNBC.

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