Wedbush’s Dan Ives (managing director, equity research) recently wrote in an investor note that Apple is on an “aggressive hunt” for live sports rights. The investment firm believes the consumer tech giant is “ready to spend billions” on tier-one sports packages over the next four years, part of a broader company effort to grow Apple TV+ subscribers. Such a move would be a sharp pivot from the approach to date. Apple has never shown it really wants to be a major player in the streaming space. But Ampere Analysis data supports the notion that the company is moving in that direction. Apple commissioned 47 TV shows in 2021 (a 147% increase from 2019).
JWS’ Take: Apple’s content output trend line is noteworthy; it’s hard to buy into a serious interest in live-sports rights if the company hasn’t convinced the market that it wants to be in the content business. Remember, to have a sustainable streaming service a company needs a large portfolio of content (and an expansive library), and Apple’s 47 shows in 2021 lag far behind the competition; Amazon commissioned 162 shows last year.
Assuming Apple wants to compete in the streaming wars, Alex Michael (co-head, LionTree Growth) says gearing up now for an aggressive push makes sense. “If you think there is going to be a limited number of subscriptions and run-rate, wherever that cutoff is, whether it’s four, whether it’s six [per household], whatever it is, those [consumer] decisions, patterns and behaviors are being forged now,” Michael said. “So, if [a company sees itself] on the outside of that, it may be time to try and accelerate [its content efforts].” Ampere Analysis estimates the company trails Netflix, Amazon, Disney+, HBO Max, Hulu and Paramount+ in terms of subscriber counts.
Netflix has shown a streaming service does not need live sports content to succeed. But Jack Genovese (senior analyst, Ampere Analysis) pointed out that Apple wouldn’t be alone in its pursuit of live sports programming. “All of the other streaming platforms—with the notable exception of Netflix—are looking to [live] sports to drive subscriptions,” Genovese said. Subscription OTT spending on sports rights, as a percentage of the total spent on sports rights across the U.S. and Western Europe, has risen from 1% in 2017 to 7% in 2021.
Analysts and observers alike have long speculated as to when Apple would start to spend on sports programming. But despite having engaged in conversations with a variety of leagues, the company has always chosen to pass at the end of the day—even as it has increased spending on original content.
Apple obviously has the resources to acquire marquee sports rights (and the technical infrastructure required to support live TV streaming). Wedbush noted that Apple has ~$200 billion on the balance sheet.
But the “hourly cost” of programming has never been the holdup for Apple, and if Wedbush is right, it’s logical to wonder what might have changed. (Apple did not respond to request for comment on the investor note). There is, of course, Amazon’s decision to open up its war chest and spend on sports, but the change in thinking may also have to do with the company recognizing a slowdown in new subscribers across platforms in recent months. “Subscriber growth is slowing down for most U.S. OTT services,” Genovese said, despite the astronomical amounts being spent on original content and third party catalogs. Ampere Analysis data shows that while customer bases in the U.S. grew swiftly in 2019 (+44%) and 2020 (+51%), growth slowed in 2021 to 20% and is expected to continue to decelerate over the next two years (to +7% in ’23).
Michael says the fractured media and attention landscape may also have Apple increasingly valuing properties that can galvanize large audiences. “Live sports content was the linchpin, and still is to a certain extent, of the linear cable ecosystem and the bundle,” he said. But it is becoming increasingly clear it is also “a critical use case of the streaming world—in terms of both customer acquisition, first and foremost, and then persistent engagement driven by fan loyalty and the recurring nature of sports schedules.”
The Wedbush note cited the “NFL (Sunday Night Ticket), Big Ten, Pac 12, Big East, Big 12, other NCAA sports packages (2024 timing), NASCAR, and the NBA/WNBA” as properties Apple could pursue on an exclusive/semi-exclusive basis. “To the extent the strategy is to make a big leap in subscribers, something like the NFL in particular makes sense,” Michael said.
But DirecTV only has around 2 million Sunday Ticket subscribers. If Apple was able to convert 100% of them into Apple TV+ subs, the package wouldn't help the company make a meaningful dent in the market share gap with the likes of Netflix and Amazon.
Michael cautions against making assumptions based on data tied to linear cable and satellite platforms, though. He says it is likely Apple can leverage its expansive ecosystem to drive a substantially larger number of subs than DirecTV was able to.
Of course, this all assumes the NFL would award Sunday Ticket to Apple TV+. While Apple has never stated just how many subs the streaming service has, Wedbush estimates just ~20 million people are currently paying for it (there is another ~25 million watching on free trials). For the leagues, Michael said: “It’s not simply about the biggest dollars. It is about making sure the audience is there, too.” FWIW, one senior media executive suggested a service would need 50 million paying subscribers for it to be a viable consideration for a tier-one sports property.
There is evidence to suggest a portfolio of marquee U.S. sports programming would foster rapid growth domestically for Apple. “Since the beginning of subscription television, sports has been able to generate huge subscription businesses,” Genovese said. “Just look at the pivotal role that having the English Premier League rights since its foundation has played for the development and growth of pay-TV provider Sky in the UK, where it is and has always been the market leader. Or more recently, look at DAZN, the largest global pure-play sports subscription OTT service, which we estimate having about 8 million subscribers across its main markets.”