Unexpectedly, Apple (NASDAQ:AAPL) is investing heavily in sports rights content despite all media companies pulling out of the competition. The tech giant might establish a sizable sports media company, but creating a highly lucrative company is a far different matter. Given that Apple is no longer following its previous strategies of starting a company from scratch and not paying too much to join a market, this investing thesis remains bearish on the stock.
Significant $3 Billion Cost
It shouldn’t be a surprise that Apple is leading the NFL Sunday Ticket rights competition after recently winning the MLS streaming rights. Unexpectedly, Apple would outbid Amazon (AMZN) by offering a staggering $3 billion a year. What’s impressive is that Disney (DIS) reportedly stopped bidding at less than $2 billion.
The issue is that customers don’t want to pay more for rights simply because media and tech oligopolies compete with one another. Apple would have to offer the content for free to draw the kinds of customers who would use the NFL Sunday Ticket to entice subscribers to other services. However, it appears that the terms of the agreement would probably oblige Apple to continue charging at least $300 for the service that will presumably keep the majority of NFL spectators tuned in to the broadcast games.
Although AT&T (T) famously purchased DirecTV primarily to obtain the pricey NFL Sunday Ticket, the media industry never experienced a boom due to the acquisition. The NFL already provides fans with many games on several days, including the majority of the greatest games; Therefore, the service only offers out-of-market NFL games. Due to the high costs and the small number of customers that seek out-of-market games, the service only has a few million subscribers. The media company has no desire to continue to be the owner of the $1.5 billion a year service for the future season.
Additionally, it appears that Apple is in the process of making a proposal for the UEFA Champions League rights, which will cost $2 billion over six years. The computer giant can package these sports media rights into a sports streaming service that competes with ESPN. Still, Apple will have to develop a product that either adds many subscribers or charges twice as much.
Apple seems to be engaging in the same costly game of content expenditures. Due to its fascinating content and low viewer fees, AppleTV+ seemed to be a success. The cost of sports rights is close to $3.75 billion yearly, so Apple opens the door for a venture where profits can fall short of expenses.
Apple’s streaming service can potentially draw additional customers who would not have purchased a DirecTV satellite subscription. However, keep in mind that despite receiving monthly satellite payments in addition to the NFL Sunday Ticket costs, the company owned by AT&T up until recently wasn’t willing to double the rights prices. Although the tech company can still sell other services to such subscribers, Apple won’t require them to have other subscriptions to subscribe to the NFL package.
Disney+ just increased the price of ESPN+ by 43%. The sports-focused streaming service recently increased monthly rates from $6.99 to $9.99, mainly focusing on minor athletic events.
The critical issue with the ESPN+ service and Apple’s actions is whether the corporations are merely passing along steadily rising rights fees or deriving greater value from subscribers.
Excessive Media Hype
Given where the media stocks trade, Apple’s unexpected investment in the media industry seems strange. Due to streaming revenues’ struggle to keep up with rising expenses, all equities are currently experiencing extreme pressure.
After the CEO declared the Warner Media division acquired from AT&T was no longer cash flow positive, Disney just hit a new 52-week low, and Warner Bros. Discovery (WBD) has completely crumbled. Additionally, the most popular streaming service, Netflix (NFLX), had to switch to an ad-supported model after the stock price fell due to members’ financial strain from the surge of streaming options.
Apple has increased by 6% over the past year, while the three major streaming media businesses have decreased by at least 40%. Instead of the other way around, when the tech company aggressively wants to expand into the media sector, the media companies should want to get into Apple’s tech businesses.
The critical question is whether Apple can execute a novel sports media strategy like the one with MLS. The corporation pays a minimum of $250 million yearly for the global sports rights to the American soccer league, along with some revenue sharing from membership payments. However, keep in mind that some of the essential weekly games will be simultaneously shown on broadcast networks, which will lessen the need for average fans to purchase a membership service.
Takeaway
The most important message for investors is that Apple is about to establish an enormous sports media empire. Additionally, the tech giant is about to spend twice as much as the previous rights owner, who no longer wants to pay a high price for the NFL Sunday Ticket.
Apple veering off course isn’t good for shareholders, especially given that the stock is considerably too costly given the limited growth rates anticipated.
Featured Image: Megapixl © Lester69
