Warner Bros. Discovery and its NBA Jam
Sports is one of those areas in life where outcomes can be, at the same time, shocking but not unexpected. Amazon winning a share of NBA broadcast rights? We have all seen this wave coming for a while. Yet, the fall of Warner Bros. Discovery from 40-year NBA partner to bystander is indeed shocking. This outcome speaks to fundamental shifts in the industry and is a case study (or cautionary tale) for the future of sports rights negotiations.
The Net-Net for the NBA
The NBA’s bidding process for its 11-year rights distribution deal was set to be historic in many ways. The NBA needed a strong streaming partner that would reach all those potential fans not currently watching through traditional partners, particularly the newest generation of streaming-first viewers. It also craved the stratosphere of cash that only the streaming giants, or truly desperate traditional media firms, could provide. The price tag, roughly $76 billion and split into three packages, was over three times larger than the $24 billion, 9-year extension that it signed with ESPN and TNT in 2014.
Amazon provides the perfect teammate for the NBA. Amazon offers the NBA global reach and a base of users with relatively low churn. Its retail operation provides a ready-made connection for merchandise sales. It has global reach, offering a high-profile presence and awareness worldwide. Importantly, Amazon has proven its mettle in, and dedication to, sports content, including the company’s Thursday Night Football partnership with the NFL, its $100 million investment in Diamond Sports Group, and its ability to create sports-related content through Amazon Studios.
What about Warner Bros. Discovery?
The price tag was always going to be a challenge for Warner Bros. Discovery, particularly given the timing and the company’s financial position. The pandemic, debt load, and cost to spin up Max, ate through the company’s coffers. For a company that has highlighted its cost-cutting measures and is reportedly considering a price hike, the idea of ponying up over $2 billion per year is a cause for serious soul searching.
The fact that WBD opted to try to match the Amazon rights package, rather than that of ABC/ESPN or NBC is telling. WBD had an opportunity to match one of the higher-priced packages that included both television and streaming broadcast rights. Had it done so, the NBA would have had less maneuverability to decline WBD’s bid. Instead, the company relied on contractual language and a legal fight rather than its 40-year partnership with the NBA to try and secure these rights.
Consequences, Consequences
Some question whether WBD believes that it can win this legal case or if CEO David Zaslav is simply posturing to keep the board and shareholders from storming the walls. There certainly is a non-zero chance that Warner Bros. Discovery could win. Today, what constitutes streaming and TV distribution are blurry at best. If you think that the technical aspects of video delivery make the distinction clear, just try to explain to a non-tech person (such as a 40+ year-old federal judge) the difference between delivering a live event via a streamed broadcast TV channel and that same event via a streaming service like Prime Video. WBD’s believes it owns an option to buy distribution rights at a specific price, in this case the price of the Amazon bid. It also believes that its attorneys can win the Max-is-the-same-as-Prime-Video argument.
Ironically, David Zaslav’s Discovery Networks was on the opposite side of this legal debate in 2011. At that time, cableco Time Warner Cable argued that its distribution rights allowed the cable operator to stream live cable TV channels to consumers through its iPad app. Discovery, along with Scripps. Viacom, and other networks, stated that since their agreement didn’t explicitly include streaming, the distributor didn’t have those rights. The two sides eventually negotiated a deal that accommodated Time Warner Cable’s streaming plans. Since the NBA has already granted rights to another party, that type of resolution won’t be possible here. For WBD, the outcome is either to win the case and be yoked to an unhappy NBA for 11 years or lose and end up with no NBA programming and a hefty legal bill.
Losing the rights will be a blow to WBD and its plans. The company is a potential partner in the Venu streaming sports JV with NBA rights winner Disney, which is a bit like going into business with the person now engaged to your ex. Warner Bros. Discovery should still have a stake in the Venu service due to its rights for other sports leagues, including the NHL, MLB, NASCAR, and men’s college basketball. However, it won’t have as much influence, and perhaps not as great a share of the resulting JV as a result.
However, the lack of those rights may boost WBD’s interest in a streaming partnership with Paramount’s new ownership group. Warner Bros. Discovery needs content to add to Max, and Paramount is shopping for a partner for its streaming service. Bundling the CBS sports rights into Max could be its best option.
For the industry overall, the shift of a major US sports league’s live content to a streaming partner is both telling and inevitable. The content rights and ad money will follow the eyeballs, which have increasingly been shifting to the streaming world. Traditional TV industry players such as Warner Bros. Discovery are experiencing the reality of that shift as they struggle to redefine themselves, their business, and their place in the new video world.
