BofA analyzes Amazon's 11-year deal to stream NBA games on Prime Video

Investing.com - Amazon (NASDAQ:AMZN) announced on Thursday that Prime Video will become the exclusive streaming partner for a significant portion of NBA games starting in the 2025-26 season. The dramatic new agreement will span 11 years, marking Amazon's largest sports content agreement to date.

Key Takeaways:

• NBA and Amazon have struck a deal to broadcast games on Prime Video for 11 years, starting in 2025.
• Amazon emerged victorious in a competitive bidding process, highlighting its growing prowess in live sports content production.
• With a growing subscriber base, improved ad sales capabilities, and integrated Prime shopping experiences, Amazon is well-positioned to cover the incremental licensing costs.

Details of the Deal: According to analysts at BofA, the deal grants Prime Video exclusive streaming rights to 66 regular-season NBA games, the Emirates NBA Cup, and crucial playoff games over the 11-year term. The agreement is also notable for its international reach, offering expanded coverage in nations including Mexico, Brazil, France, Italy, Spain, Germany, the UK, and Ireland for six out of the 11 years.

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Additionally, Prime Video will stream 30 WNBA regular-season games exclusively, and Prime Video Channels will serve as the strategic partner and global store destination for NBA League Pass and WNBA League Pass. Expect live pregame, postgame, and halftime shows, as well as coverage of the NBA Summer League and NBA G League games.

Challenging Competition: The NBA's selection of Amazon over Warner Bros' TNT highlights the competitive nature of this bidding process. The New York Post reports that TNT had attempted to match Amazon's offer, but the NBA claimed TNT "did not match the terms." In contrast, TNT argued that the NBA had "grossly misinterpreted our contractual rights" and might contest the deal.

Financial Implications for Amazon: The financial commitment from Amazon is substantial, with the New York Times reporting an annual payment of approximately $1.8 billion over the 11-year period.

BofA projects Amazon will spend $21 billion on Prime Video and Music content by 2024, showing a 12% year-over-year growth. This growth rate is expected to accelerate as the NBA season approaches in Q4 2025.

This NBA deal represents Amazon's largest content agreement to date, surpassing the roughly $1 billion annually paid for their NFL deal, per Forbes.

Making Prime Video Profitable: Amazon aims to make Prime Video profitable as a standalone entity. BofA analysts identify three revenue streams that could help Amazon cover the NBA licensing costs:

1. Prime Subscription Fees: Amazon has over 200 million global Prime subscribers. With the NBA's significant international appeal, Amazon could leverage this content to drive global Prime subscriptions and increase annual subscription fees.
2. Advertising Revenue: Amazon is enhancing its advertising capabilities, and with superior targeting compared to traditional television, it should be able to generate significant ad revenues.
3. Prime Shopping Activity: Prime members typically spend 2-3 times more than non-Prime shoppers. This deal could help reduce Prime churn during crucial holiday months, thereby boosting shopping gross profit.

BofA maintains a "Buy" rating on Amazon, with a price objective of $220.00 per share, currently trading at $180.83 as of July 25, 2024. The firm believes that Amazon's consistent successes with its NFL deal make the new NBA partnership an attractive and strategic venture.