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Amazon’s NFL Deal a Touchdown for Prime

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Amazon continues to branch out — this time into live sports. The online giant has developed a reputation one of the world’s largest retailer. But with low margins on most products, combined with free shipping options, Amazon must be creative when it comes to generating revenues. Their real profit comes from other offerings, such as Amazon Web Services and Amazon Prime. Now, Amazon has won the rights from the NFL to broadcast Thursday Night Football games.  Is this part of Amazon’s master plan?

What’s the Benefit to Amazon of Streaming Live Games for Free?

In 2015 Google earned around $3.93 billion in profits per quarter, while Amazon earned just $92 million in profits every quarter — or roughly $400 million in profits for the entire year. Even Ebay, another consumer site, brought in $682 million in Q4 of 2015. So while Amazon holds the title of the largest online retailer, the company thrives in other areas; especially Amazon Prime.

The Prime branch of Amazon brings in revenue through subscriptions, charging $10/month or $99/year (with college students receiving a 50 percent discount). For that price, members receive free expedited shipping, streaming movies, TV shows, and videos, among other rewards. While Amazon has to cover shipping for Prime members, even those who order packages constantly, those costs are offset by the Prime members who pay their membership fees but never order any packages.

But the real money comes in through Amazon’s streaming services. There’s no overhead there as far as housing and shipping, as with warehouses and warehouse workers. There’s no limit to how many people can watch Sneaky Pete or any other Amazon show at one time, which is why Amazon invests hundreds of millions of dollars into original content and licensing movies and shows. And now Amazon is paying the NFL $50 million to stream 10 Thursday Night Football games, a $5 million dollar per game licensing fee.

Last year, that right belonged to Twitter. The microblogging social media network paid $40 million for the rights to stream all TNF games. The results for Twitter? Not so great. While the plan did bring in viewers, it did not achieve Twitter’s goal of bringing on new members. Twitter’s first game brought in 243,000 viewers, while more than 15 million fans watched it on TV. Can Amazon see better results?

Easily.

Amazon isn’t just a one trick pony. Prime is a wildly popular service, and looks to bring on even more members with NFL games added as a bonus. But it’s not just football that Amazon is after. Amazon has already held talks for live game rights with major sports leagues including the NFL, NBA, MLB, and MLS. Amazon is also exploring other athletics such as surfing, lacrosse, and even cricket. Amazon has even asked broadcasters such as Disney and Univision for rights to games they aren’t airing.

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By bringing in fans of sports teams whose games are not aired on traditional TV, Amazon is catering to an audience who often deals with the frustrations of local blackouts or sports considered too small for TV. Providing live sports to fans who want the immediate gratification of watching their favorite athletes perform will absolutely bring in new Prime members, driving up revenue and profits to offset Amazon’s fixed and variable costs.

Watch this video from Bloomberg Technology regarding Amazon Prime’s deal with NFL:

Amazon is betting big on it, and investors agree as Amazon’s (AMZN) shares are up to a record high on the news. Expect shares to continue up from there.

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