The YES Network has a new home. Disney (NYSE: DIS) agreed to sell the New York sports network that airs games of the Yankees, Nets, and other local teams to an investor group that includes the Yankees, Sinclair Broadcast Group (NASDAQ: SBGI), and Amazon.com (NASDAQ: AMZN).
Disney agreed to sell the 22 regional sports networks Twenty-First Century Fox owned soon after closing the deal to buy Fox in order to gain approval from the Justice Department. It sold 21 of those networks to Sinclair, but held back YES, which analysts deemed the crown jewel of the regional sports networks. That jewel ended up fetching about $3.5 billion.
Now, Amazon has a piece of it, although it's not clear what level of involvement the tech giant will have in the network. YES could prove a valuable asset to attract consumers to Prime Video. It could also open the door for Amazon to develop more advertising technology.
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Take me out to the ballgame
Amazon has been investing in sports rights for a couple of years now. Its biggest endeavor has been Thursday Night Football, for which it pays $65 million per year just to rebroadcast another broadcaster's feed. It made the popular weekly sporting event available to Prime subscribers worldwide, and consumers can even watch free on Twitch, Amazon's gaming-focused streaming site.
Amazon also owns regional rights to several other events including Premier League soccer and U.S. Open tennis. Grabbing the rights to Yankees and Nets games -- along with the Liberty of the WNBA and New York City FC of Major League Soccer -- even if regionally locked, might provide yet another boost.
Due to restrictions with Major League Baseball, it's unlikely Amazon would be able to stream games outside of the YES Network's footprint. But there are a lot of people in New York, and access to the games on YES could tip the scales for more of them to subscribe to Prime. Once Amazon gets them to sign up for Prime, it can prove the value of its membership with services including Prime Now's two-hour grocery delivery and one-day shipping on millions more items. That's the game plan for Prime in general, but in a concentrated population center like New York, it makes sense to invest in regional content.
That said, it's not clear how Sinclair feels about Amazon distributing the YES Network to Prime members. Sinclair owns several local stations in upstate New York, but none in New York City or New Jersey, where YES is most popular. It may be fine using Amazon as a distribution outlet, but it could hurt its ability to negotiate better rates with the bigger pay-TV providers.
A new advertising opportunity
Another potential avenue for Amazon to participate in owning the YES Network is in building out its advertising technology platform. Amazon's biggest source of ad inventory comes from preferred placement in its marketplace search results and on product listing pages. It has a small but rapidly growing video ad business it's built out starting with placements during its Thursday Night Football streams. It now fills 30% of inventory on most ad-supported streaming video services available on its Fire TV platform, too.
Building out an ad platform to sell YES Network ads programmatically could open the door for Amazon to take a piece of the $70 billion U.S. television advertising market. There's a growing interest in moving television ad buying into the digital age, and numerous platforms compete for the market. Amazon has access to both shopper and viewer data that can inform those ad buys and make television commercials more effective for marketers (and more bearable for viewers).
As advertising becomes a significant source of revenue for Amazon, expanding its ad inventory will be key. Whether that inventory comes from streaming sports to local Yankees fans or actually placing ads on television broadcasts, it's a big opportunity for the e-commerce giant.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon and Walt Disney. The Motley Fool owns shares of and recommends Amazon and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.
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