- Twitter purchased non-exclusive rights to live-stream Thursday Night Football.
- The NFL content helps Twitter expand its streaming offering that started with the Periscope acquisition.
- The biggest gain is long-term user growth and user engagement rise that will be translated into additional ad sales.
It has been clear for a while that video is the growth engine of social media and Internet giants. YouTube, owned by Google, now known as Alphabet Inc-C (NASDAQ:GOOG), made online videos an extraordinary business that attracted more than a billion monthly active users who watch hundreds of millions of videos every day and made YouTube synonymous to online video. Following YouTube, other companies tried to penetrate the online video market either by embedding videos into their streams or adding live streaming features. The rationale is that video content is slowly replacing written content and users will consume an increasing amount of video content, attracting additional advertising revenue and sponsored content to drive overall growth.
Facebook (NASDAQ:FB), Yahoo (NASDAQ:YHOO), Snapchat, and Twitter (NYSE:TWTR) penetrated the online video market trying to challenge YouTube’s dominance and generate an additional revenue stream that is gaining momentum. Facebook recently reported that more than 100M hours of videos are watched daily on its platform, thanks mainly to the autoplay and live streaming features that are broadly available worldwide. Yahoo had an online video platform that did not succeed much and was shut, as the company decided to focus on streaming live music concerts and sports events. The struggling tech company streamed live NHL games, as well as the NFL game between the Buffalo Bills and the Jacksonville Jaguars in October 2015, and will stream selected MLB matches starting in 2016. The live sports streaming is part of the strong Yahoo Sports brand that is now for sale together with the rest of Yahoo’s core business.
Snapchat is the fastest-growing online video platform and has already reached seven billion video views per day, which is very close to Facebook, which reported a total of 8 billion video views. Even though the two companies have close daily video views numbers, Snapchat’s success is impressive since it has only 200 million monthly active users while Facebook has more than 1.5 billion. Video sharing is one of Snapchat’s success drivers.
Twitter did not stay behind its competitors, and it acquired the live video streaming app Periscope for a bit less than $100M in cash and stocks. Twitter’s Periscope is successfully competing with Facebook live videos and Snapchat live videos, and has it attracted so much attention and hype that it has pushed Meerkat to pivot its business in a different direction. Twitter acquired Periscope to penetrate the online live video streaming market, remain relevant, and, of course, increase active user count to drive advertising sales higher. Now, one year later, Twitter took another step forward towards building a robust online video offering when it purchased a non-exclusive right to live stream 10 Thursday night NFL matches on its platform for only $10M, which a tremendous deal compared with the $17M that Yahoo paid for their single game. Twitter will be able to sell up to 15 commercials in each game when the average ad cost is around $550K, which will inject around $82M of additional annual revenue into the company.
The additional direct revenues from ads sales are marginal compared to Twitters $2.5B annual revenues. However, the bigger benefit from the deal is the exposure that Twitter will receive from offering a live free streaming of NFL games that will attract more registered users, higher conversation volume revolving the NFL matches, and more Periscope content. Combining all of these factors together could create an attractive offering for advertisers that would wish to join the potential Twitter/NFL success, thus driving the company’s revenues up.
Signing the NFL deal will allow Twitter to drive additional revenues from direct ad sales and indirect revenues as a result of the increase in user engagement on topics that revolve around the NFL matches and the growth of the user base. On top of that, Twitter achieved an unquantifiable benefit by not only remaining at par with its competition in live video streaming but also having a small competitive advantage from collaborating with the NFL, for a relatively small cost. This great deal has a significant upside potential for Twitter even though ad sales growth is hard to assess right now. Twitter might be a risky investment, following the recent fluctuations in stock price; however, I believe that the company is moving in the right direction and that investors should keep the stock on their watchlist, for now, until additional catalysts appear.