Yep, it might just take NFL money to shake up TV business

This week it was reported Apple is apparently playing by the rules in their efforts to reshape TV.

Not all that surprising given that, well, pretty much everyone is playing by the rules when it comes to reshaping TV.

Why is this? Because while trying to be a David to BigTV’s Goliath may be a romantic notion, pretty much all the TV disruptors realize that best way to disrupt TV is to work within the system itself.

They also realize that, in the end, control of TV is about control of content.  That’s why pretty much every would-be TV disruptor today is using the “HBO strategy” of investing in original series. Just this week, Netflix saw significant critical validation for this strategy in the form of nine Emmy awards for its House of Cards’ investment.

That’s great and all and sure, some folks will find the Netflix bundle of original and acquired content enough to cut the cord, but in the end, the vast majority of household won’t be cutting any cords any time soon for one major reason: live sports.

Yep, it’s long been recognized in the industry that live sports are the last great hurdle to capturing the hearts of TV watchers, and that’s why all the major sports networks are able to command into the tens of billions of dollars for multi-year content rights (it’s also, in part, why team payroll growth far exceeds the rate of inflation, but that’s a post for another day).

So if live sports are the last big hurdle to widespread cord-cutting, what should Apple, Microsoft of any other would-be disruptor do about it?

In an open letter to Apple, Peter Kafka of AllThingsD suggests they should go and buy themselves some sports rights.

Here’s Kafka:

Right now those rights belong to DirecTV. But the satellite TV company’s four-year deal expires at the end of the 2014 season. Which means you should be starting negotiations now.

It won’t be cheap. DirecTV pays $1 billion a year for Sunday Ticket, and that’s up 40 percent from its previous deal. So for argument’s sake, let’s assume you may have to spend something like $1.5 billion a year.

Kafka goes on to mention the price of the rights would likely be a relative pittance for a cash-rich tech company like Apple, which is true. Same for Microsoft, Intel or Google.

Still, the dollars are big enough to be material and cause a little consternation to EPS-watching shareholders, so such an investment should not be done lightly.

But if these companies are serious about upending the TV business, a little shareholder unease and couple billion dollars in live-sports rights might just be what it takes. After all, if they plan to deliver a virtual cable package (which all of them have been rumored, at some point, to have interest in) that will require most of the content that consumers expect with their old-world cable package, which means live sports.

So maybe it’s time to throw a little skin into the game and show us they’re serious.  Maybe it’s time for Apple (or Microsoft, Google, Amazon or Intel) buy themselves a little NFL.

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Michael Wolf

Chief Analyst NextMarket Insights

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