Can Apple Add Exclusive Sports Coverage To Its Empire?

I mentioned the story in a recent Seeking Alpha article: Apple (AAPL), reportedly, plans to bid for the rights to English Premier League (EPL) soccer. You can read my initial positive reaction in the above-linked article. While I still think this move makes sense for Apple, there must be more to the story, for several reasons.

If this is true, Apple likely has something bigger up its sleeve than the current iteration of Apple TV, iTunes or the widely-rumored and apparently-forthcoming iTV. No matter what it proposes to pay for the English-only EPL rights, Apple needs a means to distribute programming that goes beyond the aforementioned three methods. In effect, it will need to become a pseudo "cable" company.

Consider this snippet from a recent LA Times round-up of iTV rumors:

Click to enlarge

Difficulties associated with sealing deals aside, that describes Apple as the new media/digital version of a cable company. Taking into account the sheer massiveness of an endeavor of this size and scale, it should come as no surprise to shareholders that Apple refuses to pay a dividend, opting instead to hoard its cash.

I do not see a scenario where any major sports league gives Apple exclusive rights to anything without the guarantee of broad distribution. As it stands, Apple can only exercise broadcast rights to EPL - or any other piece of programming, for that matter - in one of two ways:

• Via its existing platforms or the anticipated iTV.

There's a big problem with this. EPL or any other self-respecting, ad revenue-hungry league will not hand over exclusive rights to its franchise if guaranteed only limited distribution. They're not going to effectively tell their fans you have to buy Apple TV or iTV to watch our games. They're not even going to tell them they have to download iTunes for free. That would require viewers to either watch the games on a tablet, smart phone, PC or some other gadget or incur the considerable expense of purchasing an Internet-connected TV.

It's one thing to package the rights to the entire league, not on a team-by-team basis, and essentially force the success of pay-TV in the U.K. as EPL did, in conjunction with BSkyB* in the early 90s. It's entirely another to force many of your patrons to, again, adopt new platforms and potentially incur additional discretionary expenses.

Will every household in the U.K. that currently subscribes to BSkyB and every pub that shows the games have to buy an Apple TV, iTV or some other Apple invention to be able to continue watching and showing EPL?

Let's broaden this out a bit to make it easier to follow for an egocentric American who thinks he's Canadian such as myself.

If, 20 years ago, the National Hockey League decided to combine the contractual rights for every NHL team into one package and proceeded to sell those rights, in Canada, to one company, say, Rogers Communications (RCI), how well do you think it would have gone over? Probably not very well. For all intents and purposes, that's what EPL did when it opted for BSkyB in 1992. Obviously, things have worked well. And, when push came to shove, it would probably have worked out just as well for the NHL, considering how much Canadians love their hockey.

But, then imagine if, 20 years later, the NHL sold exclusive Canadian rights to its games to Apple. That leads to the second point that still deals with the distribution issue:

• The only other way Apple could make the EPL or a similar deal work is to make major acquisitions and/or forge huge partnerships.

And not only do these options make no sense, they'll prove unworkable. How do you, instantly, achieve broad distribution in a market? You become the, or one of the leading cable or satellite companies in a market. In the EPL case, maybe Apple would have to buy BSkyB, but that's a bit of an absurd assertion. You buy EPL rights and then you buy the entity that used to have EPL rights?

Of course, Apple could partner with traditional and digital media entities that already sport wide distribution across the U.K. But, that makes little sense either. If you buy the rights and then give everybody else access, what's the point of "exclusivity?" I doubt EPL would let Apple effectively become a reseller of the rights. And why would Apple want to do that anyway?

What Does This Mean For The Stock?

If Apple, indeed, prepares a bid for English EPL rights, there's got to be more to the story, on several levels. And how it plays out could answer one of the top questions AAPL bears ask when they express their pessimism - What's next? Can Apple follow up iPod, iPhone, iPad and Mac with even more magic?

These questions never concerned me much. I simply thought of iTV as an instant winner. But, when you start throwing the notion of content, particularly exclusive rights to live sports programming, into Apple's grand plan, the proposition gets a bit more tenuous.

Apple thrives because it can paint other companies into a corner. It can slap them around because they need Apple more than Apple needs them. Witness how Apple fleeces wireless carriers like AT&T (T), Verizon (VZ) and Sprint (S) via iPhone subsidies. In this case, however, the EPL absolutely does not need Apple. This might represent one negotiation where Apple simply does not have the upper hand.

If Apple's alleged exclusive sports programming-aspirations extend elsewhere, major professional sports leagues across the world, including the NFL, NBA, MLB and even the NHL, do not need Apple. At the very least, they do not need them enough to give them exclusivity to their products. Apple would be stuck with something along the lines of the MLS or indoor football, if that professional league even still exists. You might be able to make the argument that some individual teams need Apple, or something like them, badly. But it's folly to think Apple will sign separate deals to air things like Phoenix Coyotes hockey or Buffalo Bills football.

I'm surprised this EPL story has not received more media attention. Not only does it shine further light on Apple's television ambitions, but the larger issue of dealing with leagues and programmers likely presents the biggest challenge Apple has faced since Steve Jobs came back and orchestrated one of the most incredible turnarounds in the history of the world. Just like I never could have pictured iPod, iPhone and iPad before I saw them, I have a feeling Apple is cooking up one more thing, as we speak, to, yet again, shock and awe the world.

*British Sky Broadcasting (BSkyB) has broadcast EPL games in the U.K. since 1992. Fox Sports (NWSA) and ESPN (ABC) share EPL rights in the United States, while Rogers Communications owns them in Canada.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RCI over the next 72 hours.

Additional disclosure: I am long AAPL, VZ.

Source: http://seekingalpha.com/article/318735-can-apple-add-exclusive-sports-coverage-to-its-empire?source=feed

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