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Barron's had a really good piece over the weekend illustrating yet another example of how technology-driven companies are disrupting revenue models used for decades by traditional companies. It is an example that has been cited from time to time over the years on MNB, but it is so powerful that it is worth referencing again.

The business is television sports, and it starts from the premise that Amazon's deal to pay $50 million for streaming rights to 10 Thursday night National Football League (NFL) games this season does not auger well for traditional broadcast networks that traditionally have spent hundreds of millions or even billions of dollars to buy the rights to cover specific teams, sports or leagues, using them as a way to generate large audiences and significant advertising dollars.

But, "Viewership trends in television are weak, and they’re worse without sports," Barron's writes. " Whereas TV networks own many of their scripted hits, they rent sports. Wisely, they have locked up rights for years to come, albeit at rich prices. As those rights come due, the networks could enter an unwinnable bidding war with Amazon, Facebook, and Alphabet."

Part of the problem is that "traditional television is losing its reach. Over the past five years, viewership among teens and young millennials (ages 18 to 24), including delayed viewing on DVRs, but not online streaming, has plummeted by more than 40%, according to Nielsen data. Among older millennials (25 to 34) and Gen Xers (35 to 49), it is down 28% and 13%, respectively. Only over-50s are sticking with their clickers."

In this case, the grass actually is greener on the other side of the fence: "Alphabet, which owns YouTube and Google, and Facebook, which owns Instagram, are a mirror image of broadcast TV. Their audiences are vast and growing. Consider: Various Super Bowls dominate the list of the most-watched U.S. telecasts ever. But there are more than 40 YouTube videos that have each been watched 10 times more than any Super Bowl. Advertisers are quickly shifting dollars online. Digital ad spending passed advertising outlays for TV for the first time last year. This year, the gap will widen to $10 billion—with $83 billion for digital, and $73 billion for TV, according to industry forecaster eMarketer. By 2021, the gap could be more than $50 billion. And while TV is in a spending race for content, YouTube and Facebook get free content created by their users.

"Meanwhile, Amazon seems to be trying—and failing—to spend money as fast at it makes it. This year, it is likely to generate $10.5 billion in free cash, more than any television network’s parent company. And Amazon’s free cash flow could triple by 2020. By then, Wall Street predicts, the big four TV networks and their parent companies—with their theme parks, movies, and other ventures—will generate a combined $30 billion in free cash flow. Alphabet, Facebook, and Amazon are seen combining for more than $100 billion."

Scott Galloway, marketing professor at New York University, looks at the sports television horizon and offers this assessment to Barron's: "Winter is coming."
KC's View:
To me, this is kind of metaphor to which traditional retailers need to pay attention.

Let's be clear. It isn't like suddenly the Super Bowl is only going to be available to Amazon Prime members, or that next year YouTube will be home to the Final Four. There are a lot of moving parts here, and the degree to which technology and innovation-driven companies are able to compete for the rights to various sports and events will depend on how competitive and aggressive traditional companies are in reinventing their business models.

Sports broadcasting always has been a big business. Teams and leagues got rich as broadcasting entities paid more and more for rights, and broadcasters were able to charge more and more for ad time because there were fewer "live" events that attracted eyeballs. Everybody was feeding at the same trough ... but now, it looks like technology/innovation-driven companies may be able to offer an alternative.

The sinking feeling that some of these legacy companies' executive are feeling should seem familiar to many retailers, who if they are paying attention ought to be able to see that their traditional models are under attack from a variety of angles, and by companies that see consumers and opportunities through different prisms.