• New Zealand Rugby expects Amazon to next year bid for broadcast rights
• Move follows documentary series by online giant on All Blacks
• Heavyweight competitor marks serious challenge to Sky's longstanding dominance
Rights bidding war would reshape country's sporting and broadcast landscapes, write Matt Nippert and Liam Napier.
In a move that threatens to reshape New Zealand's sporting and broadcast landscapes, New Zealand Rugby is expecting internet giant Amazon to throw its hat in the ring and compete for the next round of rugby broadcast rights.
Sanzaar's formal bidding process for rights to screen provincial, Super and test match rugby from 2021 is now slated to be under way by April next year, an earlier-than-usual start time to allow new overseas players - Amazon's Prime Video streaming service being the most notable - to address not-insubstantial infrastructural issues.
A source familiar with the internal workings of NZ Rugby said Amazon's interest had been obvious for at least a year: "I knew they were sniffing around, wanting to do a documentary, but clearly a bid for the broadcasting rights was in the background."
Given the sensitivity of these developments to the prospects of both NZ Rugby and incumbent broadcaster Sky Network Television, commercial confidentiality was invoked across the board in response to Weekend Herald questions this week.
Sky chief executive John Fellet described his relationship with the sporting organisation for which he held rights as "symbiotic", but declined to address the battle brewing with Amazon over rugby.
"Thank you for the opportunity, but I have learned over the years never to talk about current or future deals," he said.
Stacey Keller, a senior publication relations manager at Amazon's headquarters in Seattle, was similarly unwilling to discuss the matter publicly. "We don't have anything to provide for this story," she said.
New Zealand Rugby chief executive Steve Tew was also guarded. "Nothing more I can add," he said.
But an analysis of official company filings and interviews with financial analysts, broadcasters and NZ Rugby insiders has cast light on preparation for large-scale disruption to rugby and media markets.
What remains to be seen is whether rights are carved up between the incumbent and challengers; if Amazon want to cherry pick games initially rather than take on full-scale production, or even if NZ Rugby assume some production in-house to become a niche broadcaster.
While no formal bids have yet been registered with NZ Rugby, the early stages of a mutually beneficial relationship with Amazon have been forming for over a year.
News broke last month Amazon were in the process of filming an eight-part documentary on the All Blacks, scheduled to go to air next year. In isolation this project is intriguing but similar productions overseas have foreshadowed Amazon's entry into sports broadcasting markets.
Amazon commissioned similar documentaries on Serbian tennis star Novak Djokovic - and then went on to purchase the UK rights for the ATP men's tennis world tour which features all top flight tournaments outside the four Grand Slams. Amazon easily outbid Sky UK and will pay around $18 million per year for these rights.
After producing documentaries on the Arizona Cardinals and Los Angeles Rams, Amazon then bought rights to screen 10 Thursday night NFL games this year for $69 million.
Market chatter continue to link Amazon with a bid for the English Premier League, a significantly more expensive proposition than rugby. Expects predict the presence of tech-firms and social media sites - Google, Apple, Facebook, Netflix, Twitter - alongside Amazon will drive the price of EPL rights - which doubled over three years - further through the roof.
More locally, Amazon soft-launched its Prime Video service in New Zealand in December, and filings with the Intellectual Property Office show at the same time it also registered trademarks for its brand here.
This week the company appointed a chief executive and leased warehouse space for a retail operation in Australia, and last year Bloomberg reported the company's video arm was sizing up professional rugby rights.
The battle ahead will invert Sky's traditional role as Goliath of the local media scene, with financial analysts saying the arrival of a well-funded competitor for rugby rights - suddenly casting the local pay TV operator as David - should spark alarm.
A research note by Forsyth Barr last month said a loss of rugby rights to Amazon would leave Sky facing "material headwind".
Amazon is owned and run by Jeff Bezos, the world's third-richest man, and the company has proved willing to spend heavily and run at a loss to establish a market presence in online retailing and, more recently, sports broadcasting.
Morningstar senior analyst Brian Han said the local market had yet to digest developments over the future of rugby rights. Sky had largely built its premium offerings around live sport - particularly rugby - as increased competition weakened its hold on movies, drama and children's television content.
"If you take [rugby] away from Sky you'd essentially have nothing left. It eliminates one of the key reasons people are willing to pay them so much," Han said.
Other analysts, speaking anonymously over concerns their working relationships with Sky could be damaged, went further.
One said the company had used sports rights as "anchor content in recent years to sustain heavy price increases" for consumers and a loss of rugby would "result in meaningful revenue deceleration".
Another couched the challenge faced by Sky as nothing less than existential. "Losing the rugby would be a step towards the end of Sky," he said. "Once you lose the rugby, you create a massive hole: About 70 per cent of subscribers take sport, and that's the stickiest part of their customer base."
A bidding war will work in NZ Rugby's favour as broadcasting rights accounts for around half of their annual revenue and funds everything from the grassroots to professional game.
The more revenue the governing body squeezes from the negotiation table, the more it has to throw at the country's best players. "That cash is needed to compete with French billionaires. That's the world we live in now," one NZ Rugby source said.
The last five-year Sanzaar agreement doubled in value - appreciating as fast as the Auckland real estate market - with Forsyth Barr estimating Sky now forks out around $60 million annually.
Despite myriad issues surrounding Super Rugby's reduction from 18 to 15 teams next year, the Sanzaar package is still considered premium content and there is wide expectation a new deal will follow the booming path of overseas rights and appreciate further.
"The last time there was some competitive tension. This time there will be a lot of competitive tension," one well-placed source said contrasting the 2014 deal with the one to be struck next year.
Any boost in NZ Rugby broadcasting revenue also directly benefits Sanzaar partners - Australia, South Africa and Argentina. While most rights are negotiated separately, with NZ Rugby conducting its own on behalf of Sanzaar, money is pooled and divided on an agreed formula.
Despite the scale of Amazon - it's the fourth-largest publicly-traded company on earth - victory in the Sanzaar bidding war is far from certain.
Sources noted Sky had a sizeable war chest of its own; the significant production commitment of rights-holders to film and broadcast local games each year; and whether New Zealand's internet infrastructure could cope with such a large shift to digital streaming.
Morningstar's Han said Sky generated hundreds of millions of dollars in cash each year and had access to considerable finance that meant it was far from unarmed.
"One thing they have going for them is the balance sheet is positive - they're keeping their powder dry. They're not going to give up without a fight," he said.
Singapore-based Tim Martin, chief executive of Coliseum Sports Management (CSM) - who sub-licence Sanzaar rights in Asia through the RugbyPass platform - said his firm had cast its eye over domestic rugby rights but expected Fellet to again play imposing aggressive defence in his role as incumbent.
"I think Sky will defend that position, and they would defend it to a point where it would make no sense for us to bid."
Martin said his own due diligence of the rugby rights - and teething problems from CSM's English football experiment Premier League Pass - had identified significant barriers to entry for digital players.
The Sanzaar rights come with a requirement to film and broadcast home provincial, Super and test rugby matches - a commitment of around 150 games annually. Martin said this added around $10m of costs on to broadcasters.
"It's expensive. And then you've got some games that very few people watch," he said.
Martin also said a digital player like Amazon would likely run into infrastructure issues, although the rolling-out of ultra-fast broadband would help to mitigate these.
"New Zealand internet - we learned from Premiere League Pass - is not good enough to run sports streaming to more than 70 per cent of the country. There's a lot of people who love rugby in rural areas where it won't work."
Martin said NZ Rugby had a stark, and finely-balanced decision on their hands. "Amazon could certainly offer a global footprint. But Sky do a very good job of it, and they're very committed to rugby and you kind of only get that from a New Zealand owner-operator."
The rapid appreciation of sports rights over the past decade had drawn concessions from within NZ Rugby that the days of live free-to-air broadcasts of live rugby competitions have long passed.
Recent financial results for TVNZ and MediaWorks suggest either broadcaster would need rugby rights to boost advertising revenue by an unrealistic one-third - or a massive capital injection from reluctant shareholders - just to cover costs.
"Free to air is out of this market," one industry source said.
The public's loss is NZ Rugby's gain. Ultimately the next broadcast agreement will almost certainly see the national game's coffers swell well beyond the $83 million already in the bank.
Price of the game
Sky's deal with Sanzaar for the New Zealand rights to rugby means - outside delayed coverage of test matches on Prime - it's very much pay to watch the All Blacks play.
A basic package with Sky Sports - offering far more than just oval-ball sports - starts at $79.81 a month and goes up from there.
Adding the specialist Rugby Channel takes the monthly bill to $88.62, while opting for a high definition feed stretches it further to $98.61.
For those wanting to avoid a set-top box, Sky recently repriced its FanPass streaming service and now charges $99.99 a month.
While there's no indication of what it might cost for similar content packages under Amazon, the structuring of rights deals internationally - which sees markets carved up and sold off to broadcasters - means it can be much cheaper to watch rugby if you happen to live or be travelling outside the home Sanzaar countries.
In Asia, for instance, RugbyPass offers online streaming of all Rugby Championship and Six Nations tests - and a suite of regional competitions - for only $27.85 a month.