Amazon (AMZN) Explores Streaming Partnership with Diamond Sports Group

A recent report reveals that Amazon (NASDAQ: AMZN) is in discussions with Diamond Sports Group, the operator of Bally Sports, for a potential strategic investment and streaming partnership. Diamond Sports Group holds broadcasting rights for over 40 professional teams in the MLB, NHL, and NBA across its regional sports networks.

Here’s a breakdown of the potential impact on Amazon’s Prime business and its significance for investors:

1. Media Emerges as a Priority:

   • While Amazon is a dominant force in e-commerce and cloud services through AWS, media is increasingly becoming a significant focus. The company’s strategic investments include the acquisition of media studio MGM for $8.5 billion in 2022 and securing rights to NFL Thursday Night Football broadcasts.

2. Potential Deal with Diamond Sports:

   • The discussions with Diamond Sports could lead to streaming partnerships and investments. The regional networks under Diamond Sports cover a wide range of professional sports teams, offering valuable live sports content that could enhance Amazon’s media offerings.

3. Impact on Ad Revenue:

   • Amazon has already made strides in the advertising space, accumulating $32 billion in ad sales during the first nine months of 2023. Adding more live sports content would likely attract a larger audience and increase advertising opportunities, contributing to Amazon’s growing ad revenue.

4. Strength of Amazon Prime:

   • Amazon Prime, with its combination of shipping perks, cloud services, and Prime Video streaming, follows a classic network effect strategy. By continually adding value to Prime, Amazon aims to attract and retain subscribers, resulting in recurring, high-margin revenue. Currently, Amazon Prime has an estimated 200 million memberships, generating nearly $30 billion in revenue through Q3 2023.

5. Monetization Strategies:

   • Amazon could capitalize on this by expanding advertising opportunities and enhancing the value of its Prime membership. The bundled subscription, which includes streaming services and additional perks, creates a sticky customer base, reinforcing the network effect.

6. Amazon’s Investment Thesis:

   • The combined revenue from advertising and Prime business has surpassed $60 billion, approaching the scale of AWS. Amazon’s ability to reinvest this revenue to add value to its services creates a self-reinforcing cycle. Despite the stock’s 80% growth in 2023, it still appears to be a solid long-term investment at 22 times operating cash flow.

In summary, Amazon’s exploration of partnerships in the sports streaming space aligns with its broader media strategy. As the company continues to strengthen its position in advertising and leverage the network effect of Amazon Prime, investors may find Amazon’s growth prospects appealing for the long term.