There’s no denying that including live sports content will ultimately be a boon to streaming services. However, last week, when Netflix executives were asked about live sports after the company reported a disappointing first-quarter net loss of 200,000 subscribers, Ted Sarandos pretty much rejected the possibility that the streamer would use live sports to generate new subscribers.
“I’m not saying we never would do sports, but we would have to see a path to growing a big revenue stream and a big profit stream with it,” he said during the Q1 2022 earnings call last Tuesday.
Several streaming rivals offer live sports and Netflix has recognized that competition is getting tougher. Peacock and Apple TV+ recently grabbed the exclusive rights to dozens of MLB games and Amazon Prime livestreams NFL games on Thursday nights during the regular season, as well as 21 New York Yankees games exclusively in the New York market.
So why does Netflix have a problem with live sports when others don’t? There could be a couple of reasons. For one, getting the rights to air professional and college games costs millions upon billions of dollars. The NFL has the largest television contracts with Fox, CBS, NBC, ESPN and DirecTV. Last year, it signed new media rights agreements that are collectively worth approximately $110 billion over 11 years.
Netflix is not necessarily in the position to spend extra on live sports when it already spends several billion dollars on programming.
Technology is another hurdle, being that livestreaming is more complex and less reliable than non-live streaming. Netflix subscribers are already fed up with price increases, so if the livestreaming tech fails, there is a risk of losing more users.
If Netflix subscriptions continue to decline, investors will pressure the company to reconsider its current position. Plus, if Netflix can be persuaded to add an ad-supported tier after all these years... there is a higher possibility of the streamer eventually stepping into the live sports market.
Also, two analysts believe that the company is doomed to fail unless it starts to add live sports.
According to MoffettNathanson analyst Michael Nathanson, Netflix has to do it regardless of if sports will be a money loser initially.
Nathanson said, “Netflix may want to add sports to a more premium tier, helping to boost ARPU, gain exposure to in-game advertising and broaden the appeal of its service in an increasingly competitive market.”
Similarly, Needham analyst Laura Martin strongly believes that the streamer will not win the streaming wars unless it adds sports and news.
We believe the streaming war will be won by the streaming service that offers consumers 360-degree content choices similar to the linear TV bundle. By implication, the historical content conglomerates that own live sports rights and breaking news assets are best positioned to win the streaming wars.
S&P Global suggests that three-quarters (74%) of respondents who identify as sports fans frequently watch SVOD live sports (at least once a week). The survey data also reveals that 76% of those interested in SVOD live sports watch football, while 56% watch basketball and 53% watch baseball.
We recently raised the idea of Netflix buying equity of NFL Films. The company has already explored sports documentaries and reality programming like the titles “The Last Dance,” “Formula 1: Drive to Survive” and the upcoming reality series around the PGA. Including more sports content in its lineup would reach wider audiences.
The live sports streaming business has seen significant growth and the market is expected to quadruple, per a Verified Market Research report which predicts it will quadruple from $18.1 billion in 2020 to more than $87.3 billion by 2028.
To hammer home the argument even further, Disney’s U.S. sports-centric streaming service, ESPN+, reported a gain of 4.2 million subscribers by the end of Q1 2022, surging to 21.3 million subscribers, and up 24.6% quarter-over-quarter and 76% year-over-year.
Thus, adding live sports should be a no-brainer strategy for Netflix.