Is Netflix indicating it may be more open to sports? 

Ian Whittaker, Twice City AM Analyst of the Year explores the attitude of Netflix towards sports.

Netflix produced Q1 results last week that blew past expectations when it came to subscriber expectation although the news was overshadowed by its announcement it would stop reporting quarterly subscriber numbers from next year, a move that both caught the markets by surprise and raises questions about its expectations for future growth. However, there was also another comment in here about Netflix’s attitude to sports which may suggest a changing its strategy. 

Ted Saranos pointed out that Netflix is not “anti-sports” and the key is whether these events can make money. It was clear from the statement that “So when and if those opportunities arrive that we can come in and do that, which we feel like we did in our deal with WWE, if we can repeat those dynamics and other things, including sports, we’ll look at it for sure.” that Netflix is going to be looking at sports opportunities when they arise, 

That makes sense long-term. While it does not make economic sense for the major streaming players to pick up the major European sports rights given the trade off between the size of the market and the economics, in the US, if Netflix is a believer in its case that US linear television viewing will continue to decline and more move to streaming, then the logical conclusion should be that it needs to gain more sporting rights, given major sports games not make up over 90%+ of the most watched linear shows. If it doesn’t, it risks being condemned in the long-term to a more junior status. 

There are two other considerations here for Netflix when it comes to sports. The first is Netflix’s Gaming strategy. That has been touted as one of Netflix’s key routes to future revenue growth. But like the dog that didn’t bark, one thing that was interesting in the Netflix call was the lack of description of what is happening on the Games side, which is a big part of supposed future growth. Given the Games industry is not in the best shape right now, there is a question here for Netflix in whether their view of the opportunity has changed and, if it has, what will replace what it had told the financial markets was a key part of their growth strategy. Sports may play a role in this. 

However, the second factor is even more important. Another key part of Netflix’s growth strategy is to build up advertising revenues. Indeed it stated omn the call that its advertising membership tier was up 65% QoQ after nearly 70% growth in each of Q3 and Q4 23 (although it is hard to know how important it is given we do not have absolute numbers) and that over 40% of new subs took the ad tier product. That is great but – at least for the US – Netflix still has to answer the question of how it will build a meaningful advertising model if it does not get more aggressively into sports. That seems to be a fact that the likes of Amazon and YouTube (and, to some degree, Apple) have grasped but, while Netflix now has the WWE rights, this is now more niche than mainstream. The simple fact is that, compared to other Tech giants (and indeed the Media companies), Netflix is still outgunned when it comes to the amount of cash it generates and therefore how much it can bid for major rights. 

In conclusion, it feels like Netflix is preparing itself for more of a push into sports – at least in the US – even if this is a multi-year plan of attack. While it remains to be seen whether it will go for niche sports than the big premium ones, it feels like Netflix is realising it cannot avoid the sports question any longer.

As usual, this is not investment advice.