As broadcast and cable networks battle with services like Netflix (NASDAQ: NFLX) for customers, one of the bright lights for traditional TV has been live sports.
Currently, Netflix does not carry any live programming and has not bid on any sporting events. Of course, until 2012, the company did not have any original programming. Now, it not only has buzzed-about shows like "House of Cards" and "Orange is the New Black," it also has a heavy development pipeline. According to its annual report, Netflix said it plans to spend close to $3 billion on content in 2014 and around $6.2 billion on content over the next 36 months.
With budgets that high, it seems plausible that the company might explore going after rights to sporting events as a way to further damage its old-school competitors.
Why sports works
Viewers might be willing to wait until Netflix has "Mad Men" and watch the entire thing in a weekend, but they generally won't skip the baseball season and binge-watch their favorite team six months after the World Series. Live sports has also been relatively DVR-proof. Fans want to watch their team's games as they happen, not record them for later, even though that would let them fast forward through the commercials.
Because of these two factors, the broadcast rights fees for sports have been steadily climbing. On the high end of the TV spectrum, on the eve of the 2011 NFL season, Walt Disney's (NYSE:DIS) ESPN renewed its deal for "Monday Night Football" for $15.2 billion through 2021. According to the New York Times, at $1.9 billion a year, ESPN will be paying 73% more than the $1.1 billion a year it had been spending for "Monday Night," the highest-rated show on cable television.
Even for tiny sports, the rights rates have been exploding. Fox Sports reported in December that it had inked a six-year, $241 million deal to televise V8 Supercars -- Australia's top racing series.
Netflix says no
While it may make sense for Netflix to make a play for one of the major sports -- or even one of the minor ones -- the company denies any interest.
In an email responding to a request for comment on whether Netflix might bid on any live sports properties, Jenny McCabe from Netflix's public relations department responded, "We don't carry any live content on Netflix, so we have not bid on any sports and do not plan to carry live programming right now."
It's that "right now," that's telling and leaves the door open.
It makes sense at least to ask
Broadcast & Cable News Editor Michael Reynolds told the Fool that while he does not see any of the major sports making a deal with Netflix anytime soon, he does see them as being willing to at least entertain proposals.
"I don't think there is any reason why the people that run the sports leagues wouldn't listen or take their money," he said.
He doesn't expect a deal, however, because while Netflix might offer the most cash, the company couldn't offer the audience that broadcast and major cable networks can. Smaller screen sizes, if people watched games on mobile devices, might also lead to losses in ad revenue.
Look outside the majors
Reynolds told the Fool that while he can't see Netflix winning rights to a major sport in the near future -- partly because most are tied up in long-term deals -- he believes the service could buy up rights to less-popular sports with niche followings. He pointed to lightly watched TV networks like Universal Sports, which covers Olympic-style sports (but not the Olympics). By streaming sports that aren't televised by the major players, Reynolds said, Netflix could add subscribers among the devoted followers of those niche sports.
"The opportunities are there for smaller events – get outside of the major events in sports like tennis and golf. Tennis Channel has the rights to a lot of minor tournaments, but if Netflix came in, they could acquire the digital rights easily," he said. "If Netflix wants to come in and outbid them, I think on that scale, they can go in and outgun them in a heartbeat."
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.