It seems like everyone in streaming is getting into sports. Amazon purchased the global streaming rights to Thursday Night Football and the British rights to the ATP Tennis World Tour this year. Facebook is reportedly interested in investing billions for streaming sports rights.
But Netflix (NASDAQ:NFLX) says it's not interested.
It certainly has the budget, with a plan to spend between $7 billion and $8 billion next year. Ted Sarandos, Netflix's head of content, says sports rights just aren't worth it. Not only are they extremely expensive, he and CEO Reed Hastings see limited value Netflix can add to live sports.
Netflix's content investment strategy
Netflix is increasingly a global media company. With more subscribers outside the United States than domestically, it has to consider the appetite of its entire viewer base when it buys streaming rights.
Of course, Amazon and Facebook are global operators as well, but they have a bit more leeway to experiment with sports considering they have multiple sources of revenue outside of streaming video. In fact, streaming video is just a small part of each company's business.
Netflix, on the other hand, requires every piece of content it invests in to move the needle on the top line. That can be done either through increased subscription sign-ups or higher retention. Sports rights can do that, but there are less expensive content rights that Netflix sees as more efficient. Specifically, Netflix's original content.
Sarandos says Netflix's original content is some of its most efficient in terms of cost per viewer hour. Even big-budget productions like The Crown are extremely efficient compared to licensed content. As such, the company continues to push forward with plans to grow its original content spend to the same level as its licensed content spend by 2019.
What value does Netflix add?
Netflix transformed television by offering on-demand binge-watching for its subscribers. New seasons of its original shows come out all at once. You can watch your shows anytime and anywhere. You can pause on one device and pick it up on another right where you left off.
That's a lot of extra value over standard broadcasts or even DVR.
But with sports, there's not much additional value added by streaming it over the internet. "It's hard to transform sports with the internet. I mean, you can carry it over the internet, but what does that do for you?" Hastings said at Re/Code's code conference earlier this year.
Sports won't necessarily differentiate Netflix from cable or other streaming services like other content could.
Sports rights might not be around forever
Selling sports rights has been tremendously profitable for sports leagues. Not only is Amazon paying the NFL $50 million for streaming rights, for example, but the NFL makes over $7 billion per year from television networks in the U.S. alone.
Sarandos thinks the price of sports rights will continue grow rapidly. That's because sports leagues have tremendous pricing power. They're also hiding an ace up their sleeve -- Sarandos says sports leagues could go direct-to-consumer at some point.
In fact, all four major sports leagues offer some form of streaming service already, specifically for out-of-market games. However, those services still rely on their broadcast partners to produce the games (set up the cameras, hire commentators, produce in-game highlights, etc.).
With growing streaming demand, leagues may find it optimal to offer all games to customers through their streaming services and produce them in-house if they don't get the price they want from distributors. All four leagues already own their own television networks with production capabilities.
There's certainly potential for that to happen, which means the price for sports rights could continue to climb faster than most other content rights. That's a situation Netflix doesn't want any part of.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Facebook, and Netflix. The Motley Fool has a disclosure policy.