Sports fans have a growing number of streaming options available, but Netflix (NFLX 1.45%) isn't going to be the home of live sports anytime soon.
Big tech companies like Amazon, Apple, and Alphabet (via YouTube) are all spending big on sports rights. Meanwhile, big legacy media companies like Walt Disney, Warner Bros. Discovery, and Comcast have television sports broadcasts they can offer streaming subscribers. But Netflix, despite investments in live streaming technology, has yet to strike a deal with a sports league.
Does that leave it with a big gap in its content strategy?
Sports rights are really, really expensive
The cost of sports has never been higher, and there might not be room in Netflix's budget.
Sports leagues will take in an estimated $29.3 billion in broadcast rights in 2023, up from $15.2 billion in 2015, according to Variety Intelligence.
The surge in price is the result of sports remaining the last bastion of linear TV programming. Sports events consistently make up the vast majority of the top 100 broadcasts in a year, pushing Disney, Warner Bros., and Comcast to pay up for the rights. The linear networks have upfront ad guarantees to meet and sports help them get eyeballs. Additionally, having the most-watched content on TV gives networks leverage in negotiating carriage fees with distributors.
Meanwhile, Amazon, Apple, and YouTube see sports as a gateway to draw subscribers to their streaming services. Amazon, for example, said the premier of its exclusive Thursday Night Football broadcasts at the start of the current season saw the greatest number of Prime signups in any three-hour period. YouTube said it expects its new NFL Sunday Ticket package to draw consumers to its subscription services next season.
But Netflix hasn't participated much in the shopping spree. It did reportedly offer a bid on the Formula 1 rights last year, but it was outbid by Disney's ESPN. The streaming service still finds itself sports-less.
Why Netflix could get along without sports
While sports may be an effective way for some streamers to bring in new subscribers, Netflix is focused on generating maximum engagement per dollar spent on content.
Sports can attract big audiences, but many Netflix series can generate even bigger numbers. Sunday Night Football might draw in 20 million people to their TV sets for three hours each week for a total of 60 million engagement hours. Amazon's Thursday Night Football deal got it about 10 million viewers per week for 30 million engagement hours. Netflix routinely has a series generate over 100 million hours of engagement in a single week.
The value of a series is also much more enduring than sports. Most people don't rewatch sports. If they miss it live, it's unlikely they'll go back and watch the replay. But people will often come late to a series as it builds momentum via word of mouth, and they'll rewatch prior seasons ahead of a new season debut.
Sports are great for attracting audiences to a service. They make customers demand ESPN and TNT as part of their cable bundle and get people to sign up for Amazon Prime just to watch their favorite teams or leagues. YouTube will very likely find its $2 billion Sunday Ticket deal is more of a loss leader than a profit center.
For a profitable company with a massive audience already, Netflix doesn't need sports -- at least not right now.
However, if more sports rights go to streaming services, it could drive consumers to sacrifice their Netflix subscription in order to afford the competing service that nabs the rights to a couple out-of-market NBA games each week. And if that happens, it may eventually prove worthwhile for Netflix to win some sports rights to both prevent churn and attract more subscribers too.
Netflix is dipping its toes around the edges of sports for now, and it wouldn't be a surprise if it eventually won the rights to stream some second- or third-tier sports leagues. But the fact it's staying out of sports while the competition is spending heavily on rights shouldn't be a big concern for investors.
