Indepth Part 2: The potential risks and rewards for Netflix in pursuing sports streaming

Live sports is the golden goose. A recent report (‘Sports Broadcasting on TV: A match made in heaven’) put revenues for sports from digital streaming at Rs 4,360 crore by 2026, growing at a CAGR of 22%.

After Disney+ Hotstar, SonyLIV and Prime Video, Analysts are now keenly watching if Netflix will foray into live streaming of sports events. Netflix has been dabbling with sports content for a while now with the launch of ‘Drive to Survive’, a docu-series on Formula One, in 2019, which helped the racing league attain huge popularity in the US. But live sports is an entirely new frontier given the economies involved; the streamer got to justify spending top dollars in acquiring huge sports properties.

Part 2 of this Indepth report analyses the Risks and Rewards of Netflix’s foray into live sports streaming, the impact on financials and subscriber base, and more.

Also read:

Indepth Part 1: After live comedy, will Netflix foray into live sports streaming?

The Risks and rewards

What are some potential risks and rewards for Netflix in pursuing sports streaming? And it is also important to assess its likely impact on the company's financials and subscriber base.

“Sports streaming deals are expensive; Netflix has to ask itself if it is willing to break the bank to get into sports,” remarks Hayden Scott, Creative Head, Virtue Worldwide. Adding further, Scott says, “And if it is, will it be worth it? Will it distract from their core brand? Will it result in less investment in their movie and show content and, therefore, will that result in quality suffering? I’m sure Netflix understands the importance of not putting the cart before the horse.”

According to Scott, Netflix has resisted sports streaming up until now, and if it decides to change its mind it risks becoming the fourth or fifth player in a massively crowded market. “Very far from a position of strength. I believe the company needs to tap into its DNA of innovation to look at how it can do sports streaming differently. It’s certainly not about jumping into the fray and doing what the competition does. It’s about understanding its brand, its subscriber base and the expectation that base has of Netflix. Yet another player jumping into sports streaming? Maybe not. Changing the game on how sports streaming is done? Hell yes!”

Along similar lines, Jack Genovese, Research Manager, Ampere Sports, says, “Significant investment in sports rights would likely require a step change in Netflix’s business strategy.” He added, “Sports rights are typically monetised through a wide range of avenues, including subscriptions, advertising, multi-service (for example, telecom) bundling, betting, retailing, etc. Netflix’s business model, at least at present, is rather simple: there are three plans (four, where advertising is available), there is basically no content differentiation between different plans, and subscription makes for the vast majority of the revenue generated. Since bundling and retailing would almost certainly not be available to Netflix, it’s likely that major investment in sports rights would require the creation of additional, higher-value tiers where live sports would be exclusively or at least predominantly available.”

Paolo Pescatore, Tech, Media & Telco Analyst, PP Foresight, feels that the sports landscape is hugely fragmented and it does not make financial sense for Netflix to pursue this approach. “Others have tried and failed. The risks far outweigh any rewards. Netflix does not need live sports as it is not addressing a specific problem,” says the analyst.

There are several potential risks and rewards for Netflix in pursuing sports streaming, notes Jyoti Tiwari, Group Solutions Manager, Django Digital. According to her, these include:

• High cost of acquiring and producing sports content: Acquiring broadcast rights for sports leagues and events can be very expensive.
• Increased competition: The sports streaming market is already highly competitive, with established players like ESPN+, DAZN, and traditional broadcast networks. Netflix would have to differentiate itself to attract sports fans away from these existing options.
• Complexity of broadcasting live events: Broadcasting live events comes with technical challenges, such as ensuring high-quality video streaming and maintaining a reliable service.

At the same time, here are also potential rewards, such as:

• Attracting new subscribers: Sports fans represent a large and dedicated market that Netflix has not yet tapped into. Offering sports streaming could attract new subscribers who are interested in this type of content.
• Increased engagement: Sports content is typically consumed live, which could increase engagement and retention rates among subscribers who want to watch their favourite teams and events in real-time.

Impact on financials

Entering the sports streaming market would require a significant investment of resources, such as acquiring broadcast rights, producing original content, and building a technical infrastructure to support live streaming. However, if executed well, offering sports streaming could lead to increased revenue and profits from new subscribers and increased engagement.

Impact on subscriber base

Offering sports streaming could attract new subscribers who are interested in this type of content. However, it's important to note that not all Netflix subscribers may be interested in sports, so there may be some limitations to the potential impact on the subscriber base.

Pursuing sports streaming presents both risks and rewards for Netflix, and the company would need to carefully evaluate the potential impact on its financials and subscriber base before making any decisions.

Potential risks

Potential risks for Netflix in pursuing sports streaming include high licensing fees and the costs associated with producing and streaming the content, points out Rahul Gupta, Founder & Chief Creative Officer, By Design (formerly IBD). However, he adds, there are also potential rewards such as increased revenue and subscriber growth. The impact on the company’s financials and subscriber base would depend on the success and popularity of the sports streaming offerings, he adds.

With the increasing competition in the sports streaming market, it is important for Netflix to differentiate itself enough to attract a significant audience. And the streamer possesses unique advantages as well as disadvantages in this space. And then of course, there are challenges in streaming live sports events, given that Netflix has previously focused on producing and streaming TV shows and movies.

Gupta feels that Netflix would need to differentiate itself enough from other sports streaming platforms to attract a significant audience. “One unique advantage the company may have is its existing global reach and subscriber base. However, it may face challenges in streaming live sports events, including the high costs associated with licensing, producing, and streaming live games. Additionally, it will need to carefully consider which sports to stream to ensure it provides content that will appeal to its target audience. Another association opportunity could be Formula 1. Given that Netflix significantly increased F1's viewership base through its original Drive To Survive series, they could explore broadcasting the sport,” he adds.

All in all, any streamer is reliant on having a reliable and robust telecoms infrastructure, says Paolo Pescatore. “There are still concerns of delivering live sport at scale without technical issues such as buffering, pixilation. People still struggle in getting a signal which remains one of the biggest obstacles to adoption. More needs to be done to bridge the digital divide. I’ve done extensive work in this area unrelated to Netflix. Here are my findings from streaming the FIFA World Cup across different services, networks, devices and countries," he states.

This, of course, does not rule out Netflix experimenting with live sports at a smaller scale than the kind of ‘top-tier’ properties discussed above, says Jack Genovese. Indeed, he explains, there have been unconfirmed reports of Netflix discussing the possible acquisition of the live rights of properties that it has been working with for its exclusive behind-the-scenes documentaries (such as the ATP and Formula One).

“There are obvious advantages to targeting sports fans with live coverage of sporting events, for streaming platforms: the availability of popular, established live content over a span of time, and the possibility of tapping into harder-to-reach audiences (our survey of sports fans in 12 major countries, conducted in Q4 2022, showed that 41% of sports fans indicated that they only care about watching sports, and that they don’t watch many TV series or films),” he adds.

In short, he adds, live sports could present Netflix with subscription and revenue growth opportunities, even in markets where subscription growth has stagnated of late.

“At present, there are no indications that Netflix will be moving any time soon into live sports, but as it continues to expand its live programming output, it would not come at a surprise if Netflix were to finally make that move. However, we do not expect Netflix to be a significant player when it comes to the most popular, and thus expensive, sports properties, due to the cost implication and monetisation challenges that they would present,” Jack Genovese says.

“Netflix has already made a name for itself as a leading provider of on-demand streaming of movies and TV shows, but it has not yet ventured into the live sports streaming market. The sports streaming market is highly competitive, with established players like ESPN+, FuboTV, DAZN and Disney+ among others. To differentiate itself from these competitors, Netflix would need to provide unique features and experiences to attract a significant audience,” points out Jyoti Tiwari.

According to her, one of Netflix’s potential advantages is its extensive user base and loyal following. “Netflix currently has over 200 million subscribers in more than 190 countries, which provides a vast potential audience for any new offering, including sports streaming. Additionally, Netflix has a reputation for producing high-quality original content, which could translate to sports programming that stands out from the competition. On the other hand, Netflix also faces some disadvantages in the sports streaming market. For one, it lacks experience in the live sports streaming space, which is quite different from its on-demand content. Additionally, securing the rights to live sports events can be challenging and expensive, particularly for major leagues like the NFL or NBA, which have already signed long-term deals with other providers,” she elaborates.

If Netflix decides to enter the live sports streaming market, it will need to overcome several challenges, she adds. “One of the biggest challenges will be securing the rights to broadcast live sports events, which could require significant investments in licensing fees. Additionally, streaming live sports events requires a stable and reliable platform capable of handling high traffic volumes, something that Netflix will need to ensure to avoid technical issues and complaints from viewers,” Jyoti Tiwari concludes.