Live sports – the next frontier for Netflix?

Netflix recently had talks with the National Football League for a possible collaboration. The American professional football league courting the world’s largest streamer as a potential suitor has piqued the curiosity of analysts. First and foremost, NFL is eager to expand its viewership outside the US with a line-up of several international games in the pipeline.

NFL, which has contracts with five American TV networks (ESPN, Fox, NBC, ABC, and CBS), is seeking a new partner for the rights for its media properties such as NFL RedZone and NFL Network and is auctioning off NFL Sunday Ticket rights.

Netflix has been dabbling with sports content for a while now. In 2019, the streamer launched Drive to Survive, a docu-series on Formula One, which helped the racing league achieve phenomenal popularity in the US. Now, the streamer is going ahead with docu-series on the Tour de France cycling race and Grand Slam.

However, Netflix has shunned live sports thus far, citing high costs as the prime reason. So, does it make sense for the platform to follow the path of rivals like Amazon Prime and Apple, which have already forayed into live sports streaming? Could live sports and sports docu-series be a growth driver for Netflix, whose subscriber base at the end of 2021 stood at 221.8 million?

The Hotstar story

“Sport is a great driver for subscribers and it is always a great addition to the content offering for OTT platforms,” said Uday Sodhi, Senior Partner, Kurate Digital Consulting, adding that Netflix being a leader in this space might consider getting into sports as well.

Agreeing with this, Karan Taurani, senior analyst at Elara Capital, too said that live sports is definitely a big driver for a sticky customer base. He cited the example of Disney+ Hotstar and pointed out that a large portion of Hotstar’s revenue is primarily driven because of the IPL as a property.

Two Nice Men Mediaworks’ Founder, Harjit Chhabra, felt that sports and live events will eventually be one of the prime offerings of OTTs. He noted how Hotstar surely has benefitted from IPL, F1, Kabaddi, and other sporting events.

“It has been a subscription drive for them and I am sure other OTTs would want to look at this relationship very closely. Eventually, it would be a cost-benefit analysis and a business call. Live events and sporting events aid acquisition and accelerate scaling. If OTTs are able to retain these subscribers for a longer term and optimise the acquisition cost, then there surely is merit,” said Chhabra.

Netflix has nearly 222 million subscribers worldwide and is one of the most important viewing platforms globally and will facilitate NFL’s reach and popularity, asserted N Chandra Mouli, CEO, TRA.

According to him, sporting events, and by corollary live sports telecasting, are extremely palatable for sports lovers, and they will align with media, which provides the best experience. “Sports docu-series, however, is for the more ardent sports aficionados, which may find lesser viewers,” he opined.

Divya Radhakrishnan, MD Helios Media, also subscribed to the view that sports content has always helped in the popularisation of streaming services through mobile handsets in India. Citing the case of IPL and Hotstar, she asserted that sports is definitely a growth driver for any platform. “Since Netflix is a SVOD model, its ability to pay high dollars for content does get restricted as sponsorship revenues are absent. However, getting into sports will not erode equity, but enhance, if any,” she added.

It will be a unique proposition to see if Netflix takes the partnership up with National Football League, as it's away from their global positioning, says Divo founder-director Shahir Muneer.

According to him, live sports content brings in high visibility and traction in India, be it on television or on OTT Platforms.

“With very good economics from advertisers and subscribers, as seen ever since the advent of digital, live sports, especially IPL, have now moved from Youtube to Hotstar. This signifies the growth prospect present and evolving consumer preferences. While Netflix is being very aggressive in the Indian market, it is still behind a subscription-only paywall and no ads. This seems a difficult path unless it is considering Tier 2 sporting events in India (like Series A, La Liga etc.) which are much lower than IPL for rights. Having worked on the first non-cricket Livestream sporting event in India - the world chess championship final between Vishwanathan Anand and Magnus Carlsen in 2013, the segment has very high audience retention and a dream for OTTs for eyeballs to sell to advertisers,” says Muneer.

Customer stickiness

Amazon Prime has forayed into live sports in India with the acquisition of the India rights of New Zealand cricket. Now, it has set its ambitious eyes on the upcoming IPL media rights auction too. Sports hold the innate power to attract customers to the streaming platform, and as such, it is a great tool for customer stickiness, feel analysts.

In terms of stickiness or order of preference, sports is more sticky than web series, asserted Karan Taurani. Movies, on the other, are hero content; the customer base is not loyal. They consume that film because it is new on the platform and then they move out of it.

So, live sports is very loyal in nature and guarantees a very sticky subscription revenue as compared to a web series, which might do well in a particular year or a season, explained Taurani. “For getting good growth in streaming or having a competitive advantage and having a sticky customer base it is always very good to have sports in your portfolio,” he added.

“Netflix’s management made no bones about their dismay with India’s performance,” said CupShup Co-founder Sidharth Singh, adding, “India is a market that is hard to ignore for anyone looking for domination.”

“With IPL’s viewership going down by 33% in the first week, maybe Netflix is looking for redemption in the sports category as Football and its idols might find takers in a country desperately looking for hero figures post phasing out of giants of cricket. Added to this are also newfound stars of the Internet, which give a twist to live commentary and come up with interesting post-match analysis to make content more relatable. 22 Yards by Spotify and Breakfast with Champions hosted by Gaurav Kapoor command a great following by talking about nuances of the game than the game itself. A collaboration might give Netflix the opening into the psyche of young Indians that they have been looking for a while now,” Singh elaborated.

Cost and competition

Netflix has cited high costs as a reason for not offering live sports. So, is it prudent for the streamer to adopt sports as part of diversification?

Though sports is a high-cost thing, it has a great fan following and builds loyalty for a platform, said Uday Sodhi. “The question for Netflix would be – ‘will it drive additional usage and loyalty’ and is it worth the cost? Netflix is a global leader in the entertainment space and sets the standards for others to follow. It is unlikely that sports will change that perception.”

Sidharth Singh noted that despite the cost, streamers have to come up with categories that the audience will relate to. Disney+ Hotstar has made a niche in IPL; Amazon is closing on its heels with the grand ambition of bidding for new rights. Thus, he felt, it is only natural for Netflix to adopt sports as a category.

While acknowledging that high cost is there, Taurani pointed out that the cost came with a huge advantage, because sports ensure a sticky audience base.

He explained, “You can cross-sell your content to these audiences. It all depends on what kind of market you are operating in, what the target audience is, kind of content cost plans, how much you want to allocate to movies, sports web series, etc. There are certain markets where the consumption of web series is not very high. So, it is always good to have sports in your kitty and get the audience first in terms of consuming content on your platform and there can be cross-selling through the other content initiatives.”

The cost versus returns, according to Chandra Mouli, will have to be a constant consideration for Netflix. “Usually, sports telecasting makes its maximum revenue through advertising, and maybe Netflix may have to introduce selective advertising in live sports telecasts, rather than introduce it across the board. This may be the way to adopt live sports into their portfolio,” he added.

He further said, “The entry of Netflix will increase competition and will be welcome to streaming of live sports. It will also give all sporting events a better value for their events due to the competitive nature of any bidding.”

Brand equity

Will the streamer’s brand equity take a beating if it goes for live streaming of sports?

Sidharth Singh believed that the brand equity of Netflix has already taken a beating and the management was courageous enough to accept it publicly in recent times.

“Whether it was deliberate or not, Netflix definitely has boxed itself into a category that is more artistic and elitist than being relatable to everyone. And I think this move will help them in breaking the ice with the audience it wants to be friendly with. The Indian audience spectrum has multiple hues and a streamer of the stature of Netflix that has global ambition and presence must produce content catering to multiple sections of the audience,” opined Singh.

According to Karan Taurani, in the face of increasing competition, Netflix has to up the game here. “I don’t think brand equity will take a beating as such, because it’s not that Amazon’s brand equity is taking a beating because of sports. It is just a value proposition to make sure that a certain amount of the customer base remains loyal and you can acquire new customers,” he concluded.