Streaming the Zeitgeist: As their opponents take the initiative, what gives Netflix a sporting chance?

It was revealed last month that video streaming services and social networks were in the latter stages of talks with the NFL to stream Thursday night games live. Recent data has given this news an air of inevitability, with recent statistics showing that in 2015 sports broadcasts made up 93% of the top 100 live TV programmes in the US, live sports have become an obvious target for streamers looking to expand further.

There are also figures showing that streaming subscribers are dominated by younger users -even more so with valuable “cord cutters” (viewers who exclusively watch streamed television)- so the race to engage more with older demographics is becoming more crucial and major sports audiences tend to skew towards an older age group. Both of these factors make the acquisition of television’s most lucrative territory look very fertile to those services looking to cut into Netflix’s vast market share, and to Netflix themselves as they look to preserve their dominance.However, whilst rivals such as Amazon and Google were actively bidding on the games, Netflix were strangely absent from the field of play.

Commercial Breakdown

At first glance, it’s surprising to not see Netflix amongst those vying for the rights to America’s favourite sport. Despite their current domination of the streaming market, Netflix are starting to run risk of their expansive growth tapering off and tapping into new audiences is vital to sustaining that growth. Gaining a major sport would be ideal to achieve this, but there would be a potential issue with the traditional broadcast advertising that is prolific throughout most televised sports and the NFL is probably most laden with commercials of them all.

The stop-start nature of the game provides many ample opportunities to cut to a break and makes it some of the most valuable advertising space in the world (a 30 second ad during the Super Bowl can cost up to $100 million to broadcast), so the NFL would be reluctant to forego such an overflowing revenue stream just to fit in with a service’s ethos. Interestingly, this is exactly what happened last week when it was announced that Facebook had pulled out of the talks because of what they deemed excessive commercial usage. It’s hard to see Netflix being any more tolerant of a practise they have shunned since their inception.

Indeed, the prospect of Netflix showing NFL games without either party having to make significant and ill-fitting compromises over advertising is simply a fantasy. It is unlikely however that the likes of Amazon or Google are so concerned about the reliance on commercials, and possibly even embrace it with much of the audience already accustomed to them, plus many of the commercials would likely advertise products and services offered by the respective companies and their subsidiaries. So, who is most likely to put the first points on the board in this game?

Amazon at First and Goal

Amazon must be the current favourite with a well-established streaming subscription/pay-per-view platform on a plethora of household devices and a vast global reach. It is likely Amazon might have suggested Thursday night games could be shown on a pay-per-view basis and possibly packaged into a new premium subscription for Prime users.

Google can rival these advantages with You Tube, but the platform is currently and overwhelmingly associated with free, short content and, with its subscription service still its infancy, users are only just coming round to the idea of transactions on the service. It is that crucial difference that could lead Amazon to the end zone and spike the ball to give them an early lead over the other services in what is likely to become an extremely competitive space.

It is through Amazon’s distribution strengths though that we again start to see why Netflix are still sat on the bench when it comes to the world of sports. It is highly unlikely that Netflix will ever engage in pay-per-view since they have always offered all content unfettered by extra fees within the subscription. It’s not inconceivable that they may offer a higher cost subscription for those who want sport included, but this could lead to a fragmented service that Netflix would be wise to avoid as the all-inclusive nature of the platform is still an essential advantage for them. So would it be best for Netflix to stick with their pre-recorded model that has given them so much success to date?

Rumble in the Jungle or Rummage in the Jumble?

If Netflix were to stay exclusively pre-recorded, this would not necessarily exclude them from engaging with sports. There are certainly markets for archived sporting events and documentaries which would certainly draw in an older audience -if just for nostalgia alone- and it would be cheap and easy to implement. However, history and recent research would caution against such an approach.

In 1975, HBO changed the broadcasting of sport forever when they showed the Ali vs. Frazier fight exclusively on their service. The “Thrilla in Manilla” was the first ever pay-per-view sports event on American television and took HBO subscription numbers from thousands to millions overnight. Likewise, Sky TV in the UK saw a huge increase in adopters when they bought the rights to the inaugural English Premier League in 1992. The exclusivity surrounding its matches has subsequently led to the property becoming one the most highly valued and contested in sport with the value of each match increasing ten-fold over the last 24 years. It would seem an investment in high profile live sports not only rapidly increases the viewership, but also offers a huge return on the rights themselves.

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It would seem then that live sport is something Netflix will have to seriously consider or risk handing the initiative to others and potentially end their reign as current champions. The NFL may have been a poor fit for them, but there are obviously many alternatives for Netflix in this arena. Major League Baseball, the NBA, the English Premier League, and the UEFA Champions league must be considered as smart choices, but team sports present an issue to a platform that is likely to remain purely subscription based. Netflix would only likely to be able to buy a portion of games from the competitions and thanks to the partisan nature of sports fans, they may only subscribe when their team is featured on the service and that appearance would be sporadic over the course of a season causing fluctuations amongst subscriptions.

Even more problems emerge in this area if they were to consider buying the rights to ultra-high profile events like the FIFA World Cup or the Summer Olympics due to these events lasting for a single month and them only happening in 4 year intervals. As market leaders, Netflix can afford and should be prudent enough to pick the best sport for them and one could well be looming large in their rear-view mirror.

Taking Pole Position

Our belief is that if Netflix wants a sport tailor-made to their needs, they should look no further than Formula 1. The issue of fluctuating subscribers due to team allegiances is completely bypassed since all the competitors race in every event and the season lasts for 8 months annually. The average age of an F1 fan is 37, so Netflix would be pushing into the over 30’s demographic they have failed to gain to the same degree with the under 30’s. It is also a sport which has no natural place for commercials because of the lack of breaks during a race, so they are unlikely to face many demands to take on broadcast style advertising. But perhaps most importantly, despite being the most regularly watched sport in the world, F1 audiences have been diminishing.

In 2012 the sport transitioned in many territories to pay TV and caused an immediate 30% drop in viewers. Although financially this has still been a lucrative decision for the sport and rights holders as still nearly half a billion people watch Grand Prix worldwide, this is where Netflix could gain a distinct advantage: the current Netflix subscription is significantly cheaper than a standard sports subscription to pay TV. Sky TV currently pay £45 million a year to show F1 in the UK, meaning Netflix would need 6 million new subscribers to offset that cost at their current subscription price. With the UK audience currently standing at 27 million for F1, that must seem achievable and could be repeated in other territories.

As Netflix look to build on their current lead and the live streaming of sport seemingly the last clear avenue for them to do so, this formula (1) for carrying on their burgeoning success could keep them on top of the podium for years to come.

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David Murphy

David Murphy

EntSight Researcher