Sports

Netflix’s NFL deal highlights streamer’s ‘natural evolution’ as sports rights take center stage

Netflix’s (NFLX) surprise three-season deal with the NFL marks a major shift for the streaming giant, which has historically eschewed traditional investments in live sports.

As part of the deal, the platform will broadcast two Christmas Day games: the Pittsburgh Steelers taking on the Kansas City Chiefs, followed by a matchup between the Baltimore Ravens and the Houston Texans.

Some on Wall Street see the move as an experiment for Netflix, with streaming platforms forced to expand their offerings, especially amid the recent introduction of advertising tiers.

“I think it’s much more about testing the waters, learning how to advertise in sports,” Citi analyst Jason Bazinet told Yahoo Finance, arguing that the NFL will only help not necessarily the streamer to retain its subscribers in the long term.

“Eventually, (Netflix) will probably bid for more sports rights and do more advertising,” he speculated. “I think it’s a good thing. It’s just a natural evolution of the business.”

The deal comes as the NFL has added more streaming services as media partners. The list also includes Prime Video from Amazon (AMZN) and Peacock from Comcast (CMCSA). And Google’s YouTube TV (GOOG, GOOGL) has exclusive rights to NFL Sunday Ticket, which brings out-of-market games to fans nationwide.

JPMorgan analyst Doug Anmuth said in a note to clients that he believes the games will help boost Netflix’s advertising tier and allow the company to “actively promote” its own content during games .

Netflix — which would pay less than $150 million per game, according to Bloomberg — will also bring broad global distribution to the NFL, according to Anmuth.

“All three NFL Christmas games last year ranked among the top 25 most-watched TV programs in 2023. With a partnership spanning three years, we believe NFLX could deepen its relationship with the NFL, especially as the league looks to further diversify its distribution strategy and we would expect more live sports over time,” he wrote.

Jefferies agreed, writing in a research note following the news: “We are positive about the NFL deal, which we believe will create a compelling value proposition for NFLX’s emerging advertising business.”

“This would represent NFLX’s largest foray into fully unscripted live sports content,” the bank said, calling the terms of the deal “highly attractive” given that the company has already spent similar sums for original films such as “The Gray Man” and “Red Notice.” “

Sports rights have become increasingly important to media giants as more consumers cut the cord. Content is considered “sticky,” meaning loyal audiences are more willing to shell out their monthly cable or streaming service fees to access sports over other types of content.

“This foray by Netflix into live sports is a game-changer for the company,” said Paul Dergarabedian, senior media analyst at Comscore. “The immediacy of live events is what makes them such a draw for audiences. … Many people are already going too far, cutting the cord and watching all kinds of streaming content. Sports are the natural next step in this evolution. “

Netflix has previously argued that it wants to focus on “sports entertainment” instead of paying for the rights to live sports, which can be costly for media companies.

In the past, the company has released docuseries and sports content like “The Quarterback”, “Formula 1: Drive to Survive”, “Full Swing” and “Break Point”, in addition to live sporting events like “Netflix.” Cup,” a celebrity golf tournament, broadcast late last year.

A recently announced partnership appears to be a departure from this status quo. In January, Netflix announced a 10-year deal with TKO Group Holding’s WWE (TKO) that will bring WWE’s flagship program Raw, a live wrestling production, to the streaming service starting in 2025.

It also announced a live-streamed boxing event in July between YouTuber Jake Paul and heavyweight champion Mike Tyson.

FILE - Kansas City Chiefs quarterback Patrick Mahomes (15) throws a pass during the first half of an NFL playoff football game against the Pittsburgh Steelers, Sunday, Jan. 16, 2022, in Kansas City, Missouri.  Netflix and the NFL announced a three-year deal on Wednesday, May 15, 2024. to stream games on Christmas Day, which includes the Chiefs taking on the Steelers on December 25, 2024. (AP Photo/Travis Heying, File)

Kansas City Chiefs quarterback Patrick Mahomes (15) throws a pass during the first half of an NFL playoff football game against the Pittsburgh Steelers, Sunday, Jan. 16, 2022, in Kansas City, Missouri (AP Photo/Travis Heying, File) (ASSOCIATED PRESS)

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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