Netflix not yet sold on sports as analysts push for 'other sticky things'

Netflix (NFLX) reported its first quarterly loss of subscribers in a decade on Tuesday afternoon, and the disappointing earnings results reflected an ongoing challenge facing the streaming giant as more competitors enter the space.

While some of these competitors have increasingly diversified by streaming live sports on their platforms, Netflix executives aren't yet sold on the idea.

“I’m not saying we never would do sports, but we would have to see a path to growing a big revenue stream and a big profit stream with it,” the company's co-CEO and COO Ted Sarandos said on the earnings call, adding that Netflix has seen success in "sports-adjacent programming" such as "Formula 1: Drive To Survive."

According to Santosh Rao, head of research at Manhattan Venture Partners, content is "important" for Netflix, but it also needs "to get into some other sticky things like more gaming, maybe sports. Advertising revenue of course can go in all these additional levers that they need to pull because this is not working."

The company announced on Tuesday that it would be adding cheaper, advertisement-supported products. Shares of Netflix sank as much as 38% on Wednesday.

(Source: Netflix)
(Source: Netflix)

'We do think sports is a natural lever to pull over time'

Some of Netflix's biggest competitors are already in the sports space.

Amazon (AMZN) paid roughly $1 billion per year to stream the NFL's Thursday Night Football starting in the 2022 season. Apple (AAPL) also entered the live sports streaming action with Major League Baseball broadcasts and may be lining up a bid for NFL Sunday Ticket.

Disney (DIS) purchased NHL broadcasting rights for $400 million annually across the next seven years, and the company still holds NBA broadcasting rights through 2024. And ESPN+, Disney’s sports-specific streaming service, has proven that advertisements during live games can be a robust source of revenue.

According to Matthew Thornton, equity research director at Truist Securities, the investment that these streaming companies are making in live sports could help retain subscribers on their platforms — something that Netflix failed to do during its previous quarter.

“We do think sports is a natural lever to pull over time,” Thornton said on Yahoo Finance Live. “I do agree with the thesis that the profit, the value is more likely to accrue to the leagues, the content owners, as opposed to distributors. But even as a loss leader, to drive stickiness in the product we do think it’s something they ultimately will look at.”

Josh is a producer for Yahoo Finance.

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