Will Netflix get into live sports? One prominent analyst predicts it will happen (2023)

It is one of those heady questions that has launched a thousand sports business conferences:

What is the future of televised sports?

With traditional television hemorrhaging households, the abysmal state of the advertising market, and the depressing drumbeat of media job layoffs, the answer to the question remains in constant flux. One of the most powerful CEOs of a media giant, Disney CEO Bob Iger, told CNBC a couple of weeks ago that his company was weighing a sale of its linear TV assets, including broadcast network ABC, and was open for business regarding potentially selling an equity stake in ESPN. CNBC’s Alex Sherman followed with a report a few days later that ESPN has held early talks about strategic partnerships with the NBA, NFL and MLB that could include the leagues taking an equity stake in the business. (ESPN declined to comment on that report.)

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To get some insight from one of the top media analysts in the business, I reached out this week to Michael Nathanson, co-founder of the research firm MoffettNathanson. If you are a frequent CNBC watcher, you may recognize his name. Nathanson provided trends in media, communications and technology to institutional investors as an independent research outfit for decades before his company was acquired by the SVB Financial Group in 2021. (For disclosure purposes regarding sports properties, SVB Securities LLC makes a market in Netflix, Fox Corporation, Paramount Global, Roku, The Walt Disney Company and Warner Bros. Discovery, Inc.)

Here is an abridged version of my conversation with Nathanson. You can hear the whole conversation here.

You’re probably the most prominent analyst, at least among the ones I’ve read, who continues to believe that there will be a time Netflix will get into live sports. Company leaders have continued to say they won’t jump into live sports. Netflix does continue to add more sports-adjacent programming such as “Quarterback,” “Break Point,” “Full Swing” and “Tour de France: Unchained.” As we talk today, do you think this will still happen?

I have learned to watch what Netflix does and not what they say. I used to interview (co-CEO) Ted Sarandos 10-12 years ago when I was at another firm, and he was like, “I’m not going into original content, that’s a risky business. We’re not going to make movies, that’s a tough business.”

I think the issue that Netflix is going to have is there’s an upper band on their ability to price. There’s a point at which I say to my family — for, say, $25 a month — “I’m sorry, but it’s maybe an hour and a half of our day.” It’s a ton of money. But if you add sports, the history of sports pricing is pretty powerful, right? Look at the price of tickets to baseball games these days for 81 games a year. I think it will drive pricing, and I think it would also be better ROI than the films they’re making. Films are really expensive. We’ll see what happens. The NBA deal is coming up, so let’s see what happens. The NBA, given it is international, would be a win-win for both sides.

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Bob Iger’s comments to CNBC were somewhat seismic in terms of news. He talked about looking for strategic partners for ESPN and said he wants to stay in the sports business. He also talked about perhaps getting rid of ABC. How did you read what he said?

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I find Bob Iger probably the most honest CEO I’ve ever dealt with, but I was surprised he did it on CNBC. I was surprised he did it that way. Usually, people make announcements like that and say, “Here’s what we’re going to do.” I feel like we got the first part of the speech, and what was missing was, “Here’s how we’re going to deal with it.”

There was nothing he had said about linear networks that would surprise any of us. We’re really bearish for linear networks. What he said about ESPN did not surprise us either. … When the CEO of one the best companies in the world tells you these linear assets have no value to him, I’m not sure how anyone else is going to see value in those assets.

Then, on ESPN’s side, to me, it’s not obvious how that’s an easy win for someone to take an equity stake in ESPN because we think they’re about to hit a bit of a cliff in terms of their business model. Things are getting worse on the top line, and they have a bunch of renewals coming on the cost side. So I give him an A-plus for honesty and much lower grades for OK, so now, what are we going to do about it?

CNBC’s Alex Sherman reported that ESPN has held early talks about a strategic partnership with the NBA, the NFL and MLB that could include the leagues taking an equity stake in the business. How would you view that?

Does it solve their ills? If you just step back and look at the challenges ESPN is facing, they’re facing a revenue problem because people are cutting the cord and, therefore, there’s less homes paying every year. They’re facing a challenge because they have not truly scaled yet for ESPN+. We did a note on this: The vast majority of their subs are in a bundle. So there’s not a huge cohort of fans right now outside the bundle who want to pay for ESPN+ on their own.

They have a revenue issue. They also have a cost issue because they have a lot of fixed-cost contracts that are only rising just as their revenues fall. But maybe it’s a way to absorb some losses, get some funding, and really link interests longer term because the leagues need ESPN to survive. It’s a great feeder channel for their sports. It builds awareness, it builds brand. They need ESPN to exist and be healthy.

Will Netflix get into live sports? One prominent analyst predicts it will happen (2)

With Disney looking for a new strategic partner for ESPN, the network has reportedly engaged in early talks with the NBA and other leagues about such an arrangement. (Kirby Lee / USA Today)

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How do you feel about sports rights at large as we talk in July 2023?

I think with the return on investment, you have to be a lot more judicious about the decision-making. The NFL pulls the rest of your business along with it. To me, you have to basically break it down between streaming and linear, national and local, and within national, the hierarchy of rights. So it’s a complicated answer. What I have come to believe is I think streaming services have to bring sports in more and more because of the recurring viewership. The churn reduction during the NBA season and the NFL season is very valuable. We spend all this money making original content, and that’s literally a roll of the dice. So the sports rights have to be in that top upper funnel of quality. I think that the strong will survive and use streaming as a way to offset the weakness of linear.

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I wonder about the middle and bottom (for sports rights). One big question will be about the UFC and WWE. How do they do (with their deals)? They are a 52-week season. They have premium events. They’re good for streaming. That’s going to be interesting. That’s going to be kind of the canary in the coal mine, what happens with WWE and UFC in the next couple of years.

The last time we spoke, you spent a lot of time focusing on the NBA’s need for reach when it comes to their next media rights deal. Is Adam Silver still thinking about reach given the market forces?

I think it’s a combination of reach and the size of the checkbook. He’s been a partner with Turner (now Warner Bros. Discovery Sports) for a long time, and Turner has done a great job with their pregame shows and covering the league. But (CEO and president of Warner Bros. Discovery) David Zaslav can’t afford to pay Adam as much as he wants. So I think you have to take Zaslav’s check as long as it’s reasonable. But he needs to find more partners.

He needs to basically look like the NFL. He needs two or three partners and a streaming platform. The NFL has always given a really good blueprint of how to do this. The NBA is penalized by being (mainly) on a cable system. Folks my kids’ age don’t subscribe to pay TV, but they like the NBA. They need to find some way to deliver that to my kid. What does Turner do? I think Turner really needs it. NBC’s supposedly in the mix, and they can use Peacock as well. We’ll see how aggressive (Comcast CEO) Brian Roberts wants to be here. But if I am Adam Silver and I can get close to similar money with a broadcast (network), I do that over TNT despite all the support.

We’ve all read a ton of stuff on how the business community says the time to invest in women’s sports is now. It’s one thing to say it and another thing to put the money down. Will it happen?

I think the LSU-Iowa (women’s college basketball title) game made people take notice. The (Women’s College) World Series on ESPN is great. We’re in the midst of a real societal change. … I think all these companies have to put their money where their mouth is. They have to step up and do it. The decision will be, where does the money come from? For example, this was not in our budget before, and then, what gets kicked out? Given the big-picture view that scripted programming is going to streaming and there’s too much of it, and linear exists for live sport and they need more of it to be exclusive, I think (women’s sports) makes sense. We’re in a sweet spot right now.

Is there any connection between the double strike that we’re seeing in Hollywood and sports content?

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We’ve been pretty clear that the longer the strike goes on, the worse it gets for the industry. If this thing goes through Thanksgiving, it will be terrible. It’s going to affect the box office. It’s going to affect broadcast television. It may affect cord-cutting. The winner is the NFL and college football. You’re going to have massive advertiser interest in sports. “What’s on tonight, honey?” “Well, more sports, more football.”

I think for those networks like Fox and ESPN, etc. … it’s going to be good for them. This is going to further prove the thesis that you need to have live sports. I think if this thing goes on, it will really wound the legacy companies in a way that’s going to make consolidation more likely. It’s going to be very good for Netflix, probably good for Amazon and Apple because it’s not their core business, and probably good for Disney and Fox. But it’s going to create more pressures for everyone in this industry the longer this thing goes on.

In the event you missed Leo Messi’s first game on Apple TV, I watched the broadcast and wrote about it.

Episode 318 of the Sports Media Podcast with Richard Deitsch features The Daily Northwestern staffers Alyce Brown, Nicole Markus and Cole Reynolds. The three student journalists detailed allegations of hazing and a racist environment within the Northwestern football program. In this podcast, Brown, Markus and Reynolds discuss their reporting process; how they came across the whistleblower for their initial story; how they approached interviewing former players; the editing process of the story; seeing the story get shared on social media and being mentioned by major outlets; the speed at which the news cycle happened; whether this has increased their desire to do this as a profession; why they enjoy journalism and more.

You can subscribe to this podcast on Apple Podcasts, Google Play, Spotify and more.

We have some initial group-stage viewership data from the Women’s World Cup. The United States’ opening 3-0 win over Vietnam averaged 5.26 million viewers on Fox (and peaked at 6.5 million viewers), making it the second most-watched group-stage telecast ever on English-language television. (Sports Media Watch said it was the 10th largest Women’s World Cup audience on a single network.) Telemundo, Peacock and Universo added 1 million viewers. The current record for a Women’s World Cup group-stage match (which I expect to be broken on Wednesday with the U.S.-Netherlands game airing in prime time) on one network is 5.3 million viewers for Chile in 2019.

Some things I read over the last month that were interesting to me:

• Phenomenal reporting from ESPN’s Don Van Natta Jr. and Seth Wickersham: How the leak of Jon Gruden’s email led to the fall of Commanders owner Dan Snyder.

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• Explore the World of Willa Cather in Her Nebraska Hometown. By Jeff MacGregor of Smithsonian Magazine.

Notre Dame football is conference realignment’s biggest prize. Can NBC keep it independent? By Pete Sampson of The Athletic.

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• Here’s why a father and son from the U.S. drove to Ontario for ketchup chips. By Hannah Alberga of CP24.

• Tim Burke and lawyers deny hacking Fox News, demand return of devices. By Justin Garcia of the Tampa Bay Times.

• A Eulogy for My Father. By Olivia Witherite.

• Eric Bach is an openly gay broadcaster for the Fredericksburg Nationals. He has major-league aspirations, but his path has been much lonelier than he would prefer. By Zach Buchanan for The New York Times.

• They lost their kids to Fortnite. By Lucy Rinaldi of Macleans.

• Honoring the Last of the ‘Boys of Summer.’ By Tyler Kepner of The New York Times.

• How a hazing culture evolved at Northwestern’s Camp Kenosha: ‘There’s a significance to ritual.’ By Kalyn Kahler and Brian Hamilton of The Athletic.

• Who Walks Always Beside You? A disappearance in Arkansas. By Benjamin Hale of Harper’s.

• Sam Kerr and the Dream of an Australian World Cup Title. By Naaman Zhou of The New Yorker.

• My Impossible Mission to Find Tom Cruise. By Caity Weaver for The New York Times Magazine.

• One of the best pieces I read this year. Just read it.

(Photo of Marcus Mariota, Patrick Mahomes and Kirk Cousins at the premiere of Netflix’s “Quarterbacks” documentary series: ChrisDelmas / AFP via Getty Images)

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