Could this be Netflix’s next big move?

streaming giant Netflix (NFLKS 1.25%) mentioned the promotional product in the first quarter earnings report, implying a rejection of the company’s historical insistence on subscription billing.

You need eyes to make money from ads, and that may be why the battle for sports broadcast rights is heating up in the industry. Netflix reportedly bid for the rights to streaming Formula 1 racing based on industry developments such as Amazonpartnership for streaming NFL games.

But live sports are relentlessly competitive, and investors should consider whether Netflix can emerge victorious or if live sports could threaten its streaming leadership.

Live sports cost big dollars

Professional sports are a staple of culture in the United States and around the world. Leagues are worth billions; celebrity athletes; fans spend a lot of money on clothes and tickets; and large audiences attract advertisers, fueling the success of this huge industry.

Media companies continue to shell out record amounts of money for the rights to broadcast sports and promote them to the millions of people who watch them.

The National Football League (NFL) has renewed its media deal in 2021 with a $100 billion deal. This includes the $1 billion that Amazon pays annually to stream Thursday night football, which is essentially one game a week.

Apple just signed a $2.5 billion broadcast contract for Major League Soccer (MLS) over 10 years. Walt Disney pays $1.4 billion a year to host National Basketball Association (NBA) games on ABC and ESPN, and that amount is likely to increase in a few years.

Netflix is ​​reportedly fighting Disney. Comcastand Amazon for Formula One racing rights, and the deal could cost the winner over $100 million a year.

Can Netflix beat the market?

Netflix could be an underdog in the sports arena. You can compare Netflix with its streaming competitors below and see that it’s the smallest fish in the group in terms of balance. Even with $6 billion in cash, he has the smallest military capital at his disposal.

NFLX cash and equivalents (quarterly chart)

Data for YCharts.

So it’s not clear if Netflix is ​​ready for a bidding war of this magnitude. Cash aside, the company itself is hardly free cash flow neutral, and its spending habits are already raising some long-term questions about the company. Meanwhile, competitors have legacy businesses generating billions of spare cash to support the growth of their streaming libraries.

NFLX Free Cash Flow Chart

Data for YCharts.

He might get something less like the claimed F1 rights, but investors probably shouldn’t expect it to be as big a deal as NFL or NBA games. The average Formula 1 event drew 934,000 viewers in the US in 2021, while Thursday Football’s viewership typically exceeds 14 million every week.

Investor withdrawal

The rise of ad-supported streaming is fueling a direct sports content war that Netflix has largely sat out so far. The company may have been a trailblazer in the industry, but in this case, it’s starting from the back.

Any additional spending can put financial pressure on a business that does not have a very large cash return, and this is against the backdrop of existing price pressure. Netflix is ​​one of the most expensive streaming services, and the lack of sports content may not help convince viewers to pay more.

Ultimately, streaming landscapes are in the air right now. The uncertainty is likely due to Netflix stock dropping more than 70% from its high. Perhaps investors will eventually look back on these issues and see an opportunity in hindsight. On the other hand, investors should take a leap of faith that does not guarantee a successful landing.

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