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Netflix’s Pursuit of NFL Christmas Day Games Suggests Its Future May Be As a Digital Distributor

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Netflix’s Pursuit of NFL Christmas Day Games Suggests Its Future May Be As a Digital Distributor

Live NFL games are coming to Netflix (NASDAQ: NFLX). The video on-demand OTT streaming service will host a pair on Christmas Day 2024, and at least one on the holiday in ’25 and ’26.

Netflix is paying a hefty price for the rights–reportedly ~$75mm/game. The three-year pact appears to be even more one-sided when one considers the limited number of ad units included (roughly 1/2 of a typical NFL broadcast). 

However, if NFLX believes its path to long-term success requires transitioning from independent streamer into digital distributor, then one can understand the logic behind its pursuit of costly live linear programming. The NFL can be an invaluable content discovery and marketing tool. Conceptually, it’s what the league did for the broadcast networks in the old TV environment.

“Having live sports is better than the algorithm,” Patrick Crakes (principal, Crakes Media) said.

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To be clear, Netflix has never publicly stated plans to alter its approach. It’s also one of few streamers currently making money.

“But everything they’ve told us about how [the future of media] would work, and how it wouldn’t embrace or lever the learnings [and] approaches of the old linear television system, has been off,” Crakes said.

And one could argue the company has already taken several steps in the distributor direction.

“Netflix produces a lot of original content hours on an annual basis,” Crakes said. “But objectively speaking, most [of it is] modestly viewed. The 80 million plus people who pay for the service in the U.S. are doing so, in large part, because of all the licensed content they get” (see: it commands the majority of viewing hours).

The company, once criticized for buying content, seems likely to become even more dependent on others’ programming in the years ahead. 

“As subscriber growth in the U.S. tapers, Netflix may find the need to acquire even more licensed [content] to keep its enormous subscriber base.” 

Of course, Netflix hasn’t been particularly efficient or profitable trying to do more in-house, either (profits and subs did surge in Q1 following a password sharing crackdown).

The media companies would love for Netflix to pivot. Selling content libraries to a distributor for a lot of money is good business.

“It’s [also] a much better model than [every individual co.] trying to stand on [its] own so it can ‘cut out the middleman’,” Crakes said. “Especially if [the media company can] retain their smaller bundle by not selling everything [into syndication or to another streaming service] at once.”

But it could become problematic for NFLX investors. Becoming a distributor means Netflix will be subjugated to wholesale transfer pricing power.

“If the company tapers content spend and foregos increasing the number of original hours it produces each year to buy larger amounts of Disney, Warner Bros., and other established studios’ programming, eventually those on the entertainment side will have a say in how much Netflix makes,” Crakes said.

That’s not to say Netflix can’t or won’t succeed as a rent seeking distributor. However, its future might look like Spotify’s.

“The music publishing companies control what Spotify makes,” Crakes said.

They can see the publicly traded company’s operating margins are and negotiate against them.

And there’s little Spotify can do about it. 

“Without music publishing, [the company] doesn’t exist,” Crakes said.

Netflix could face a similar dynamic, albeit likely on a lesser scale.

“Over time, the media companies could raise rates until they get some semblance of control over the company’s operating margin,” Crakes said.

While the transfer of wholesale pricing power occurs slowly in entertainment, it happens almost overnight in sport (at least with the top properties). 

“You’re seeing it right now with the NBA,” Crakes said.

That wasn’t the case with the NFL’s newest package. But the two Christmas Day games will cost Netflix ~$150mm in 2024. For context, Fox Sports is paying ~$20mm per game in its current NFL deal (based upon an average of 110 games annually).

“They overpaid for what they got,” Crakes said.

NFLX will receive just 72 advertising units across the two games. The typical NFL game has ~62.

Presumably, Netflix believes it can increase viewer engagement by spending less time in commercial. 

But “if the games are on Netflix and you can’t flip around because of that, [doesn’t it] de facto already have strong engagement,” Crakes asked.

The NFL matchups are also going to occur on Christmas, so NBA aside, it’s not as if the fans’ alternative entertainment options will be robust.

It’s not yet clear how Netflix plans to fill the additional broadcast time or how general market fans will respond to a revamped format. There are natural pauses within a football game where commercials typically reside (think: end of quarter, halftime).

But logic suggests Netflix would be better off “running promotions for other content on the platform, or even [more] ads in an attempt to learn as much as it can about how engagement for its games differs from games on other platforms,” Crakes said. “Amazon spoke to the impact of its exclusive Black Friday game, and subsequently its ability to collect data on Prime signups, engagement with promotions, and sales volume.”

It's worth nothing that the public has received little in the way of information on how those benchmarks were impacted.

That said, there’s no real downside for Netflix in its experiment with the NFL. The games are going draw massive viewership (Nielsen will have the measurements), and if NFLX is planning to pivot to digital distribution they will serve as a strong test case for how sport can be used to drive content discovery.

“The new [digital] system is looking more and more like the old system all the time,” Crakes said.

Of course, the key will be in picking out what content to promote. 

“You would think that is where the [streaming] data would be useful,” Crakes said. “Matching up audience profiles with what it thinks the live sports audience will be.”

The data insights should also help steer Netflix’s internal development and future programming acquisition plans–including what it pursues within live sports.

Co-chief executive Ted Sarandos stated last year that the company was not ‘anti-sports’, simply ‘pro-profit’. We now see that he just meant it would get into a bidding war for a major tier one rights package.

At least not yet.

“But if [Netflix] fully develops out the idea of having linear programming channels, which you’re already seeing on other streaming services, then [this deal] gets it a little closer to that.”

In the meantime, it’ll find out just how much better live sports are than the algorithm.

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