Analysts: Netflix needs to rely on sports for it’s survival

Unless Netflix begins to offer live sports, it is bound to fail. At least two powerful analysts believe the streaming service needs to work out a sports strategy if it wants to recover from its recent financial setbacks.

Ted Sarandos, co-CEO of Netflix, said on the firm’s quarterly earnings call last week that the company will not invest in sports unless he sees “a path to growing a big revenue stream and a great profit stream with it.”

However, Michael Nathanson, a MoffettNathanson analyst, believes Sarandos’ perspective on sports rights is biassed. Sports, especially in the United States, are a “low-margin, no-margin” sector for streaming providers, according to Nathanson.

“Sports will be a money loser, but it breaks through the clutter in an incredibly cluttered world,” Nathanson said. “I think Netflix has to do it.”

Prior to Netflix’s announcement of a net loss of 200,000 subscribers in the first quarter, which resulted in a 35 percent decrease in its stock price in only one day, Needham analyst Laura Martin expressed a similar stance in a research study released earlier this month.

Netflix, according to Martin, will not be a “streaming wars victor” unless it adds sports and news, purchases a large film and TV collection, and implements a bundling strategy.

“We believe the streaming war will be won by the streaming service that offers consumers 360-degree content choices similar to the linear TV bundle. By implication, the historical content conglomerates that own live sports rights and breaking news assets are best positioned to win the streaming wars,” said Martin.

Those sports rights are unlikely to come from the United States, at least not in the near future. That’s because the sports rights market in the United States is already mature, and prices for those rights are already high.

Netflix should go to foreign areas where it can buy sports rights more cheaply and boost its subscriber base, according to Nathanson.

“Netflix needs to do something in some of these markets to break through the clutter,” he said. “That’s what sports is great at.”