“We’re not anti-sports, we’re for profits, and we’ve not been able to figure out how to deliver profits in renting big-league sports in our subscription model. Not to say that won’t change.” 

— Netflix co-CEO Ted Sarandos, Netflix Q4 2022 earnings call


Netflix’s recent acquisition of the U.S. media rights for WWE’s “Monday Night Raw” is a significant departure from its skepticism regarding the value of live sports content on its platform. This shift in content strategy catapults Netflix into the competitive realm of live sports broadcasting and raises two fundamental questions:

  1. What are the changes that have occurred to enable Netflix to profitably license live sports content?
  2. What made WWE the right partner for its initial foray into live sports content?

Netflix enters the live sports ring, ready to wrestle for viewers

The U.S. streaming market recently underwent a significant transition, moving from a high-growth phase that emphasized net subscriber adds to an era characterized by intense competition and a focus on profits. As the market has become saturated and subscriber growth has slowed, streaming platforms have materially raised prices on ad-free plans and introduced ad-supported tiers in a bid to drive profitability (see Figure 1). 

Live sports are uniquely positioned to attract new subscribers, retain existing subscribers and be the catalyst to quickly scale an advertising platform as a result of their large, dedicated preexisting fan bases (e.g., Peacock’s exclusive NFL playoff game drove an estimated 2.8 million sign-ups, according to a preliminary analysis from Antenna). The inherent nature of sports — real-time, communal and unpredictable — delivers a critical mass of viewers, making it an attractive property for advertisers, which dovetails with Netflix’s recent emphasis on its ad-supported subscription tier.

As its mix of subscribers continues to shift toward the ad-supported model, Netflix’s ongoing pursuit of subscriber engagement will increasingly provide a direct financial benefit. In an ad-free world, subscriber engagement is indirectly valuable as higher engagement is generally indicative of higher ongoing subscriber retention; however, in an ad-supported world, subscriber engagement is directly valuable, as the more time subscribers spend watching Netflix content, the more revenue Netflix will generate.

The ability to deliver incremental viewership is where live sports really shines. Based on a recent L.E.K. Consulting survey of avid and casual sports fans, 60% of time spent watching live sports is incremental to time spent watching scripted content. This jumps to roughly 75% among Generation Z and millennials (see Figure 2). By acquiring live sports content, Netflix is not just competing with other streaming services but also capturing time that would have been spent on video games and YouTube and other social media, particularly among sports fans under 40. 

Netflix and WWE form the mega powers of streaming

While the timing of the WWE show’s availability likely played a factor, partnering with WWE for its first experimentation with live sports content is a calculated move by Netflix. “Monday Night Raw” offers three hours of new content each week, 52 weeks a year with no offseason, which helps support ongoing subscriber retention.

While WWE’s fan base is smaller than those of major sports leagues like the NFL, NBA and MLB, it still rivals that of the UFC and surpasses other sports leagues, including PGA, NASCAR and MLS, and performs relatively well among Gen Z and millennials (see Figure 3). Furthermore, WWE fans, like many sports fans, tend to be avid fans of television in general and over-index on screen time. They are both incremental and complementary to Netflix’s subscriber base. 

With an average weekly viewership of about 1.5 million to 1.8 million for three hours over the past year, WWE is poised to significantly bolster Netflix’s advertising efforts. While WWE has historically under-indexed in sponsorships and advertising, the TKO Group appears to be making progress on this dimension as WWE forms more mainstream partnerships.

Additionally, WWE is a global property with a strong international footprint. While the U.S. distribution deal is currently limited to “Monday Night Raw,” Netflix will be the home to other WWE properties internationally, including “WWE SmackDown,” “WWE NXT” and tentpole premium live events like WrestleMania and SummerSlam. With one deal, Netflix has secured access to hundreds of hours of new live sports content each year that has a built-in audience around the globe.

Beyond the mat: The broader implications of Netflix’s WWE deal

Sports rights holders: Netflix’s foray into live sports is a clear indication that a new bidder has entered the ring, equipped with deep pockets and global reach. However, rights holders shouldn’t pop the champagne yet, as Netflix is likely to be prudent with future spending as it searches for live sports content that fits its needs.

Other streaming services: Netflix’s move disrupts the previously clear waters of competitive differentiation. Netflix is no longer “everything but live sports” and is in the early stages of competing for sports viewership. In the medium term, this may dilute the unique value proposition of competitor streaming platforms and necessitate an evolution in their content strategies.

Scripted content producers: Netflix’s investment in live sports could signal a broader shift in content budget allocation, potentially decelerating the growth rate of investment in scripted content and requiring a strategic recalibration of content producers’ development approach.

For more information, please contact strategy@lekinsights.com.

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2024 L.E.K. Consulting LLC

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