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Ourand: Analysts suggest Netflix needs sports to survive

The earnings news hasn’t been great coming out of Netflix headquarters in California.getty images

Netflix is doomed to fail unless it starts to add live sports. That’s the view of at least two influential analysts who say the streaming service needs to figure out a sports strategy if it wants to rebound from its recent spate of bad financials.

During Netflix’s quarterly earnings call last week, co-CEO Ted Sarandos said the company won’t invest in sports until he sees “a path to growing a big revenue stream and a great profit stream with it.”

But MoffettNathanson analyst Michael Nathanson said the way Sarandos views sports rights is skewed. Nathanson called sports — especially in the U.S. market — a “low-margin, no-margin” business for streaming companies.

“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.” 

Needham analyst Laura Martin voiced a similar viewpoint in a research report released earlier this month before Netflix revealed a net loss of 200,000 subscribers in the first quarter, which led to a 35% drop in its stock price in just one day.

Martin said Netflix will not be a “streaming wars winner” unless it adds sports and news, buys a deep film and TV library, and adopts a bundling strategy.

Martin: “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 By implication, the historical content conglomerates that own live sports rights and breaking news assets are best positioned to win the streaming wars.”

Those sports rights almost certainly won’t come from the U.S. market, at least not right away. That’s because the U.S. market for sports rights already is so mature and prices for those rights already are so high.

Nathanson suggested Netflix look to global markets where it can buy sports rights more affordably and where it needs to grow its subscriber base.

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

John Ourand can be reached at jourand@sportsbusinessjournal.com. Follow him on Twitter @Ourand_SBJ and read his weekly newsletter and listen to his weekly podcast.

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