Could Netflix take a half-court shot? – Industry Voices: Grebb

Michael Grebb Industry Voices

NBA sports rights are up for grabs this year, and the league reportedly wants $75 billion to tie up the next eight to 10 years.

A number that large suggests it will follow the path of most other leagues, fragmenting the rights across several linear TV and streaming outlets to extract maximum fees from multiple entities. That strategy has worked well for the NFL and others. However, the NBA could consider another path: Putting all those rights in one place. And there’s only one company that could both afford the massive cost and potentially still make a profit on it across the globe: Netflix. Is it nuts to think this global streaming powerhouse could buy up all NBA rights for the next 10 years - lock, stock, and basket?

Perhaps it is. While Netflix just spent $5 billion to sew up most of the global rights for sports-adjacent WWE for the next decade, its executives have adamantly denied big sports ambitions. On Netflix’s Q3 earnings call in October, co-CEO Ted Sarandos signaled “no core change in our live sports strategy” and has often said Netflix focuses on “the drama of sport,” not live games. At the UBS Global TMT Conference in December, Sarandos famously clarified that “we’re not anti-sports; we’re just pro-profit.” Then in the Q4 earnings call in January, when an analyst specifically pressed him on whether the live component of the WWE deal meant Netflix might grab some NBA rights, Sarandos doubled down: “I would not look at this as a signal of any other change or any change to our sports strategy.” We get it: Netflix clearly wants to avoid spending billions on major league sports rights. But recall that Netflix said for years it would never launch an ad tier. Things change. 

It’s true that the $5 billion WWE price tag over 10 years is a far cry from exclusive NBA rights that would cost at least $7.5 billion per year. The NBA could actually demand even more than $75 billion to put its entire fortunes in one walled garden, fearing a loss of eyeballs that could hurt ancillary revenue streams such as swag and other licensed products, disrupt RSN arrangements, and irritate in-game sponsors and partners who want broad distribution and viewership. And why would the NBA trash decades-long relationships with major media companies to bank it all on Netflix? The whole idea of an exclusive NBA-Netflix partnership just seems like a crazy scenario, right? 

But let’s game this out. It’s not as illogical an idea as it may seem on the surface for a few reasons.

First, Netflix has a massive global base of 260 million subscribers in 246 countries, more international reach than any other streamer (Only Disney+ comes close.) The NBA, meanwhile, is one of the most popular U.S.-based sports leagues around the world, greatly eclipsing the NFL, MLB, and NHL. According to Ampere, the value split of the NBA’s U.S. to international rights is 78% to 22%. That’s compared to 98% to 2% for the NFL and 95% to 5% for the MLB. Sure, NBA rights could be 14 times the cost of those WWE rights for Netflix - but they could also be 10 times more valuable than the NFL outside the U.S. Picking up the NBA would give Netflix more room to grow in markets like Europe and Africa, not to mention Latin America where Argentina and Brazil in particular love the game. (As for China where basketball is huge, the NBA has a longstanding deal with Chinese streamer Tencent, and U.S.-based media companies like Netflix generally can’t operate there anyway.)

The bottom line: Making Netflix the only place to watch NBA games could drive global subscriber growth for years to come.

But perhaps the biggest beneficiary of Netflix cornering the NBA market would be its relatively new ad tier, which so far has grown more slowly than most expected. According to monthly audits by One Touch Intelligence’s StreamTRAK video intelligence service, Netflix’s ad tier has averaged only 1.4 minutes of advertising per hour over the last 12 months. That’s far below competitors like Disney+ (3.1 minutes) and Hulu (4.1 minutes) and part of the reason Netflix spent that $5 billion on WWE rights, as wrestling will certainly be an advertising draw. The NBA would be an advertising and sponsorship bonanza in comparison. It’s hard to find any reliable data on how much advertising revenue the NBA generates around the world, but Statista estimates the league raked in $10.6 billion in total revenue in 2023. Most of that comes from media partners selling advertising. 

If Netflix added even 5 million new subs in the U.S. because of the NBA, that would be anywhere from $420 million to $1.4 billion per year in new sub revenue, depending on which tiers people take. Netflix pricing varies around the world, but it’s hard to imagine the streamer couldn’t add hundreds of millions of dollars to its sub revenue annually with NBA sign-ups. And all this assumes that Netflix just charitably includes NBA content with current Netflix packages; nothing would stop it from creating a premium NBA tier like Apple TV+’s MLS Season Pass. With potential ad and sub revenue combined, it’s more than plausible that Netflix could make a profit on that $7.5 billion (or even more) annual rights expense? And why couldn’t the same company that saved “Breaking Bad,” re-popularized “Friends” to a new generation, and spurred a “Suits” spinoff use its global marketing power (and algorithmic discovery engine) to drive record NBA viewership and ad revenue?

Netflix already spends $17 billion per year on content, much of which costs a lot to produce and ends up dying after the first season. During 2023, Netflix grew subscribers by nearly 30 million accounts while spending only $13 billion on content because of disruptions from the actors and writers strikes. Netflix could easily cut some of its other content spending to make room for the NBA, even if it bought exclusive rights to create a much bigger and badder version of what Apple TV+ did with the MLS. This is a company with nearly $34 billion in annual revenue. It can afford to take big swings, or in this case, big half-court shots. After NBA sports rights get sewn up this year, they likely won’t come up again for a decade. The clock is ticking. And while Netflix seems to have no interest in taking even a small slice of the NBA, much less exclusive rights, it could still shock the world. Right at the buzzer.

(For more on the wild world of sports, download One Touch Intelligence’s free special report on the planned “Spulu” streaming venture here.)

Michael Grebb is Senior Vice President and Lead Analyst for One Touch Intelligence, which provides market intelligence and industry analysis services for leading companies in the media and telecommunications space. The One Touch Intelligence StreamTRAK series is a complimentary service offering industry professionals insights and context around developments in the digital media sphere.

Industry Voices are opinion columns written by outside contributors — often industry experts or analysts — who are invited to the conversation by StreamTV Insider staff. They do not necessarily represent the opinions of StreamTV Insider.