[투자의 창] For lucrative sports broadcasting rights, the OTT industry focuses on advertising-type plans: Seoul Economic Daily

Se-hwan Kim, Senior Researcher, KB Securities Research Center

Recently, competition in the online video service (OTT) industry is focused on sports broadcasting rights. Compared to self-produced content, sports require less concern about new content and there are no difficult factors such as content planning or actor recruitment, so it is highly cost-effective.

In addition, thanks to the nature of real-time viewing, it can attract sports fans, making it easy to secure subscribers and preventing the loss of existing customers. Above all, the fact that premium advertising can be sold based on high viewership ratings is increasing the interest of media dinosaurs.

Netflix is ​​also investing heavily in sports broadcasting rights. Last month, Netflix exclusively broadcast live the match between legendary boxer Mike Tyson and YouTuber-turned boxer Jake Paul. More than 72,000 spectators gathered at AT&T Stadium in Texas to watch the match, the 9th largest audience in American combat sports history. It broke its highest sales record by recording $18.11 million (approximately KRW 26.1 billion) in admission revenue. At the time, the number of simultaneous users on Netflix was 65 million, which surpassed the record of 59 million viewers for the World Cup final broadcast by Disney Plus Hotstar last year and the 53 million viewers for the live broadcast of the final of the T20 cricket tournament between India and South Africa.

Earlier this year, Netflix also signed a 10-year contract worth $5 billion (approximately 7.181 trillion won) with World Wrestling Entertainment (WWE). There are approximately 2 million Americans who watch WWE’s popular program ‘RAW’ on TV, which is expected to be a variable in attracting new subscribers to Netflix. In addition to RAW, Netflix plans to exclusively broadcast approximately 150 hours of live broadcasts annually, including SmackDown and WrestleMania. Regarding its investment in professional wrestling, Netflix believes that rather than immediate profits, RAW, a sports drama, fits its business direction and will be advantageous in securing long-term customers as it has cultivated multi-generational fans for decades.

Other large American companies (Big Tech) are also increasing their investments. Apple TV+ spent $2.5 billion to secure the rights to broadcast Major League Soccer (MLS) for 10 years, and Amazon Prime Video paid $1 billion annually to monopolize the National Football League (NFL) ‘Thursday Night Football’. It’s being broadcast. YouTube sells products to watch all Major League Baseball games for a subscription fee and has also acquired the rights to broadcast NFL Sunday games. In the case of the American professional basketball (NBA), a broadcasting rights contract worth $76 billion over 11 years was signed with NBC (Peacock), ABC·ESPN (Disney), and Amazon Prime Video.

Netflix’s investment in sports broadcasting rights is also highly related to advertising-based plans. This is because Netflix’s profitability is improving by aggressively switching to advertising-based plans. The revenue earned from advertisers rather than receiving monthly fees from existing customers is having a significant impact on improving margins. Operating margins are continuing to improve due to demand for Netflix’s conversion to advertising-based plans, and return on equity (ROE) based on shareholder returns is also showing an upward trend.

In terms of stock price, Netflix’s 12-month forward price-to-earnings ratio (PER) is 39.3x, which is higher than the market’s 22.1x, which may cause short-term volatility, but its price-to-earnings-growth ratio (PER) is 1.2x, which reflects its long-term profit growth potential of 32.7%, compared to the market (1.8x). It can be said that it is undervalued compared to its competitors.