Netflix's WWE deal not signifier of deeper live sports push

Netflix reveals details about its future sports strategy following a new partnership with the WWE through its parent company, TKO Group Holdings (TKO). However, the streaming giant clarifies that this move should not lead investors to expect more sports deals to come. Netflix Co-CEO Ted Sarandos emphasized that WWE is "sports entertainment" on the earnings call and not a signal of a broader change in their sports strategy.

Yahoo Finance's Alexandra Canal reports on this story and breaks down the company's distinction between live sports and sports entertainment.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim.

Video Transcript

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AKIKO FUJITA: Well, Netflix out with more details about its future sports strategy after announcing a new partnership with the WWE. But should investors expect more sports deals from the streaming giant moving forward?

"Yahoo Finance's" Allie Canal joining us with the details. Allie, a lot of questions on this one in the earnings call yesterday. But we have heard over and over from Netflix that it's not specifically about live sports. There is a certain framing. I mean, what more do we know now that this other sports deal has been signed?

ALEXANDRA CANAL: Yeah, you're right. Basically, this shouldn't lead us to expect Netflix as going to commit to any more sports deals related to those professional leagues. Like you mentioned, Co-CEO Ted Sarandos was specifically asked about this on the earnings call, whether or not the WWE deal could open the door for other deals with leagues like the NHL, NBA. Here's a bit more of what he had to say when asked about that.

TED SARANDOS: WWE is sports entertainment. So it's really as close to our core as you can get of that sports storytelling. So in terms of the deal itself, it has options and it has the protections that we seek in our general licensing deals, and with the economics that we're super happy with globally. So I would not look at this as a signal of any other change or any change to our sports strategy.

ALEXANDRA CANAL: So sports entertainment, the storytelling of sports. And there's been a lot of debate out there, whether the WWE, if you could consider that sports or if it is solely entertainment. But Netflix has been really consistent with that messaging.

And simply because they don't want to pay those high sports rate fees. And for good reason, because those annual fees are very expensive. You have the Amazon NFL deal that's valued at over $100 billion over 11 years. Comcast Peacock shelled out $110 million for the rights to broadcast just one NFL game. You have that Apple MLS deal, soccer-- certainly more of a niche sport here in the US-- but still $2.5 billion over a 10-year deal.

So you're seeing a lot of these big tech companies really doubled down on sports where Netflix has taken a slightly different approach. We saw them debut the Netflix Cup, which was that live celebrity golf tournament. I'm sure we're going to see them dabble in a lot more live events moving forward. That's certainly been the vibe on Wall Street after this WWE deal.

That's their lane. That's where they want to stay-- in the entertainment of sports. But analysts across the board have told me that they're not going to be able to stay in that lane forever, that eventually, they're going to have to pay up for those pricey sports contracts. Because that's really the last frontier of the streaming wars, especially as the cable bundle really deteriorates.

RACHELLE AKUFFO: It's true. I would say WWE may be sports adjacent.

ALEXANDRA CANAL: Exactly.

RACHELLE AKUFFO: I don't know if I can call it sports, but close to it. Now of course, other news coming out. Netflix alluding to some changes to its pricing plans this year again. So what impact might that have?

ALEXANDRA CANAL: Yes, basically, if you're in any market where the ad-supported tier is offered, don't expect to continue to be on that basic ad-free plan. That is their cheapest ad-free plan. They have said consistently that they are going to be phasing that out. And they confirmed that in the earnings release yesterday, saying that they're going to completely eradicate that basic ad-free plan.

And the reason for that is simple. They really want to drive consumers over to their ad tier, which has consistently shown pretty good momentum over the past year. They said that ad tier memberships increased by nearly 70% quarter over quarter, and now accounts for 40% of all Netflix signups in the markets that it's offered in.

Now management has said that they're still in a slow growth phase there. And it's going to take several years before they can really see the impact of the ad business until they can really have it be material to their general business moving forward. There's certainly a lot of competition in the ad supported space.

Amazon is going to be rolling out its own ads. That's going to be the default for Amazon Prime Video beginning January 29. Netflix did address that. They said-- there's a lot of opportunity here and there could be multiple players. But that they need to make sure they have the best quality product out there, and really the best content to ensure that they're bringing as many subscribers onto that plan as possible. So something to keep track of moving forward, but that's certainly a catalyst for the stock over the next few years.

AKIKO FUJITA: Yeah, Allie, still can't get myself to sit through ads, but I may need more value there.

ALEXANDRA CANAL: I pay for it. It's not that bad. It's not that bad, Akiko. I do the Netflix ad plan.

AKIKO FUJITA: All right, maybe I'll consider switching. Allie Canal's always staying on top of all the streaming news there for us. Thanks so much.