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Netflix's NFL deal highlights streamer's 'natural evolution' as sports rights take center stage

Netflix's (NFLX) surprise three-season deal with the NFL marks a major shift for the streaming giant, which has historically avoided traditional live sports investments.

As part of the deal, the platform will stream two Christmas Day games: the Pittsburgh Steelers taking on the Kansas City Chiefs, followed by a matchup between the Baltimore Ravens and Houston Texans.

Some on Wall Street view the move as more of an experiment for Netflix, with streaming platforms pressured to expand their offerings, especially amid the recent introduction of advertising tiers.

"I think this is much more about testing the waters, learning how to do advertising inside of sports," Citi analyst Jason Bazinet told Yahoo Finance, arguing the NFL won't necessarily help the streamer retain subscribers over the long term.

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"Down the road, [Netflix will] presumably bid on more sports rights and do more advertising," he surmised. "I think it's a good thing. It's just a natural evolution of the business."

The deal comes as the NFL has been adding more streaming services as media partners. The list also includes Amazon's Prime Video (AMZN) and Comcast's Peacock (CMCSA). And Google's YouTube TV (GOOG, GOOGL) has the exclusive rights to NFL Sunday Ticket, which makes out-of-market games available to fans nationwide.

JPMorgan analyst Doug Anmuth wrote in a note to clients that he believes the games will help offer a boost to Netflix's ad tier and enable the company to "actively promote" its own content during the games.

Netflix — which will reportedly pay less than $150 million per game, according to Bloomberg — will also bring large global distribution to the NFL, according to Anmuth.

"Last year’s 3 NFL Christmas Day games ranked among the top 25 most viewed TV programs in 2023. With the partnership spanning 3 years, we believe NFLX could deepen its relationship with the NFL, especially as the league looks to further diversify its distribution strategy & we would expect more live sports over time," he wrote.

Jefferies agreed, writing in a research note following the news, "We are positive on the NFL deal, which we believe will create a compelling value proposition for NFLX's emerging ad business."

"This would represent NFLX's biggest foray into fully unscripted live sports content," the bank said, calling the deal terms "highly attractive" given that the company has previously spent similar amounts on original movies such as "The Gray Man and "Red Notice."

Sports rights have become increasingly important for media giants as more consumers cut the cord. The content is viewed as "sticky," meaning loyal audiences are more willing to fork over their monthly cable or streaming service fee to access sports over other types of content.

"This foray by Netflix into live sports is a game changer for the company," Comscore senior media analyst Paul Dergarabedian said. "The immediacy of live events is what makes it such a draw for audiences. ... Many people are already going over the top and cutting the cord and watching all kinds of content on streaming. Sports is the natural next step in that evolution."

Netflix had previously maintained that it wanted to focus on "sports entertainment" instead of paying for the rights to live sports, which can be expensive for media companies.

In the past, the company has released docuseries and sports-adjacent content like "The Quarterback," "Formula 1: Drive to Survive," "Full Swing," and "Break Point," in addition to live sporting events like the "Netflix Cup" celebrity golf tournament, which aired late last year.

One recently announced partnership seemed to deviate from that status quo. In January, Netflix announced a 10-year deal with TKO Group Holding's WWE (TKO) that will bring WWE’s flagship program Raw, a live wrestling production, to the streaming service beginning in 2025.

It also announced a live-streaming boxing event in July between YouTuber Jake Paul and heavyweight champion Mike Tyson.

FILE - Kansas City Chiefs quarterback Patrick Mahomes (15) throws a pass during the first half of an NFL wild-card playoff football game against the Pittsburgh Steelers, Sunday, Jan. 16, 2022, in Kansas City, Mo. Netflix and the NFL announced a three-year deal Wednesday, May 15, 2024. to stream games on Christmas Day, which includes the Chiefs taking on Steelers on Dec. 25, 2024. (AP Photo/Travis Heying, File)
Kansas City Chiefs quarterback Patrick Mahomes (15) throws a pass during the first half of an NFL wild-card playoff football game against the Pittsburgh Steelers, Sunday, Jan. 16, 2022, in Kansas City, Mo. (AP Photo/Travis Heying, File) (ASSOCIATED PRESS)

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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