Tellynomics 33: Economic lessons from the Xmas TV season - Netflix, the NFL, Gavin and Stacey and the Darts – and a prediction for 2025

The biggest global story of the Xmas season was probably the two NFL games on Netflix on Xmas day itself. In many respects this was a triumph, with no repeat of the technical issues that plagued the Tyson-Paul fight, and strong audiences: 30m and 31m globally for the two games, of which 24m (in both cases) was domestic.

How to think about this? Some are keen to claim this as the harbinger of Netflix moving to dominate streaming sport. Perhaps such people will be right one day, if we wait long enough, but this Xmas experience does not provide the evidence.

• Netflix did not need to outbid other keen sports broadcasters, desperately defending their turf, for these games. They emerged as an intriguing opportunity outside of normal contract renewals. This means that, as expensive as these games were, we are still a long way from the sort of outlay Netflix would need to accept if they wanted to take the next step to being a serious sports broadcaster
• The ratings for the two games were, in fact, slightly down on last year, when over-the-air (OTA) stations and linear cable delivered domestic audiences of 29m (21% higher), contrary to the idea that the magic of streaming somehow unlocks audiences that traditional means cannot find. The main beneficiary of reduced NFL audiences this year was the NBA, which saw an average of 5.25m viewers across its five live games, an 83% improvement on last year and the best for five years. This suggests some marginal NFL fans could not find the coverage on Netflix, found it all too confusing or effortful, or just refused to pay, and flipped to basketball instead (easily accessed by traditional means across ABC and ESPN)
• The level of wider international appeal of the NFL is a further dilemma for Netflix. There is some international appeal – 7m of the 31m average audience (23%) was from outside the US – but this is less than for other sporting or entertainment “stunts” such as the Tyson-Paul fight (more like 43% international). This means that sport is harder to fit into the Netflix model of pay once and sell all around the world, so the burden on monetisation in the US is greater, and other US sports travel even less well than the NFL

All that said, even if these two games do not portend a more concerted Netflix move into sports broadcasting, it looks like Xmas day did good business for them. We will see more of its like.

I have argued before that these two NFL games are best seen as a customer acquisition stunt, using sport to draw in people who have not engaged with Netflix before, some of whom might find other content they are surprised to enjoy, and some might stick around. Nice theory, but did it work, did the numbers add up? It’s impossible to be sure from the outside, with so many important variables for which we do not have sight. Yet some quick arithmetic suggests that it is not hard to make the sums work with a series of reasonable assumptions.

• Assume the day cost Netflix $200m, being $150m for the rights plus another $50m for production and marketing
• Assume that, of the 24m domestic viewers, 3m have not previously been Netflix subscribers, because they are sports devotees, they have stuck with linear cable (for ESPN etc) and have assumed that Netflix has nothing to offer them
• Then assume that of these 3m, 2m came in for the Xmas Day games and then left the next day, earning Netflix nothing (any revenue is cancelled out by the transaction costs). But the remaining 1m subscribers do find a few other things to watch, or at least someone in their house does, and they stick around for a while
• How long? Assume that these new subscribers behave a bit like other Netflix subscribers, with a standard decay curve, but instead of churning at 2.5% per month, they churn at an elevated 3.5% per month. This means 360k of the 1m will be gone after 12 months, 582k will have left after 24 months and the exponential decay carries on so there are only 14k of the original 1m left after 10 years. Assume also that none of the churning homes ever return, so there is no additional value from having introduced these homes to the idea that Netflix might be something they could dip into every now and then
• Assume also that, for as long as these new subscribers remain with Netflix, they generate a marginal contribution of $10 per month (across subscription and advertising) at the outset, and this increases by 50 cents each year
• If you work these numbers through, calculating the marginal revenue gained each month, projected out for ten years, and then apply a discount rate of 10% per annum to adjust for the time value of money, you get a total discounted gain of around $250m, which is enough to cover the initial outlay
• Note that I have ignored other returns to Netflix, such as ad revenue generated on the day from the combined 24m US audience across seven hours, the extent to which the games persuaded existing subscribers not to churn or otherwise saw them re-engage with their Netflix subscription, and any revenue benefits accruing outside the US

The arithmetic here is not offered as a prediction of Netflix’s return, nor does it claim to be proof that the stunt paid off, because too many assumptions need to be made along the way, but I think it suggests it is reasonable to believe it will eventually wash its face for Netflix.

Does this mean we will see a lot more of this type of stunt, lots more NFL on Netflix, and might this amount to Netflix becoming a proper sports player? And does that mean they will soon be disrupting the sports markets beyond the US? Sorry to disappoint, but I think not.

The reason is that every time you pull this kind of stunt, you get diminishing returns. There are only so many people, previously not having subscribed to Netflix, for whom a day of NFL might be the key to getting them across the line to give it a try. The people most susceptible to this trick have been found this time and are already counted in the payback arithmetic above. The next time there will be fewer such people to be found, and they will be more marginal (fewer will stick around and those that do will churn faster) and so will be less profitable (on a customer lifetime basis) going forward. So perhaps it works one or two more times, at this sort of cost to Netflix, but after that Netflix will be looking for a fresh stunt, targeted at a different pool of untapped people that have resisted their charms heretofore.

Closer to home, the UK prefers “family TV” on Xmas Day

Perhaps Netflix was disappointed with the 7m international audience for its NFL games, only 23% of the total? The lesson here is that cultures are different, and many other countries are not accustomed to watching live sport on Xmas day. Why is that? Are we more religious in the UK, are we too busy watching the King’s message? Do we think sport is too divisive, not conducive to viewing by the whole family? Or do we just think our sports stars also deserve to have the day off with their families? Whatever the reason, in the UK we wait until Boxing Day for the Premier League programme to continue. Even the Australians, some of whom go to the beach on Xmas Day, wait until Boxing Day for the Melbourne (cricket) test match to start.

In the UK, we prefer family viewing on Xmas Day: things like Call the Midwife, Wallace & Gromit and, this year especially, Gavin and Stacey. The G&S numbers on the BBC were sensational, hitting 12.3m viewers on the day and growing to 19.3m by 3 January. Numbers like these are rare in the modern world and G&S has even eclipsed the most recent standout, Mr Bates vs the Post Office on ITV earlier in 2024 (it garnered 8.7m viewers on the day, climbing to 13.5m after 28 days).

This has been a shot in the arm for the traditionalists, the terrestrial broadcasters and all those involved in linear TV. Some, however, have probably gone too far, getting a bit carried away and suggesting this means the old guard are fighting back against the global streamers. It was indeed a great show, and moments like this should be celebrated, but the problem is that it is not repeatable and does not change the underlying trajectory. This was the tail end of an iconic 17-year franchise, the very last show, five years after the previous cliff-hanger ending. Finale is the key word in the picture above, and there is nothing left to follow.

Indeed, similar issues arise for other Xmas Day linear staples, such as Call the Midwife and Wallace & Gromit – how many more of these can we really expect to see, and what will have taken their place in five years’ time? Perhaps the launch of Traitors will need to move to Xmas Day soon?

When the turkey is done, bring back the darts

The other standout TV story of the UK Xmas season was the darts (before and after the brief Xmas break). This has been a slow burn: Sky Sports broadcast the first ever PDC World Championships in 1993 and has shown every instance since. Definitely not an overnight success, therefore, but something about the winner being a 17-year old (Luke Littler) has captured the public imagination. Last year I persuaded some of my family to join me in following Luke’s run to the final (which he lost), but it still felt under the radar. This year it’s mainstream, with countless articles online and the story leading TV and radio bulletins and appearing on the back and front pages of most newspapers.

Darts has long been an underrated sporting property. In years gone by, when I was trying to explain what Sky was up to and why we were winning, I would talk about the darts. Most were focused on football and believed that Sky just threw crazy money around to take the football away from free channels. But it was more subtle than that, much more a battle of economic models, and darts was the quintessential example of why pay TV was in the ascendancy. More clearly than football, darts was the clearest example of a sporting property with a small (at the time) but very enthusiastic fan base, exactly the shape of demand curve that was far better monetised through subscription (which can tap into fans’ willingness to pay) than through advertising (which works better for large audiences).

The interesting question today is whether that story might ever flip around? We are used to the scenario in which a sporting property grows within the free-to-air world and then, when it has developed enough scale, takes the pay TV cheque and moves “behind the pay wall”. But I wonder if we could one day see examples of the process in reverse?

The PDC Darts World Championship has grown as an event within the Sky Sports universe and is now Sky’s highest rating sports property outside of football. Sky reports that the final had an average audience of 2.7m and a peak of 3.1m, very large for Sky and comfortably ahead of even the British F1 Grand Prix (average 2.2m). How long before someone wonders what greater audience, exposure and fame would be possible if the property moved to terrestrial? Could it do 8m viewers, 10m?

Of course, this means a terrestrial broadcaster needs to outbid Sky for the rights. This tends to be challenging, although not as hard as it used to be, with the American owners fully in control nowadays and presumably baffled by the whole darts story. Will they be paying attention, and motivated to defend, if an attack materialises? If Luke Littler is the first of a pipeline of new young talent coming through, as some are claiming, this could tick many boxes for the terrestrials, desperate as they are for younger audiences. But are they willing to write the big cheque?

There is, of course, another possible route, and this is my long odds prediction for 2025: someone soon will start to ask whether the PDC World Championship of Darts should be added to the schedule of Listed Events, sporting properties reserved for free-to-air television, so that Luke the Nuke is “preserved for the nation”. Nothing would surprise me.