Netflix changed the paradigm for sports distribution on Friday night.
Yes, the user experience of watching the Paul vs. Tyson fight was a minimum viable product (MVP). The cultural event of the year often showed “a spinning red wheel with a random percentage in the middle of it”. The broadcast did not out-ESPN ESPN, out-Eurosport Eurosport or out-Hotstar Hotstar with the quality of its viewing experience.
But, its commentary, celebrity appearances, and graphics seemed to match the experience of watching a live sports event on any of those services.
In the end, an international viewing audience of 60 million households tuned into the same streaming app to watch the fight live around the world, peaking at 65 million concurrent streams. Fighter Jake Paul said after the fight that 120 million viewers watched the fight globally.
If we estimate off a metric Netflix Co-CEO Ted Sarandos shared with The New York Times in May—”we’re currently programming for about 650 million people around the world”—then that number goes up to 140 and 160 million viewers, at least [NOTE: They had just announced 270 million members in their Q1 2024 earnings call, implying around 2.4 viewers per household.]
Perhaps most importantly, those ~150 million streaming viewers seemed not to need the quality of a television broadcast to tune in and stick around. According to the website Down Detector, nearly 85,000 viewers logged problems with outages or streaming leading up to the fight.
That is less than 0.01% of the total estimated viewing audience and 0.1% of all households, suggesting almost 100% of viewers tolerated the imperfect, MVP viewing experience on Netflix that no other platform built yet.
Key Takeaway
The NFL's 2029 opt-out from its recent distribution deal seems more likely after the Paul vs. Tyson fight. The best path ahead for Disney and ESPN lies in a profitable purgatory of their own making.
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Kayfabe
There is an obvious counterargument to the above: Paul vs. Tyson had more in common with the “kayfabe” nature of a WWE match. “Kayfabe” is the illusion that the storylines performed in the ring are real.
There were unusual rules for the fight approved by the Texas Department of Licensing and Regulation:
Both fighters wore 14-ounce gloves instead of the standard 10-ounce gloves typically used by heavyweight fighters;
Each round lasted two minutes rather than the usual three minutes;
The fight consisted of eight rounds instead of the standard 10 or 12; and,
Because the fight was sanctioned, it needed reach four rounds to become official.
Also lurking in the background were the rumored paydays for both fighters:
Tyson was estimated to make around $20 million for the fight; and,
Paul was estimated to make $40 million, as he helped to put this event together as the co-founder of Most Valuable Promotions.
All these constraints and incentives suggest both fighters gamed the fight to last eight rounds. Consumers were watching a circus act—Mike Tyson is 58 years old—dressed up to look like a professional boxing match.
Netflix Goes From Crawl to Walk
It is reasonable to assume Netflix needed the fight to last eight rounds, too. This was the first test of its live-streaming technology at a global scale larger than previous comedy specials with Joe Rogan (up to 2.5 million views est.) and Chris Rock (up to 15.47 million views est.).
The previous record for concurrent streams was set by Peacock in January with 16.3 million tuning into the AFC Wild Card game. Netflix quadrupled that less than 10 months later.
Co-CEO Greg Peters has long talked up its “crawl, walk, run” approach. We can reasonably assume the previous comedy specials, its Netflix Cup broadcast, its tennis event The Netflix Slam, and a “Love Is Blind” Season 4 reunion special were the "crawl" phase.
This fight appeared to mark the “walk” phase, where the platform is not ready to run but is willing to suffer the bumps and bruises of a learning curve. A four-hour broadcast offered an unusually long window for the team to learn and problem-solve. According to Bloomberg, its CTO Elizabeth Stone wrote in an internal memo:
“This unprecedented scale created many technical challenges, which the launch team tackled brilliantly by prioritizing stability of the stream for the majority of viewers. I'm sure many of you have seen the chatter in the press and on social media about the quality issues. We don't want to dismiss the poor experience of some members, and know we have room for improvement, but still consider this event a huge success.”
I read this as, “Ignore the criticisms and social media snark. Subscribers stuck around, our launch team learned a ton and Netflix changed the paradigm for sports streaming distribution.”
Netflix vs. Disney
Netflix’s win is unfortunate timing for Disney, which had its earnings call only the night before. On the FY Q4 2024 earnings call, Disney CEO Robert Iger talked up the launch of its ESPN flagship:
“I think one of the things that [...] hasn't been appreciated yet is that when you apply technology to the presentation of sports, almost anything is possible. So imagine an AI-driven personalized sports center as a feature, for instance. Imagine essentially being able to tailor your sports experience, not just watching SportsCenter, but in a thoroughly personalized way. I think essentially, it will be designed to serve the consumer in the most compelling way ESPN has ever served the consumer.”
There is an obvious contrast between Iger selling investors on technological possibilities and the reality of Netflix distributing a live event globally, albeit imperfectly. Netflix has delivered investors and consumers a tangible paradigm for what a sports event streamed at scale will look like.
That contrast widens when considering Netflix’s three-season deal with the NFL for Christmas Day football games that launches next month. Whatever Netflix may be able to achieve with an international broadcast of an NFL game will have a significant benchmark to beat: A global TV audience of 62.5 million viewers watched the Kansas City Chiefs defeat the San Francisco 49ers in Super Bowl LVIII. That was a 10% increase over the previous Super Bowl broadcast. It was also high quality.
In this light, the Paul vs. Tyson fight seems significant: Global audiences at scale will suffer through an MVP experience to watch an event on the same streaming app. That is the antithesis of the quality upon which Disney’s brand and business are built and sold. Risk-taking seems to be an advantage for Netflix.
However, it also is the antithesis of why advertisers value Disney over other companies, including Netflix. That implies Netflix will need to get to the "Run" stage sooner than later.
ESPN & John Malone
Meanwhile, ESPN is stuck in a purgatory of both a declining but profitable linear business and a growing and increasingly profitable streaming business.
It reads like the right strategy in light of last week’s comments from Liberty Media chairman John Malone at the Paley Center for Media. He argued Disney and NBCUniversal made a mistake in deciding that “it was better to jump in and go the direct-to-consumer route.” He believes they would have been better off trying to “evolve the traditional wholesale-retail distribution approach in order to take advantage of this network neutrality free ride and bypassing their traditional distributors.”
Disney’s recent distribution deals with Charter and DirecTV are examples of Malone’s “better” approach. Consumers may access Disney’s cable channels and opt-in at no cost to complimentary ad-supported tiers of Disney streaming services. The ESPN flagship app will also be bundled by Charter and DirecTV when it launches next year.
The question is, effectively, why should Disney try to compete with Netflix in streaming while pursuing a strategy limited by both linear and streaming distribution?
In 2029 the NFL may terminate any or all of its $100 billion worth of deals with Amazon, ABC/ESPN, CBS, FOX and NBC via an opt-out clause. If Netflix can successfully launch and grow a new model for sports streaming distribution at a global scale, neither of Disney's options seem viable in the long run. It must either ride out cable's demise (Malone) or it must rapidly evolve to a global distributor (Netflix).
Disney's best and most profitable business rationale lies the former, and Netflix's lies in the latter.