Friday, January 26, 2024

Red Sea Security Crisis Affects a Widening Swath of the Global Economy

Boot top — Bad for business: a Houthi missile exit hole in the boot top of the bulker Zografia (Suez Canal Authority)

Persistent Houthi missile attacks in the Red Sea are affecting a widening spectrum of maritime commerce, spreading beyond liner shipping to include the wet bulk, dry bulk, car carrier and LNG trades. The Iranian-backed attacks are beginning to impose real costs on Western economies, like elevated prices for LNG in Europe.

"The Houthis’ actions in the Red Sea are sending reverberations across the global economy, and are felt in almost every facet of our lives," said U.S. Navy Secretary Carlos del Toro at a forum in London on Thursday.

Container ships continue to eschew the Red Sea/Suez route in favor of the far longer circuit around the Cape of Good Hope. According to digital forwarder Flexport, more than 500 boxships have used a different route around Africa since the Houthis began launching attacks.

The disruption means skipped calls for big Mideast ports, and at least one full service string cancellation. THE Alliance, comprised of ONE, Hapag-Lloyd, Yang Ming and HMM, has announced the suspension of its dedicated Asia-Red Sea service. This rotation connected China and Southeast Asia with Jeddah, Aqaba and Sokhna - but no longer.

Customers in Europe and the U.S. East Coast will also be feeling the pinch. The diversions around the Cape of Good Hope are adding 10 days or more to boxship voyage times, soaking up unused ship capacity and driving up charter rates for idle ships. The tightened market affects shippers: according to Freightos, Asia-Europe box rates have nearly tripled since early December.

Ocean carriers may have been the first and most visible operators to quit the Red Sea, but the security risk is beginning to trickle down to other sectors. On Monday, there wasn't a single car carrier in the Red Sea, Gram Car Carriers chairman Ivar Myklebust said at a London conference this week.

Bulkers are also affected, and at least two - the Zografia and Genco Picardy - have actually been hit. Mining giant BHP reports that some of its charter vessel operators do not want to use the Red Sea route anymore because of this security risk. Most of its east-west volume already goes by the Cape route, so this only has an effect at the margins, but a BHP executive noted that about seven percent of global dry bulk traffic passes through Suez.

LNG carriers are also shying away from the Red Sea, including the vessels used by top-three exporter QatarEnergy. Europe sources about 13 percent of its LNG supply through the Red Sea/Suez Canal, much of it from Qatar. The diversion of these ships around Africa has the potential to affect the price of LNG in Europe in the long run, according to Rystad, depending on EU demand for gas.

Tanker operators are also looking for the exits in increasing numbers - even for cargoes associated with Russia. According to energy intelligence firm Vortexa, three Aframax tankers carrying Russian fuel oil to Asia have recently reversed course in the Med and diverted away from the Suez Canal, headed for Gibraltar and the Cape of Good Hope instead. Russia's foreign policy views on the Israel-Hamas conflict are broadly aligned with Houthi political objectives, and this is a rare instance of Russian-chartered ships avoiding the security risk in the Red Sea.

China, which also has overlapping policy positions with the Houthis, is apparently growing concerned with the disruption. Reuters reports that China is pressuring Iran to bring its Houthi proxy forces to heel and cease attacking commerce, or risk losing Chinese investment. Iran is widely believed to supply the missile and drone technology that Houthi forces use for the attacks, as well as the targeting intelligence and technical guidance required, and the White House has openly called for China to intercede with Tehran. Chinese policymakers have an interest in reestablishing Red Sea security because of the effects on trade, a mainstay of the slowing Chinese economy.

Australia's Disappearing Surface Combatant Fleet

Australian warship at sunset — File image courtesy Australian Ministry of Defence

As Australia awarded itself an ill-thought-out peace dividend at the end of the Cold War, the impact fell hardest on the Navy’s surface combatant fleet. Arguably no element was thought through more thoroughly for the 1987 defence white paper than the fleet. Having decided not to acquire an aircraft carrier, the surface combatants were recognized as central to our maritime defense.

The white paper called for a force of three guided missile destroyers (DDGs) and six guided missile frigates (FFGs). With them, though still to be selected, were eight Anzac class frigates, which entered service between 1994 and 2005.

That made a force of 17 surface combatants.

This was not an ad hoc decision. It was a calculation of the force needed to work in the various points of entry through the archipelago to Australia’s north. Studies suggested we needed 20 ships but there was not the money. It was hoped New Zealand would acquire four frigates and that might fill the gap. Critically, as the white paper mentioned repeatedly, the whole force structure was not Cold War related. It was about the character of our region in the medium term. The paper argued that we should relieve the US of the burden of interposing its own forces in the defence of our approaches. Our maritime defense was central to that self-reliance.

Of the 17 vessels planned for those chokepoints, the subsequent 30 years saw the three DDGs and then the six FFGs retired. The Navy’s three Hobart class air warfare destroyers (AWDs) were to replace the three DDGs. Instead, the three AWDs replace the six FFGs as well, nine ships in all. If we built six more AWDs, experience and efficiencies would make them relatively cheap, and our force would look quite formidable. Some could be optimised for anti-submarine warfare which would mean that the current defence minister, who bears no responsibility for any of this, would not be faced with his most troubling decision, the future of the Hunter Class frigate program.

The previous government ended our 30-year Gulf and Red Sea commitment, removing the challenges of maintaining and crewing the Anzacs on their long patrol. During the Iraq war, HMAS Anzac became the first RAN ship to fire its gun in anger since Vietnam as it supported the British landing on the Al Faw Peninsula.

The Australian has reported that consideration is being given to withdrawing HMAS Anzac and two of its sisters from the order of battle. This would reducing costs and help relieve chronic crew shortages for the remainder of the fleet. Instead of 17 ships, we would have eight. In the current effort to keep the maritime highway through the Red Sea open in the face of attacks by Houthi missiles and drones any of these ships could be deployed but the mission is more difficult than the previous tasks. The Anzacs could protect themselves but would find it difficult to protect others. The Navy’s three AWDs, able to integrate seamlessly with US systems, would be as effective as any other of its type there. The government has made clear that its decision to commit support personnel rather than a ship is based on its consideration of what must now be our priorities.

This clearly does not trouble the US in any major way as it was pleased to announce Australia as part of the coalition force.

What has gone wrong over 30 years? Clearly reduction of financial resources stands at the top. It suggests that commitment to self-reliance was skin deep. We took a post-Cold War peace dividend like all our allies. In our case it was not justified, at least against the 1987 strategic underpinning of our defense.

The world in the early 1990s looked full of hope. China was viewed in benign terms with great expectations of a constructive contribution to the global economy. Defense planners are supposed to be bleak, but we missed the most important strategic development of the 1990s. That was the agreement between China and the Soviet Union, and then Russia, to delimit their boundary conflict that in 1969 saw a battle between them on the Ussuri River in which 30,000 died. It has been claimed that President Nixon was asked by the USSR if the US would mind it using nuclear weapons. The US did mind. That agreement shifted the Chinese focus on land and nuclear forces from its northeast to its southwest. China could now emerge as a serious maritime power.

A further factor that moved our focus on the surface fleet was the emergence of the Middle East in a way that took us away from our emphasis on defending the country and our approaches. Paradoxically for us, that was preceded by the major role Australia played in Timor’s independence. That strategic expeditionary task for our ground forces and the Navy saw attention focus on acquiring large amphibious ships.

The Middle East created situations engaging all our armed services, both logistic and combat elements including Afghanistan and two wars in Iraq, one which saw Saddam Hussein overthrown, the other the struggle against ISIS. More broadly, counter-terror after the 9/11 atrocities in the US, underpinned the priority the struggle was given.

Though these engagements were expensive, they were easily doable with a budget in the region of 1.5 to 1.8% of GDP which was nothing like the cost of nine surface combatants. Psychologically the highly praised activity of our serving personnel left a sense that we had what we needed and with a highly satisfied main ally.

An odd interlude in this was a decision to move away from equipping the Anzacs with a helicopter that had no ASW capability, the Sea Sprite. This was the product of an aborted effort to jointly build an offshore patrol vessel with Malaysia. The vessel could not carry the much more capable Seahawk Romeo. I remember a former chief of naval staff, the now late Admiral Michael Hudson, being furious as we continued to pursue the Sea Sprite. The whole point of the Anzacs was anti-submarine warfare in our approaches. Had we forgotten why we acquired them? That was rectified by the cancellation of the Sea Sprite and the introduction of the Romeos in 2008.

The Red Sea struggle has demonstrated that future wars might well require more capable warships to protect sea lanes from land-based threats. The USN is now focusing greater attention on numbers. Small, heavily armed ships and unmanned surface and underwater systems are being rapidly developed and we are interested.

The problem is, though defense spending is rising, the priorities are many. We have immediate problems. All the armed forces have expensive items on the table and severe personnel issues. We can’t afford any mistakes and we must not be trapped by the long term. We are acquiring the future capital ship—nuclear-powered attack submarines—but that is long term. Our ally is filling our gaps in the short term. We can’t afford a long-term solution in our surface fleet as well. Hopefully, as the government addresses our surface fleet needs, it will have that in mind.

Kim Beazley is a senior fellow at ASPI. He served as Australia’s defense minister from 1984 to 1990 and as ambassador to the US from 2010 to 2016.

This article appears courtesy of The Strategist and may be found in its original form here.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.

Two Killed at Pakistani Breakers as HK Convention Promises Improvements

Bulker beached for recycling — Two people were killed working on the bulker which beached in Pakistan in December (NGO Shipbreaking)

The death of two workers at a Pakistan shipbreaking yard last week is again being used as an opportunity to call attention to the need to enforce safety at the yards and reforms for the industry. The deaths come less than two months after Pakistan, a long-term holdout, finally accepted the Hong Kong Convention which calls for stricter safety standards in shipbreaking.

The NGO Shipbreaking Platform which has long advocated for improved safety reported the tragic accident at the Dewan Shipbreaking PVT lot in Gadani Pakistan. They are reporting that two workers were crushed by a heavy iron plate on January 16 during the dismantling operation on the bulk carrier Catherine Bright. The 77,800 dwt vessel built in 1998 had last been registered in Panama. It was sold to the intermediary Oman-based Maritime International Transport & Trading and arrived in Pakistan at the beginning of December.

Pakistan’s National Trade Union Federation the NGO reports has long raised concerns about the administration of the industry and government enforcement. The union is calling for an investigation of this latest accident. The union accuses authorities of negligence saying there continues to be a lack of compliance with occupational health and safety standards in the shipbreaking sector. According to the NTUF, the absence of safety measures at the Gadani beaching yards forces workers to carry out their duties under extremely dangerous conditions, which knowingly puts their lives at risk.

"For over two decades, we've persistently urged South Asian authorities to relocate the shipbreaking industry to designated areas with better facilities, ensuring worker safety and preventing pollution. Ignoring this urgent need risks more tragic loss of life. It's time authorities recognize that the profits gained by yard owners and shipping companies are made at the expense of both humans and coastal environments,” said Sara Rita da Costa, Project Officer for NGO Shipbreaking Platform.

Pakistan became the last nation to officially adopt the Hong Kong Convention in December 2023. They followed Bangladesh which formally adopted the rules governing ship recycling in June 2023, after Turkey and India. This means that all the major countries which have recycling operations, representing 95 percent of the tonnage sent for scrap, have adopted the convention which officially goes into force in late June 2025, 16 years after it was first presented.

The convention is designed to ensure greater safety in the process as well as attention to the environmental concerns. It places a greater responsibility on the ship owner and even the builder as well as the ship recycling facilities, flag States, port States, and recycling States, according to the IMO. Governments will be required to ensure that recycling facilities under their jurisdiction comply with the requirements of the convention, which includes a specific plan for each ship.

It also requires safety standards and ships to carry on board an inventory of hazardous materials. The trade group BIMCO calculated that around 23,000 ships will need between 2025 and 2030 to develop an inventory. They reported that approximately 30,000 ships already have an inventory of hazardous materials in place.

The deaths last week again highlight the dangerous nature of the operations. However, industry leaders hailed the move to begin enforcing the convention in hopes that it will continue to improve the standards global for the shipbreaking business.

Dutch Company Vroon Expands Livestock Fleet Despite Efforts to End Trade

The Dutch shipping company Vroon is reporting that it expanded its livestock carrier fleet with the acquisition of its thirteenth dedicated vessel. The company highlights its use of modern ships and the highest standards but the industry continues to face broad calls for an immediate end due to inhuman conditions.

Based in Singapore, the company’s Livestock Express division is promoted as the world’s largest provider of premium livestock tonnage. Unlike many of the operators that use old, converted, and often poorly suited and maintained vessels, Vroon highlights that it has a modern, purpose-built fleet of carriers. They report transporting as many as 750,000 head of livestock annually, including cattle, sheep, horses, and goats.

Activists in both New Zealand and Australia continue to push for the end to live export. They cite the long history of poor conditions and low safety records of the ships, which have led to seasonal bans and requirements such as having a licensed veterinarian and trained handlers aboard as well as required amounts of feed and medicine. Lobbyists for the industry and the ranchers cite the improvements pushing for an end to the restrictions.

Vroon reports against this backdrop that it acquired a new ship, the Aurochs from Japan’s Tsuneishi Group. Renamed Friesian Express, the vessel departed Australia on January 23 with its AIS showing it was heading to Pakistan. The vessel was purpose-built in 2017 by Zhoushan Shipbuilding. It is registered in Portugal and 4,600 dwt with reports that it has a capacity for approximately 2,300 cattle.

They highlight that fewer than 20 purpose-built livestock vessels have entered the worldwide fleet throughout history, of which 13 were designed and built for Livestock Express. The new acquisition is the youngest vessel in the company’s fleet which also has three vessels built in the late 1990s. The others were mostly built as part of a fleet renewal between 2013 and 2016 with the company saying the new ships are better designed for a comfortable ride, cargo handling, and ventilation.

Management highlights the acquisition is part of a new effort to strengthen the company’s operations in its key sectors which also include offshore and tankers, after completing a financial restructuring last year. Critics however are surprised by the decision to expand the livestock operation as animal rights groups work passionately to end the trade. RSPCA Australia reported in September it had made significant progress receiving 44,000 signatures on a Parliamentary petition calling for a legislated end date to live sheep export. They reported that 78 percent of Australians supported phasing out the trade as long as there was support for the impacted farmers.

Report: White House Directs Review of LNG Terminal's GHG Footprint

The review could set new climate criteria for 17 proposed LNG export plants

Calcasieu Pass 2's layout (Venture Global LNG)

sdThe Biden administration is rethinking its approach to LNG export terminal permitting in advance of the November election, officials have told the New York Times.

The booming U.S. natural gas industry has fueled a wave of LNG export projects along the U.S. Gulf Coast, and America has become the number-one LNG exporter in the world. Plans for further expansion are vast: there are no less than 17 new facilities at some stage of the development pipeline.

One of these future projects - Calcasieu Pass 2 - has been targeted by climate scientists and activists because of its overall greenhouse gas footprint, which they estimate would be about 20 times larger than that of the recently-approved Willow oil project in Alaska.

According to a recent letter to the administration by 170 scientists, the 17 LNG export projects in the permitting pipeline would release a combined 3.9 billion tons of greenhouse gas per year, more than the entire GHG output of the European Union. The finding draws on calculations by Prof. Robert W. Howarth of Cornell University, who estimates that American LNG exports have a net GHG impact at least 25 percent higher than coal, depending on LNG carrier propulsion type. Shale gas production, liquefaction, shipping and regasification all emit methane and CO2 in varying amounts, and Howarth concludes that coal-fired power in Europe has lower net emissions than American LNG-fired power in Europe (on a well-to-grid basis).

This is relevant to the Biden administration because its Energy Department has control over permitting for LNG exports to foreign countries, and gets to determine whether these exports are in the public interest. Climate activists are aware of this policy lever and have urged the White House to use it. One of them, a young social media influencer named Alex Haraus, has organized a petition campaign to get Biden to delay or cancel Calcasieu Pass 2 - or face consequences at the polls in November.

Biden's advisors have engaged with Haraus - and, according to the Times, they have directed the Energy Department to more fully evaluate the project's GHG impact. This is expected to delay any possible approval until after the election; in the long run, it could potentially set new and less lenient GHG criteria for evaluating other projects in the pipeline.

S. China Sea's Subsea Features Get New Chinese Names

Nine-dash line chart — China's nine-dash line surrounds most of the South China Sea, including the Spratly and Paracel Islands (China Ministry of Natural Resources)

On Tuesday, China released the results of a new geological survey of the South China Sea, and claims to have named nearly 400 subsurface features throughout the water body.

Beijing claims sovereignty over almost all of the South China Sea, including large swathes of its neighbors' exclusive economic zones. Its sweeping maritime claims were invalidated by the Permanent Court of Arbitration in the Hague in 2016, but China has ignored the ruling.

Yang Chupeng, an official with the Guangzhou branch of the China Geological Survey, told state media that the new survey results will "provide good services for our country's marine engineering construction." The survey data will facilitate the "development and protection" of "China's blue land," the agency said.

The survey process found 36 new seabed features that were previously unmapped, according to state media. The study also gave state officials the opportunity to give new names to 384 seabed landforms around the South China Sea.

The right to name seabed features is consistent with China's position on the South China Sea's ownership. Beijing has long claimed that it has “indisputable sovereignty over the islands in the South China Sea and the adjacent waters," including legal jurisdiction over the surface, seabed and subsurface mineral rights.

The data also has military applications. Fine-scale subsea mapping is useful for submarine warfare, as seabed features must be carefully mapped to safely navigate a sub near the bottom. (Subs can and do collide with unmapped promontories.) Seabed features can also be used to conceal a sub from detection.

The Washington-based Center for Strategic and International Studies recently published a summary of evidence that China's research vessels serve military purposes, like the research vessels of other naval powers. CSIS asserts that of the 64 active Chinese research vessels, over 80 percent demonstrate suspect behavior or possess links suggesting involvement in Beijing’s geopolitical agenda.

The Ministry of Natural Resources and Chinese Academy of Sciences both operate research vessels and have signed cooperation agreements with China's military. The China Geological Survey, which sponsored the large-scale mapping effort, is a division of the Ministry of Natural Resources.

Beer Store expands Ontario alcohol delivery partnership with DoorDash

BNN Bloomberg

People line up in a parking lot for a long wait to return empties or buy beer at a Beer Store in downtown Toronto on April 16, 2020. THE CANADIAN PRESS/Colin Perkel

The Beer Store is expanding its delivery partnership with DoorDash Canada.

The Ontario alcohol retailer says its agreement with the San Francisco-based courier company will enable deliveries from hundreds of stores.

The pair initially began making deliveries from 50 stores throughout December, but recently added about 230 more.

The Beer Store says couriers using DoorDash to ferry their products have their Smart Serve licences and must ensure deliveries are only made to customers 19 years and older.

These couriers cancel alcohol deliveries if the recipient fails to produce a valid ID, appears intoxicated or attempts to purchase for a minor.

The Beer Store is owned by Ontario brewers, but its hold on the market has been threatened in recent months by Premier Doug Ford, who announced in December that sales of beer, wine, cider and ready-to-drink cocktails will be allowed in convenience stores and all grocery stores in the province by 2026.

This report by The Canadian Press was first published Jan. 25, 2024.

Businesses transitioning to electric fleets need to take careful consideration

Ritika Dubey, The Canadian Press

Some businesses in Canada are embarking on a journey to transition their vehicle fleets to meet zero-emissions goals, but experts say the road ahead isn't going to be easy.

The move to cleaner transport and delivery vehicles comes with its own set of challenges that might not always be apparent right off the bat, panellists at an event about electric fleet transitions at the Toronto Region Board of Trade said on Wednesday.

"We have to take into consideration the charging time to bring a battery up to 80 or 100 per cent overnight," Crystal Rasa, who is leading Ikea Canada's EV fleet transition, said in an interview following the event.

"What time can the vehicle be ready to be loaded and leave for deliveries? What time will the vehicle be back?"

The company started small with 10 trucks deployed in Montreal and Vancouver.

Since then, Ikea's electric delivery fleet has expanded 15 per cent in the past two years to include Toronto and Ottawa, with plans to be in Calgary, Edmonton, Winnipeg, Halifax and Quebec City, Rasa said.

The company has set a goal of having its delivery fleet in major cities be 100 per cent zero-emission by 2025.

While she is confident switching to electric vehicles is the way to go, Rasa acknowledged it requires a shift in mindset and extra planning.

Details such as the most efficient delivery routes and battery life between charges need to be taken into consideration, she said.

The furniture retailer uses electric delivery vehicles of various sizes and has a dedicated team to optimize their efficiency and algorithm-based delivery routes.

"There's a never-ending analysis of what is the optimal configuration between the vehicle size, the type of order our customers are choosing to purchase," Rasa said. "Seasonality (also) comes into effect (deciding) how much product can go on a truck."

Other roadblocks include obtaining electrification permits, choosing efficient chargers and adapting to the lower battery life of cold weather.

"It's those really small things that can creep up," Rasa said. "It's the stuff that's not flashy and not an Instagram moment … (but) tiny little pieces" that caught the team off-guard.

The switch to electric trucks for small-scale business owners can look somewhat different.

Moatassem Abdelwahed, owner of delivery service MYcourier and an attendee at the event, said he has been experimenting with electric trucks. For him, the vehicles work best for local deliveries but not for long distances.

"Every hour counts," he said.

If the vehicle runs out of battery power, the driver will have to charge it on company time, Abdelwahed explained in a phone interview. This, combined with winter conditions affecting battery longevity and a lack of public charging infrastructure can be limiting.

Abdelwahed said he can't fully give up gas-powered vehicles until charging infrastructure improves.

This report by The Canadian Press was first published Jan. 24, 2024

U.K. suspends trade negotiations with Canada, as each accuse the other of not budging

Dylan Robertson, The Canadian Press

The United Kingdom is hitting the brakes on trade talks with Canada after Ottawa decided to not extend two temporary measures put in place after Brexit.

London announced the pause in negotiations today, less than a month before the next round of talks towards a permanent trade deal was expected to take place.

A special quota for U.K. cheese imports, which offered the same low-tariff access to the Canadian market as the European Union has, expired at the end of last month.

Canada has also decided not to extend country-of-origin rules set to expire at the end of March, which will likely drive up the price of U.K. goods such as luxury cars.

Trade Minister Mary Ng's office says the move stems from British "unwillingness" to offer something in return, such as budging on a dispute over Canadian meat.

Both countries insist they want a fair deal for each other's businesses, farmers and workers.

"We reserve the right to pause negotiations with any country if progress is not being made," reads a statement from the British government.

"We remain open to restarting talks with Canada in the future to build a stronger trading relationship that benefits businesses and consumers on both sides of the Atlantic."

Shanti Cosentino, a spokeswoman for Ng, said Canada is "disappointed" in the move.

"Their decision to continue to maintain market access barriers for our agriculture industry and unwillingness to reach a mutual agreement has only stalled negotiations," she said.

"The U.K. is a long-standing trading partner, and I am confident that we can negotiate an agreement that is (a) win-win for Canada and for the U.K."

Canada's cattle sector has been lobbying against a deal with the U.K. over a long-standing dispute on hormone-treated beef and pork.

The U.K. has held back on importing meats treated with certain hormones that are widely used by Canadian ranchers, who argue the Brits' concern isn’t grounded in science.

This report by The Canadian Press was first published Jan. 25, 2024.

Some Netflix subscribers face price hike as no-ads basic plan ends in Canada

David Friend, The Canadian Pres

Netflix is putting the final stake in its cheapest, ad-free "basic" plan in Canada.

After announcing last year that it would no longer offer the $9.99 plan to new or returning subscribers, the streaming giant is phasing out the price level entirely for users who were grandfathered into the plan.

"Basic" subscribers will now need to choose whether to downgrade to a $5.99 plan that includes commercial interruptions — and most of the Netflix catalogue — or pay more for the no-ads plans that start at $16.49 per month.

Netflix told investors in its quarterly financial report on Tuesday that it will eliminate the basic plan first in Canada and the United Kingdom between April and the end of June.

The latest move comes as Netflix looks to push more subscribers to its ad-supported plans, which cost less but are more lucrative for the company since they sell ad space.

Most of the biggest streaming platforms have recently adopted a similar strategy.

Amazon's Prime Video will begin showing commercials on its streaming service in Canada starting on Feb. 5. It will give subscribers an option to "opt-out" by paying more to remove the commercial breaks.

This report by The Canadian Press was first published Jan. 24, 2024.

Hockey Night on Netflix? What the Netflix-WWE deal says about the future of sports broadcasting

Pete Evans, BNN Bloomberg Jan 24, 2024

It is perhaps appropriate that Netflix’s latest deal to become the exclusive broadcast partner of pro wrestling has landed like a flying elbow off the top rope.

In a pact announced Tuesday, WWE owner TKO has sold the global rights to stream its three-hour Monday night program, Raw, to Netflix, for the next decade.

The deal kicks in a year from now, once the agreement with current rights holder NBCUniversal expires. And while the price tag – a reported US$5 billion over 10 years – is eye-opening, experts say it makes a certain amount of financial sense for both sides.

Under the previous deal, NBCUniversal’s owner Comcast was paying TKO roughly $285 million annually for the rights to broadcast the WWE’s flagship wrestling show across its various U.S. media properties.

The new deal will see TKO rake in almost 50 per cent more for the domestic rights alone, but instead of scrambling for a bigger piece of the shrinking pie of cable TV viewers, Raw will now have a more captive audience of Netflix’s 75 million customers in North America, and almost 250 million globally.

“It allows us to gain even a greater global footprint,” WWE President Nick Khan told Bloomberg News in an interview Tuesday trumpeting the deal. “It was a good bet by us and we think a good bet by them.”

'Landmark deal'

While the deal comes with a big price tag for Netflix, it’s not hard to see the appeal from their perspective.

For about twice the price of what the streamer reportedly paid for the last nine-episode season of Stranger Things, Netflix has bought itself a minimum of three hours new content, each and every week — not to mention numerous additional WWE specials, including SmackDown and NXT as well as once-a-year special live events like Wrestlemania, SummerSlam and Royal Rumble.

“WWE is great sports entertainment with a huge, established and passionate fanbase, and we believe this long term partnership will be a big value add for our members,” the company said in its earnings release on Tuesday.

Experts are inclined to agree.

“It’s a landmark deal,” said Adam Seaborn, a sports media analyst and head of partnerships at Playmaker Capital, in an interview with BNN Bloomberg on Tuesday.

For one thing, it will help Netflix retain customers because it brings fresh new content every week, not just a dozen or two dozen episodes like a scripted comedy or drama series would.

“Fifty-two weeks of sports programming keeps you tied into their programming all year round,” Seaborn said. “It's going to reduce churn.”

It’s an added bonus that the core demographic for WWE are the group that advertisers covet most – “that young male demo that every advertiser is after,” Seaborn added.

Surprise agreement

With synergies like that, both sides have much to gain from the deal. But that’s not to say it was expected.

“I don’t think anybody really saw this coming,” said Geetha Ranganathan, a media analyst with Bloomberg Intelligence, in an interview with BNNBloomberg.

While Netflix has dipped its toe into live events in the past with things like a Chris Rock comedy special, a golf tournament and the upcoming Screen Actors Guild Awards, the move into pro wrestling is its biggest bet yet into the genre.

“We’ve seen Netflix be really shy about about getting into the live arena, getting into sports programming in a big way,” Ranganathan said. “This is definitely a departure from their time tested strategy (but) they’re looking to scale their advertising business,” she said — and what better way to do that than to have live sports content that already draws two million viewers a week.

Streamers pivoting to sports

It’s also unlikely to be Netflix’s last foray into live sports. Streaming companies have spent exorbitant sums in recent years buying up rights to live sports that once belonged to cable giants.

Apple has spent heavily for the rights to Major League Soccer and Major League Baseball games, and in 2021, Amazon bought the exclusive rights to broadcast Thursday Night Football – for a cool $1.2 billion annually.

Just this month, NBCUniversal’s streaming service Peacock spent a reported $110 million to be broadcast home for the AFC Wild Card game. That’s an exorbitant sum for any single event, but Comcast says it was a huge success, garnering almost 28 million viewers, enough eyeballs to gobble up 30 per cent of all U.S. internet traffic at the time.

With numbers like that, sports fans can expect that trend to continue.

Conventional broadcasters “have the rights to a lot of these properties and as the sports rights market heats up with all these new bidders it means (they) have to shell out more and more,” Ranganathan said.

Seaborn thinks Netflix in particular has more sports ambitions beyond wrestling. The NBA recently implemented an in-season tournament that seems tailor-made for a streaming partner to broadcast it, and “Netflix is definitely in the conversation for that,” he said.

He also thinks hockey isn’t out of the question.

In 2013, Rogers shook up Canada’s broadcasting landscape with a then-unprecedented deal to buy the exclusive national broadcasting rights for NHL games for C$5.2 billion over 12 years.

TSN and RDS, divisions of BNNB Bloomberg's parent company Bell Media, hold broadcast and streaming rights to multiple live sports events, including some NHL regional games as well as PGA Tour golf events and NFL games.

That Rogers deal is up for renewal in less than two years and Seaborn says he’d be “shocked” if the entire national rights went back to Sportsnet, which means the door is open to a streamer trying its hand at something game-changing: Hockey Night In Netflix?

“Someone like Netflix, someone like Amazon, someone like Apple, Roku, even players we haven't thought of yet are going to be in the mix for those rights,” he said.

BCE is the parent company of BNN Bloomberg through its Bell Media division.

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