Why did Netflix pay $5 billion for WWE?

Co-CEO Ted Sarandos demurred on the topic of live sports broadcasts in October, on the last quarterly earnings call. With Netflix’s stock up 40% since that last report, on the back of blistering subscriber growth, this year-end report and call was already hotly anticipated. In January, Netflix’s ad chief Amy Reinhard said its ad-supported tier had 23 million subscribers, up from 15 million in November, crushing analyst expectations. Though some on the Street believe that strong performance is already priced into the stock, meaning there can’t be much room to grow—right? The WWE deal is an indication that Netflix is looking for that growth in new places. 

Netflix’s new deal will see it air WWE’s weekly show Raw in the U.S., U.K., Canada, and Latin America. In every other market, Netflix will air Raw and the other two weekly shows, SmackDown and NXT, plus all of its major showcases, including WrestleMania and SummerSlam. WWE executives cited Netflix’s global reach as a key reason for the deal. WWE is owned by TKO Holdings, which was formed when the talent agency Endeavor engineered a $21 billion merger between the pro wrestling circuit and MMA championship UFC. Shares of TKO were up as much as 24% in premarket trading after the news was made public, before settling in for a still impressive boost of 15%. 

Adding live programming, like ad-supported programming before it, is a natural extension of a media company’s trajectory, especially one as dominant as Netflix. Widely considered the winner of the streaming wars and with just under 240 million global subscribers, Netflix’s move into live programming was long…