Exclusive: Choosing Between Netflix Dollars and Ratings Declines

Exclusive: Choosing Between Netflix Dollars and Ratings Declines

By Sarah Barry James

Thursday, December 11, 2014 – Netflix Inc. may be killing live TV. But it could also be making it stronger.

At the recent UBS Global Media and Communications Conference in New York, there was a lot of discussion about whether network owners should stop licensing their content to Netflix.

SVOD services have the advantage of offering content on demand without advertising through a user-friendly interface that offers helpful recommendations.

Others, though, believe Netflix’s relationship to television is far more complicated — and that there are just as many incidences of symbiosis as there are of cannibalism.

“After years and years of working in this business, I would say television has never been healthier. There’s never been more attention to television,” Catherine Warren — president of FanTrust Entertainment Strategies, which works with content creators, producers, broadcasters, distributors, game companies and advertising agencies to provide strategies for digital deal-making and fan-building — told SNL Kagan. “It really is going through a renaissance.”

Indeed, many have suggested that in terms of quality and quantity of content, television is in a golden age. Whereas a network like AMC used to carry classic movies, it is now home to series like “Mad Men” and “The Walking Dead.” And broadcast networks like CBS used to rely on just repeats and reality shows to get through the summer, but are now moving toward year-round original scripted programming.

Source: AMC

Source: AMC

Part of that renaissance is being fueled and paid for by SVOD services. Series like “Mad Men” and “The Walking Dead” have seen a significant boost in their ratings thanks to exposure on Netflix. And CBS would not have been able to add more original programming to their summer lineup — shows like “Under the Dome” and “Extant” — without advance deals with Amazon.com Inc. and Netflix.

Warren also noted that Netflix and on demand services are important for deterring piracy.

“The other thing that I think is so important is that consumers really want to do the right thing. They don’t mind paying for content, but they want convenience,” she said. “And so if there’s a show that you want to watch … if it’s on TV and you’re there, you’ll watch it. If it’s on your Netflix, you’ll watch it. But if you can’t find it, then you’ll torrent it. And I’m not saying that’s right — it’s just the reality.”

CBS Corp. Chief Research Officer David Poltrack also believes that licensing content to Netflix and other SVOD services is ultimately the right decision. Speaking at the UBS conference in New York, he compared licensing old episodes to Netflix with licensing old episodes to cable networks.

“If we’re willing to license our content to these competitors, why would we not be willing to license that content to Netflix?” Poltrack mused, noting that reruns of ‘The Big Bang Theory’ constitutes more than one-quarter of TBS’s total circulation and yet remains a major hit for CBS.

“The old belief was that syndication of old episodes of television programming undermined viewing of new original episodes on the networks, so programs were held out of syndication as long as possible,” he said. “The new belief and proven belief is syndication of successful series builds the viewer base of these series, thereby increasing viewing to original episodes of these series on the broadcast networks.”

With SVOD, broadcasters are once again finding themselves in the same position of being offered billions of dollars for their content. RBC Capital Markets analyst David Bank estimated in a 75-page October research report that digital syndication revenues are likely to total $6.8 billion in 2015, up from $5.2 billion in 2014. Cable syndication revenues, by contrast, are expected to total $18.4 billion, up from $17.4 billion.

For Warren, the solution to maintaining existing revenue streams while growing new ones and also preventing piracy is to window very carefully.

“Any rights holder, distributor, producer really needs to be thinking strategically about SVOD and where it fits in windowing,” she said. For instance, she noted that content owners thinking about their digital strategy might want to put content on their own branded TV Everywhere or over-the-top apps before licensing it to Netflix or its ilk.

Beyond the financial incentive of continuing to license content to SVOD services, there is also the risk that Netflix will simply create more of its own original programming. At that point, it would still potentially be dragging down live ratings but network owners would be missing out on billions in licensing revenue.

Indeed, at the UBS conference, Netflix Chief Content Officer Ted Sarandos suggested that he could envision Netflix putting out 20 original series a year — or one every two and a half weeks.

As CBS’ Poltrack noted, “Wouldn’t you prefer that your competition relied on old episodes of your programs as opposed to new content from someone else? You have to look at the big picture.”

This is an excerpt from the original article by Sarah Barry James for SNL Financial. Click here to read the full article.