All of a sudden, there’s real money at stake for Hollywood in digital licensing deals.
That was evident in the latest round of earnings reports, when most of the majors touted a growing boost to the bottom line from library rights pacts with Netflix and Amazon’s fledgling Amazon Prime service, among other players in the U.S. and abroad. Viacom’s Philippe Dauman declared it to be a business with profit margins “in excess of 75%.”
So how come most of Hollywood is still treading cautiously when it comes to selling TV’s hottest wares — current series — to Netflix et al? Fear of dampening the long-term syndication value of a program remains the single-biggest concern. But another reason is that the timing of this particular gold rush is terrible for the majors.
Netflix’s rise to a company with a $12.5 billion market cap coincided with the Great Retrans Wars of 2009-10. The major studio-network congloms have just come through a period of bludgeoning cable, satellite and telco operators to pay significant retransmission consent fees to their O&O stations in order to keep Big Four network programming. (The nets are also siphoning retrans coin from affils.)
In exchange for hundreds of millions of dollars in retrans fees, operators have demanded expanded online and VOD distribution rights to programming — exactly the kind of cutting-edge services they need to offer to compete with lower-priced competitors like Netflix. This means the digital rights to the majors’ most saleable material is encumbered in larger deals with the old-guard cable operators and satcasters that provide so much of Hollywood’s earnings these days.
The fact that the majors are unsure of how to proceed with the opportunities on the horizon is demonstrated by the fact that they are hedging their bets by opting for short one- and two-year deals for older shows. Are they leaving money on the table? The initial Hulu charter of offering free, advertising-supported online access to a broad menu of shows has proven to be only modestly profitable for its Hollywood parent companies, News Corp., NBCUniversal and Disney. Hence the focus on building up the $8 a month Hulu Plus subscription service.
As the Web streaming winds shift to the subscription model, the question of how much a Netflix, Amazon Prime or Hulu Plus service would pay for day-and-date rights to, say, “Glee” or “The Good Wife” or “Jersey Shore” remains academic, because nobody’s offering those deals. It would disrupt too much of TV’s entrenched eco-system.
One showbiz giant that has recently articulated a strong vision for balancing the demands of new and old customers is News Corp., under the direction of chief operating officer Chase Carey. He’s known to have been critical of Hulu’s initial free approach.
“We’re going to be focused on having built the right business models and long-term asset value and not how to squeeze a quick buck out of this for a quarter or two,” Carey told investors earlier this month.
In keeping with Carey’s philosophy, the Fox network has taken the bold step of limiting the immediate availability of its programming via free Web streaming through Hulu and its own Fox.com website. As of Aug. 15, Fox Broadcasting established an eight-day window of exclusivity for Web streaming via password-protected TV Everywhere services linked to cable, satellite and telco providers. Viewers will be able to watch episodes of new shows like “Terra Nova” and “New Girl” online hours after each episode’s premiere, but only if they already pay a monthly bill for cable, satellite or telco TV service, or Hulu Plus.
In the short term, the move will severely restrict online access to Fox shows because many operators have been slow to launch the technically complex TV Everywhere authentication services. Fox execs say it’s a trade-off they’re willing to make as part of the larger goal of supporting their vital business partners. There’s talk that ABC may make a similar move.
“We have a lot of businesses invested in the pay TV universe,” says Mike Hopkins, prexy of affiliate sales and marketing for Fox Networks. “We’re taking a leadership position on a way to create more value for the pay TV customer.”