Can U.K. pay TV pay off for indies?

Netflix hits Blighty and Lovefilm feels the heat

The U.K. pay-TV market is getting a shake-up and, according to many independent distributors, it couldn’t come soon enough.

The imminent arrival of Netflix has pressured Amazon-owned competitor Lovefilm to up its game, resulting in both new players offering lucrative exclusive multiyear deals in the pay-TV window to independents, who have struggled to gain a foothold at satcaster BSkyB. The satcaster has held a monopoly over the pay-TV sphere in Blighty, the vast majority of its annual £280 million ($456 million) acquisitions budget earmarked for product from the Hollywood majors.

In July, eOne inked a five-year exclusive content deal with Lovefilm, which will see the online film and TV subscription service become the only outlet holding rights to release the distrib’s catalog, including “The Twilight Saga: Eclipse,” during the pay-TV window.

Similarly, Lionsgate U.K. signed a multiyear agreement with Netflix.

But in an already crowded arena with many well-capitalized players, will the security of a pay-TV deal cause an already aggressive acquisitions market to become more pugnacious?

While it makes sense to worry about a potential boom in one sector leading to inflation levels in another, says Lionsgate U.K. chief exec Zygi Kamasa, in this case, other factors are involved.

“The DVD market is continuing to decline, the theatrical market is relatively buoyant if you have the right movies, and the free TV market has softened over the past few years,” Kamasa says. “So, in some ways, the increase in revenue we may all generate from pay-TV is offset.”

Alex Hamilton, director of films at eOne, says its Lovefilm deal doesn’t change its U.K. acquisitions strategy. “I’m loath for it to become a rope to hang ourselves with,” he says. “The same rules still apply and you should still pay what you pay for a film.”

Hamilton adds that while eOne did sell some of its pics to Sky, now “we’re pleased that we actually have a deal, whereas in the past we were hoping we’d get (one).”

Xavier Marchand, prexy at Alliance Films’ Brit arm Momentum Pictures, says the Lovefilm and Netflix deals will make the U.K. better economically for the indies, but adds that since it had been so difficult — and unprofitable — for them to sell to Sky, it’s unlikely those deals will inflate overall prices.

“It helps to make more sense of our numbers if we can readdress the pay-TV window,” he says.

Kamasa notes that ultimately, even with improved pay-TV deals, whatever product the indies buy still needs to fit into their overall margins.

“We’re all competitors and it would be impetuous for us to go out and spend more because we don’t need to pay more,” says Kamasa. “We still have to make sensible acquisitions, because you still have to spend money on DVD and P&A. And if you’re doing all of that just to get ‘x’ amount of money from a pay-TV slot, it just doesn’t make sense.”

Still Kamasa recognizes that the new players in the pay-TV game can improve the economics of the indie industry.

“It definitely strengthens our business,” he says, “and the fact that the first set of these types of deals are going down with the indies is good. Now, for the first time in history, it levels the playing field between us and the majors.”