×
You will be redirected back to your article in seconds

The Deal That Could Dim Netflix’s Emmy Afterglow

Potential Fox-Comcast pact portends a troubling trend for SVOD biz

With three Emmy statuettes now on its mantle, this should be a carefree time at Netflix. Were it only that simple.

A Wall Street Journal story hit last Friday suggesting pay-TV providers intend to compete for rights to TV series that Netflix and other subscription VOD services have exploited to establish themselves as destinations for binge-viewing. 21st Century Fox and Comcast are said to be on the verge of one deal in particular that could steer select series to the cable operator, which wants to expand its VOD beyond the typical handful of most recent episodes to the territory Netflix has made its specialty.

This is a significant development for Netflix. The prospect of pay-TV distributors beginning to lure sizable amounts of premium content away from Netflix in the coming years poses an existential threat to the streaming service. Netflix will have to maintain a tricky balance between the catalog supply that has long been its core offering and the original content the company has done an admirable job of layering on top of that.

Think yanking the tablecloth out from under the silverware…but in slow motion.

That leaves a twofold question. Can Netflix outbid the distributors for the rights to enough library content to stay viable in the marketplace? Or is that an outmoded definition of viability given library content may not matter as much to Netflix in the near future given its Emmy-winning success in original programming?

If plans to ramp up at least 20 series per year beginning in 2014 struck you as a tad ambitious, the Comcast-Fox news may give good reason for the overreach: Netflix needs to become more reliant on original programming quicker than anyone might have realized because the licensed library content on which the service built its popularity could erode.

Keep in mind this ebb and flow isn’t necessarily inconsistent with the Netflix long game; the point has always been to play the HBO playbook, which means leading with original programming. But where this gets tricky for Netflix is that it will have to evolve from licensing library to funding original content much faster than HBO, doing in a matter of years what the Time Warner-owned channel had the luxury of doing over decades.

The pressure to wean off licensed library content likely isn’t a predicament that snuck up on Netflix, which surely began hedging its bets on original programming last year when it made an expensive deal to snap up Disney film titles beginning in 2016.

But it’s quite possible that as more and more originals are made available, Netflix could sustain itself with just a few key library deals like the Disney one. The company has already repeatedly asserted that it will be more selective about those library deals as its audience data provides a more nuanced understanding of what content is actually worth. So there’s no longer a need to boil the ocean, which was essentially Netflix’s catalog strategy for its first few years in the streaming business.

A pact like the Disney one needs to be kept in mind should a Fox-Comcast deal be the first of many that removes big chunks of licensed content from Netflix. The sheer tonnage of the exiting content could trigger mistaken assumptions that the company will consequently be thrown for a loss, as it did last year when Netflix let a deal expire on over 800 hours from A&E Networks.

For Fox to be leading the charge here isn’t entirely surprising. This is the studio that has been talking the biggest game over the years on the authentication front, putting as much value behind the walls of its pay-TV partners as possible.

But on on the other hand, Fox may also know better than anyone else the value of Netflix as a buyer, too. 20th Century Fox was the first major studio to produce original content for Netflix via “Arrested Development.” And while the rush may be on to move content en masse to pay TV, even Fox knows that Netflix is the better place to fish where the fish are in support of driving on-air audience. 20th Century Fox did a deal a few months ago to put the first two seasons of comedy Fox comedy “New Girl” on Netflix.

And therein what may lie the crux of the conflict between distributors and studios. Should distributors have to pay much more–if anything–if the binge viewing provides a boost to on air? Maybe studios should being paying distributors instead of the other way around, a notion I floated last month when crediting Netflix for driving record audiences to the latest season of “Breaking Bad.”

And yet even though distributors in the WSJ story went on the record with a hard-line negotiation stance suggesting their ability to boost on-air programming means they should pay next to nothing for TV rights, it’s understandable why conglomerates like CBS Corp. and Disney aren’t playing ball as long as companies like Amazon and Netflix are around to overpay when Comcast and Verizon aren’t feeling as generous.

But going for the easy money could amount to a dangerous game. If congloms keeps feeding Netflix, those revenues could come at the expense of the distributors who may eventually start to succumb to cord-cutting as SVOD options get stronger. That would endanger a much bigger revenue stream given affiliate fees are the biggest gravy train Hollywood has.

The timing of this this pay-TV incursion is also interesting because it comes so closely on the heels of a unprecedented sign of detente between Netflix and pay-TV incumbents. Earlier this month in the U.K., Virgin Media became the first cable operator to make Netflix available on a set-top box. Hastings himself once raised the prospect that Netflix could be bundled with U.S. cable operator offerings, but nothing has yet to materialize in the marketplace to suggest that is happening.

It is entirely possible that these are not disconnected developments. Cable operators may have wanted to use Netflix to plug the SVOD hole in their offering but didn’t like the terms they were getting. Now they’re putting the screws to Netflix by having its content partners attempting to bid away its catalog content.

Maybe a deal or two puts enough pressure on Netflix to get back to the negotiation table with more favorable terms. Or maybe the distributors have given up on bundling Netflix, which means it could be time to rip away the streaming service’s core offering in catalog TV assets and shift them to pay-TV providers.

SEE ALSO: Second-Guessing the Netflix-Virgin Media Deal

Popular on Variety

More TV

  • AMERICA'S GOT TALENT -- "Live Results

    TV Ratings: 'America's Got Talent' Finale Draws 10 Million Viewers

    SPOILER ALERT: Do not read on if you have not seen the season 14 finale of “America’s Got Talent.” The finale of NBC’s “America’s Got Talent,” which saw blind, autistic singer Kodi Lee crowned the winner, drew almost exactly 10 million viewers for the Peacock on Wednesday night. Bolstered by a robust, velvety Cher performance, [...]

  • Ava-Mark-Split

    Ava DuVernay, Mark Ruffalo Selected for SAG-AFTRA Foundation Honors

    Ava DuVernay and Mark Ruffalo have been selected by the SAG-AFTRA Foundation for its fourth Annual Patron of the Artists Awards. The awards will be presented on Nov. 7 at the Wallis Annenberg Center for the Performing Arts in Beverly Hills. The show benefits the nonprofit SAG-AFTRA Foundation and is not televised. Previous SAG-AFTRA Foundation Patron of the [...]

  • Programme Name: The Cry - TX:

    Brazil, U.K. Lead International Emmy Awards Nominations

    Brazil and the U.K. lead the pack in this year’s International Emmy Awards nominations, which span 21 countries across 11 categories. Titles and talent from Britain and Brazil will vie with other hopefuls for the trophy in five categories: drama, best performance by an actor, best performance by an actress, arts programming and documentary. Brazilian [...]

  • Hailee Steinfeld photographed by Art Streiber

    Hailee Steinfeld Drops New Song From Apple TV Series ‘Dickinson’

    Oscar-nominated actress and singer Hailee Steinfeld dropped a new song on Thursday, “Afterlife (Dickinson)” from the upcoming Apple TV+ series “Dickinson,” in which she stars and serves as an executive producer. According to the announcement, Steinfeld drew lyrical inspiration from her character, Emily Dickinson, and the themes and ideas in many of her literary works. [...]

  • Kim Kardashian Kim Kardashian out and

    Nielsen Now Tracks Celebs' Social-Media Touts of TV Shows

    Nielsen is providing a new lens into how celebrities and talent can boost the exposure of TV shows on social media. The measurement company announced that its Social Content Ratings solution now measures talent promotion of television programs across Twitter, Facebook and Instagram. According to Nielsen, talent now drives nearly 60% of all social engagement [...]

  • Ree with Sticky Pork

    Food Network Strikes Three-Year Pact With Ree Drummond, 'The Pioneer Woman'

    Ree Drummond will be offering Food Network viewers more hearty family meals for the next three years. Drummond, who has hosted “The Pioneer Woman” on the Discovery-owned network since 2011, has signed a new deal with the outlet that calls for new episodes of her program. “Ree Drummond’s incredible following and popularity has led her [...]

  • David Zaslav

    Steven Spielberg's 'Why We Hate' Is More Timely Than Ever, David Zaslav Says

    The political state of the world today has made the upcoming docuseries “Why We Hate” relevant in a way that its producers, Steven Spielberg and Alex Gibney, hardly expected when they began developing the project five years ago, Discovery president and CEO David Zaslav said Thursday. “Things are much more of a challenge and hate [...]

More From Our Brands

Access exclusive content