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John Landgraf Mounts His Silicon Valley Counteroffensive With New Service FX+

Avoiding exclusive SVOD licensing deals key for CEO intent on expanding ad-free add-on

When FX Networks launched its new commercial-free offshoot, FX+, earlier this month, 16 of its series past and present were offered only to Comcast subscribers for $5.99 per month.

Now the 21st Century Fox-owned cable group is announcing that when FX+ makes Cox Communications its second pay-TV partner in October, the available library will double in size to include many of the series that weren’t included in the Comcast launch, including “Atlanta,” “The Americans” and “Better Things.”

The quick expansion of the FX+ library reflects the importance of the new product to FX Networks CEO John Landgraf, who also oversees channels FXX and FXM. But getting as many series as possible under FX+ is requiring his taking a hard stance against the lucrative exclusive licensing pacts with streaming services that cover some of the network’s most prominent original programs of recent years.

Adding “Atlanta,” “Better Things” and 13 other series to FX+ required renegotiating a multi-year output deal struck in 2014 with Hulu, which 21st Century Fox shares ownership of with several other media conglomerates. Hulu will now share the series with FX+, which will also get a piece of the exclusivity Amazon Prime once had to itself for “The Americans.”

“I do not believe we should be selling FX-branded content to SVOD services anymore” on an exclusive basis, Landgraf told Variety.

He specifically lamented the 2016 deal FX’s sister studio, 20th Century Fox, struck to license to Netflix one of the few FX series that will not have its previous seasons available on FX+, “American Crime Story.” “Policy may be set at a higher level of the company than me,” said Landgraf. “For example, there are shows like ‘American Crime Story’ from 20th Century Fox TV, and they made the decision to sell prior seasons to Netflix, which has it now.”

Regardless, FX+ now has 1,300 episodes, or 85% of a library the company has built up over the past 15 years of critically acclaimed, award-winning original fare going back to the breakthrough police drama “The Shield.” But the reason FX+ isn’t able to get to 100% is because of other exclusive deals already struck with other outlets, including “Justified” at Amazon Prime and “Archer,” which is under a syndication deal with Comedy Central.

“I am hopeful therefore that ‘American Crime Story’ is the last deal of its kind in that regard,” said Landgraf.

FX’s emphasis on retaining stacking rights for as much of its content as possible is part of a broader strategic adjustment media companies began signaling as early as 2015 to pull back on licensing to SVOD in an effort to retain that content for its own direct-to-consumer initiatives, some in partnership with pay-TV distributors. Industry critics contended that while studios made a pretty penny on those licensing deals, that ended up empowering SVOD firms to cannibalize linear TV ratings, depressing ad revenues and driving up programming costs.

But foregoing exclusive licensing arrangements could be a tall order for studios who have seen streaming services eclipse cable networks and station groups as the source of the biggest licensing fees. 20th Century Fox saw that firsthand when Hulu ponied up in excess of $2 million per episode for rights to the NBC hit series “This Is Us.”

Netflix in particular has proven it’s willing to fork over top dollar in paying handsomely for “Gotham” and “The Blacklist” in recent years. RBC Capital Markets estimated that streaming services will spend nearly $12 billion on syndication in 2017; while that’s less than half of what station groups and cable networks pay combined, their share of the pie isn’t growing as fast as the streaming services.

Landgraf envisions FX+ as nothing less than the evolution of what a TV brand must be today to survive the arms race with bigger tech companies getting into the content business. He has been outspoken in his criticism of Silicon Valley’s encroachment.

While he sees Netflix and Amazon as beginning to occupy a separate tier of the competitive landscape by amassing a greater tonnage of content than an FX can match, Landgraf is staking out a place for the best of networks like his own with well-defined brands that can tout solid track records with smaller caches of high-quality content. But that means surviving a winnowing driven in the not-too-distant future by the algorithm-driven recommendation engines and voice-search capabilities of digital platforms, which could reduce the ranks of the dozens of channel brands that were once capable of coexisting in the linear-TV world.

“I tend to see the future in which there will be both platforms and brands,” said Landgraf. “Platforms will damage or destroy a lot of brands but not every brand.”

FX+ is also important because it’s an attempt to add a significant new revenue stream to the FX business at a time when existing streams are under pressure. Landgraf estimates that the percentage contribution of ad revenue to FX’s bottom line has plummeted from 55% when he arrived at the network nearly 14 years ago to 33% today. CPM growth can only do so much amid declining viewership on linear networks, which are seeing significant portions of their audience re-assemble on the non-linear distribution counterparts that have barely begun to fully monetize due to measurement shortcomings and other issues.

What’s more, the growth of affiliate revenues for most cable networks is slowing to single digits per annum. FX can’t just depend on its third stream, content ownership, to make up the difference.

So FX+ represents an attempt to open a fourth revenue spigot, what the company is calling incremental subscription revenue. The focus here is on super-serving a sub-segment of FX’s 85 million subscribers who are its super fans, viewers desirous of binge-ing deep into the network’s catalog and willing to pay to do so without commercial interruption.

Landgraf’s hope is that while FX has yet to succumb to the kind of subscriber declines that have gripped the likes of ESPN – the network is actually up 1-2% when digital MVPD subscribers are counted – he has no delusion of eluding the long-term downtrend that will claim all basic cablers. But if FX can add, say, 5-7 million FX+ subscribers over a 10-year period as FX’s linear footprint inevitably begins bleeding millions of subscribers over that span, he can compensate for that shortfall.

“Layer on monthly subscriptions of this product and it has a profound impact on our ability to maintain or grow our business in the face of a modest decline in MVPD systems,” said Landgraf.

But another long-term reality is that as long as FX+ is only available to pay-TV subscribers, there’s a sizeable, growing audience of cord-cutters and cord-nevers that can’t access it. Landgraf understands that but notes that for now, the kinds of market segments likeliest to lavish discretionary spending on an FX+ are still within the pay-TV universe, including multiple-individual and high-income households.

“While I’d like to get to those people who are FX super fans who don’t fall into those categories, if I am honest, the low-hanging fruit for the foreseeable future is inside the system,” said Landgraf. “It’s of concern, I agree, in the long run, but when I look at this year, next year and even the mid-term, I think it’s a de minimis number of potential consumers.”

FX isn’t the only cable network pursuing the incremental-subscription model; AMC announced a somewhat similar venture with Comcast in June.

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