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Bewkes: ‘We Don’t Understand’ an HBO-Netflix Content Deal

11 May, 2011 By: Erik Gruenwedel

Time Warner Inc. CEO Jeff Bewkes May 11 dismissed any notions there might be a content license deal forthcoming between subsidiary HBO and Netflix — a scenario many believe would cement the online disc rental pioneer as a “must-stream” behemoth.

Speaking on a media panel at the Jeffries Global Technology, Internet, Media and Telecom Conference in New York, Bewkes said such an arrangement made as much sense as CBS licensing its TV shows to NBC or Time Warner licensing programming to Showtime Network.

“We don’t understand the question,” Bewkes quipped.

Indeed, HBO original programming and first-run access to major theatrical releases has been both coveted and a thorn in the side of Netflix CEO Reed Hastings for some time. Early in Netflix’s streaming days, Hastings lamented the fact HBO (and Showtime) appeared to have all the major movies locked up for eternity (actually through 2014).

In January, Ted Sarandos, chief content officer with Netflix, said the Los Gatos, Calif.-based service would compete with HBO for original content, including movies, for its burgeoning streaming service.

In addition to movies, Warner Bros. Television is one of the largest producers of original episodic programming. It has a long-standing license deal with HBO, which has more than 28 million subscribers.

With similar viewer demographics and competing business models, Netflix, HBO and CBS-owned Showtime are in an octagon of sorts attempting to maximize content licensing opportunities while at the same time avoiding cannibalizing each other’s respective core revenue streams.

Sarandos said Netflix would be willing to license repurposed HBO content, including the popular “True Blood” series and Showtime’s “Dexter” when those series conclude their cable runs. Netflix recently paid tens of millions of dollars for rights to all seasons of AMC’s “Mad Men.” It also beat out HBO and others for rights to remake British drama series “House of Cards.”

Panelist Les Moonves, CEO of CBS Corp., said there exists a content food chain within CBS that understands that the bulk of its revenue comes from TV advertising, followed by syndication, DVR, retransmissions and, finally, Netflix, Hulu, Apple TV and iTunes, among others.

The content license deals constructed with Netflix and other digital distributors always take into account their effect on the company’s primary revenue drivers: network TV and syndication. The CEO said every new digital platform is analyzed on that basis.

“We made a Netflix deal that will not affect either our ad sales on our network or our first-run syndication deals for our product,” Moonves said. “As a result, that deal makes sense to us. It is additional revenue that is not going to cannibalize our main businesses.”

Bewkes concurred, saying Netflix has done a good job creating a service with an excellent user interface that adds “utility” as well as a bidder to make programming more value.

“That’s helpful to the system,” he said, adding that subscription VOD services with low monthly fees have to situated correctly within the distribution channel.

“If it is done right, it can be additive,” Bewkes said. “What nobody logically should want is something that’s subtractive or destructive to the value of the content. It’s just a question of everybody [being] in the right place in the economic chain.”

Separately, Richard Greenfield, analyst with BTIG Research in New York, discovered that when tweeting the term “Netflix” on Twitter, a promotional tweet for HBO comes up encouraging the user to visit the pay-TV channel.

“Interestingly, the promoted tweet does not show up when you search for Showtime, Starz, Epix, and Hulu.com as Netflix is ‘the’ intended target,” Greenfield wrote in a post.

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