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Netflix Helping Studios Up Content License Fees

7 Jun, 2011 By: Erik Gruenwedel

Flush with disposable cash, streaming giant has garnered VIP status among media companies

Once shunned by media companies as a pariah to secondary distribution, Netflix’s deep pockets and willingness to spend big on catalog fare has media companies rolling out the welcome mat all the way to the bank.

Take Les Moonves, CEO of CBS Corp. Last December Moonves was telling investors he was more interested in licensing “NCIS: Los Angeles” for $2.3 million per repurposed episode in syndication than feeding Netflix’s vacuous subscription video-on-demand platform.

“We may be a little bit more cautious regarding Netflix,” Moonves said Dec. 7.

Fast-forward six months and Moonves continues to print money licensing freshman drama “Hawaii Five-O” for a reported $2.5 million per episode to cable network TNT while also licensing defunct serials such as “Cheers,” “Family Ties,” “Twin Peaks,” “The Twilight Zone” and “Medium,” among others, to Netflix.

“When shows go off the air they will automatically go right onto Netflix,” Moonves told attendees at the recent Nomura Media Conference in New York. “We able to sell at a very nice price product that won’t hurt any of our other businesses.”

Increasingly, media companies are warming to Netflix as a lucrative licensee that vows not to disrupt their episodic programming distribution food chain, which includes ad-supported broadcasts; foreign/domestic syndication; retransmission (cable and satellite) and packaged media/transactional VOD.

Netflix also has shown it is willing to pay big for original content after it outbid HBO for exclusive rights to “House of Cards.” The BBC drama is being retooled with Kevin Spacey headlining and directed by Oscar-nominated David Fincher (The Social Network).

At the investor event, Ted Sarandos, chief content officer with Netflix, said the “Cards” deal was unlike similar production deals at HBO and Showtime whereby production, development and ownership of original content costs millions with no guarantee of success.

“Cards was not any of those things,” Sarandos told investors, alluding to the license agreement Netflix struck with the title’s owner Media Rights Capital.

“The worst Kevin Spacey movie on Netflix works really well,” he said. “He’s got a big fan base. People who love him, love everything he does. [‘Cards’] was an incredibly well-packaged show. And we did it in a way that doesn’t have any delivery risk. Our biggest risk is that the show is kind of mediocre.”

Meanwhile, studios/media companies are eying Netflix as a negotiating tool to be used as leverage when negotiating foreign and domestic content rights to other distributors.

Indeed, Canadian broadcasters grumbled that U.S. media companies invited a Netflix representative to last week’s upfronts with the apparent purpose of driving up the price of repurposed programs in that country.

“I think the studios were salivating a bit, inviting Netflix to the screenings and making sure everyone [among the specialty broadcasters] saw them,” Canadian TV executive Jay Switzer told CTV News.

Edward Woo, research analyst with Wedbush Securities in Los Angeles, said the increase in competitors bidding for content is good for content holders. Woo said Netflix undoubtedly is raising the overall license fees paid. He said that unless third party aggregators collectively mandate they won’t match Netflix’s non-exclusive fees — rights revenue will escalate.

“For now, Netlfix is paying ‘new’ money, so the studios are excited as they view this as incremental revenue since Netflix wasn’t paying much before other than disc purchases, which was only in the U.S.,” Woo said.

Interestingly, while Netflix is expected to spend more than $1 billion in license rights into 2012, according to analysts, it can’t get everything it wants.

Sarandos told investors Netflix eagerly wanted repurposed episodes of Emmy-wining series “Modern Family” (available in 2013) from 20th Century Fox Television, which USA Network acquired instead, including SVOD rights.

Indeed, as license fees skyrocket and digital distribution continues to evolve, content owners are also making syndication deals without throwing in digital rights, which offers them the opportunity to sell them to Netflix or another digital distributor.

That is how Netflix acquired streaming rights to “Glee,” while TV syndication rights went to Oxygen Media.

“When [Fox] did a lower-priced sale, it was a great value proposition [for us],” Sarandos said.

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