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Pushing Pause on SVOD?

16 Nov, 2015 By: Erik Gruenwedel

Time Warner CEO Jeffrey Bewkes has seen the meteoric rise of subscription streaming (i.e. Netflix) — and he’s not happy about it. Neither are a growing number of media companies whose pay-TV assets are feeling the heat from SVOD.

Facing greater-than-expected advertising and subscriber quarterly declines at Time Warner’s networks, Bewkes Nov. 4 said the media giant will look to hold back content licensing rights to SVOD while accelerating the rollout of proprietary digital platforms, including direct-to-consumer. 

Time Warner properties include Warner Bros., HBO and Turner.

Speaking on the company’s quarterly fiscal call, Bewkes — a former critic of Netflix’s impact on TV syndication — appeared to revisit that skepticism, saying the company’s brands will look to retain syndication rights to programming (while increasing investment in proprietary digital infrastructure and content spend), rather than seeking short-term gains by licensing content to Netflix.

Indeed, a Nov. 12 Wall Street Journal report said Time Warner is mulling a 25% ownership stake in Netflix-competitor Hulu for a reported $5 billion.

Time Warner’s over-the-top video ventures include HBO Now, CNN’s pending news-style “Great Big Story,” Turner Broadcasting Station’s new digital studio “Super Deluxe” and investments in  iStream Planet.

“We are evaluating whether to retain our rights for a longer period of time, and forgo or delay certain content licensing,” Bewkes said. “This would effectively push the SVOD window for content on our networks to a multiyear period, more consistent with traditional syndication.”

Viacom also is reassessing its license agreements with Netflix, opting instead for distribution channels based on the programming (TV, movies, kids), including specific shows.

“We have seen growth in our presence in Hulu Plus [which includes incremental ad revenue] and a diminishment of our presence on Netflix. And that goes for both our networks here at Viacom and Epix,” said Philippe Dauman, president and CEO of Viacom. “We look at not just the monetary value, but the promotional value of having shows at different points in the cycle on SVOD.”

Media executives say SVOD drives smaller subscription revenue than pay-TV and features largely ad-free content.

Bewkes contends that if consumers pay less, media companies will generate less revenue, and in turn not produce as much content — leading to a domino effect throughout the industry.

“It’s pretty clear [SVOD] offers less monetization support in general for the quality and diversity of programming that we’ve all gotten used to seeing on the dial,” he said.

Distribution Food Chain

Dissemination of theatrical movies on broadcast television typically lagged for several years after their box office debut, according to Wedbush Securities analyst Michael Pachter. As new forms of distribution emerged, new windows followed — many of which are now shrinking. The VHS, then DVD, window was originally set six to nine months after theatrical (now three to four months); the VOD/PPV window a month later (now day-and-date), followed by premium cable nine months thereafter.

“We’ve seen the studios screw around DVD rental with 28-day and failed 56-day windows,” Pachter said. “It was inevitable that someone would behave rationally and figure out that giving Netflix TV content only a few months after the broadcast season concluded would cause many [pay-TV subscribers] to cut the cord.

“I think Bewkes and [Warner Bros. CEO Kevin] Tsujihara are of a like mind that Netflix is the biggest threat to their existing ecosystem. And offering them SVOD rights proximate to cable exhibition jeopardizes retransmission and broadcast rights fees if it induces subscribers to cut the cord.”

SVOD Embargo

As Netflix seeks a global footprint by the end of 2016, Pachter said media companies should create a distribution window for SVOD that is not a substitute for another window, but that captures incremental revenue.

The analyst said embargoes have worked with Redbox and they could work with SVOD. But with Netflix aggressively outbidding other distributors for exclusive rights, Pachter said content holders “stupidly gave away their stuff” too quickly (see Starz/Netflix deal), allowing Netflix access to content below market value.

Former 21st Century Fox president Chase Carey likened the Starz/Netflix deal to a train robbery.

“It pays not to grab a quick buck [that is] not quite as an attractive buck 12 to 18 months later,” Carey said. “If we can’t get fair value, we aren’t going to do it.”

Pachter said Netflix’s success is based simply on getting high-quality content for a low price.

“It’s not their fault that the content guys have licensed content to them,” he said.

SVOD Indifference

Executives at AMC Networks, which has several deals with Netflix, believe the SVOD service has helped boost ratings for legacy shows such as “Breaking Bad,” “The Walking Dead” and “Mad Men.” CEO Josh Sapan said he has no desire to alter that relationship.

“AMC has been fairly consistent in our thinking since we engaged in SVOD exploitation,” Sapan said on the company’s fiscal call. “Our view today is our approach (a one-year delay from broadcast to SVOD) was a measured one and an appropriate one.”

Disney CEO Bob Iger inked a landmark pay-TV movie distribution deal with Netflix that begins next year. He said SVOD delivers content efficiently and is in touch with how consumers want to consume it.

“We challenge all the legacy distributors to deliver [OTT video] because we think that could be one of the factors why young people aren’t signing up [for pay-TV],” he said.

At the same time, Iger agrees allowing Netflix to become an unchallenged global SVOD power isn’t good for the industry. With Disney a co-owner in Hulu, the media giant has upped content spend in Hulu Plus, in addition to licensing content to Sony’s online TV service PlayStation Vue, Charter’s Spectrum TV and Dish Network’s Sling TV.

It is also launching a standalone SVOD service in the United Kingdom called “DisneyLife.”

“Longer term, it’s possible that we’ll make different decisions [about Netflix],” Iger said. “It is possible off-network programs will end up either being bundled without multichannel services or as part of apps that [we] bring out to sell directly to consumers, as is the case with DisneyLife.”

Netflix CEO Reed Hastings takes the media rumblings in stride.

“Some studios will choose to license content to SVOD services like Hulu, Amazon Prime Instant Video and Netflix; others may not,” he and CFO David Wells wrote in the recent shareholder letter. “We have a lot of content to select from.”

Fewer TV Ads

Next to SVOD’s loss-leader pricing to consumers, its ability to offer binge-view programming without commercials is driving media companies to reduce the number of ads on TV broadcasts.

Bewkes said subsidiary TruTV would cut its advertising load in half for  primetime original shows beginning  late next year. He said the move, in  addition to greater on-demand access, would enhance the pay-TV viewing experience and drive greater value for Time Warner networks.

“Now is the time for us to press our advantages,” he said.

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