Subscription Streaming: Boon to Media Companies

1 Aug, 2011 By: Erik Gruenwedel

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Recent license agreements with Netflix and Amazon underscore Internet’s growing influence and burgeoning wallet

Last week’s flurry of content license agreements between major TV networks and studios with Netflix, Hulu Plus and Amazon likely signaled a détente of sorts to a cold war that has characterized streaming as a cancer on traditional distribution models.

Deals included an agreement between Amazon and NBC Universal Domestic TV Distribution that allows the former’s Prime loyalty members free streaming access to select Universal movies, including Oscar winners Eternal Sunshine of the Spotless Mind, Elizabeth and Gosford Park.

CBS Corp., which has been the slowest media company to embrace third-party digital distribution, inked a two-year agreement that allows Netflix to stream CBS and Showtime programming into Canada and Latin America.

Separately, Netflix and DreamWorks Animation reportedly are in discussions to allow the latter exclusive streaming access to its movies, supplanting a current pay-TV agreement with HBO.

And Debmar-Mercury, a TV program distributor owned by Lionsgate, made available all eight seasons of “Hell’s Kitchen” for streaming on subscription-based Hulu Plus — in addition to current season rebroadcasts accessible on ad-supported Hulu.

Driving these deals is the realization among many media companies that services such as Netflix and Amazon have the deep pockets, need and willingness to spend on repurposed content. In other words, it’s a seller’s market.

Anthony DiClemente, analyst with Barclays Capital in New York, believes CBS alone will receive about $300 million in combined incremental revenue from the Netflix and Amazon deals.

“Digital media distribution is an incremental boon to core film [and] TV studio economics,” DiClemente told FinancialTimes.com. “Media content owners like CBS continue to benefit from the simple laws of supply and demand.”

Michael Pachter, analyst with Wedbush Securities in Los Angeles, says Netflix will spend nearly $2 billion on original and repurposed content in the next year.

Pachter said the studios didn’t expect Netflix to get so big so fast. He said they have always considered monetizing the streaming window, which was the genesis to starting (and now selling) Hulu.

“Now that the studios and networks see how much money is at stake, they want their fair share,” Pachter said.

Indeed, while Warner continues to remain at arm’s length to Netflix and others, favoring traditional distribution channels such as HBO and TV Everywhere platforms, in addition to transactional VOD, Fox is keeping its guard up.

Fox, which is owned by Hulu co-owner News Corp., said it would hold back free third-party access to all of its TV programming for eight days after initial broadcast.

Regardless, Pachter believes subscription VOD is the TV syndication model of the future, and that having access to every TV show ever made on a delayed basis fattens media companies’ bottom line and preserves the integrity of live broadcast.

“Fox’s move last week is a signal that the networks know what they’re doing,” he said.
 

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