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Industry Attitudes Toward Netflix Changing?

21 Sep, 2015 By: Erik Gruenwedel

Lost in last week’s ongoing angst among media executives fretting about cord-cutting and smaller (skinny) pay-TV channel bundles, was the emergence of new strategies dealing with the 800-pound subscription streaming gorilla: Netflix.

Despite being a cautious embracer of SVOD, 21st Century Fox, like most media companies, licenses content to over-the-top video services, including Netflix, Amazon Prime Instant Video and Hulu Plus (which it co-owns with Disney and Comcast).

Now Fox is officially altering how it approaches SVOD, notably Netflix and its march toward a global footprint. What started last year as a warning from Fox chairman Rupert Murdoch about the need to establish a legitimate competitor to Netflix and Amazon, is now a strategic talking point for his son, James, newly appointed CEO of 21st Century Fox.

Speaking Sept. 16 at Goldman Sachs Communacopia confab in New York, the younger Murdoch praised Netflix for being “good for both sides,” while also announcing that Fox would now steer future content licensing to Hulu Plus.

“I think you'll see the business rules of how we license to SVOD players probably change. And that may mean that we sell less to one and more to another over time — and emerging platforms, as well,” Murdoch said.

Indeed, in a forthcoming industry report from Digitalsmiths, use of Netflix topped 49% among survey respondents, up 5% from a survey a year ago. Hulu Plus usage increased 2.3% to 11.8%.

Murdoch said Fox remains bullish on SVOD and OTT video — the latter including Internet TV services such as Sling TV and PlayStation Vue.

“We are very excited about new entrants into the digital distribution because we think, ultimately, that's what provides competition and what provides value to customers. And I think it also makes the traditional MVPDs innovate faster and do a better job,” he said.

It’s a sentiment shared by Time Warner CEO Jeff Bewkes, whose past criticism of Netflix has tempered in recent years. Bewkes contends pay-TV should reboot TV Everywhere by making all programming (including stacking rights) available on-demand.

While Time Warner hopes recently launced OTT video service HBO Now can counter Netflix and Prime Instant Video, the media company continues to straddle the fence licensing content.

HBO last year for the first time licensed catalog programming to Amazon. And Warner Bros. Worldwide TV Distribution a year ago licensed drama “Gotham” to Netflix — before it had even aired on Fox.

“In this era of new business models and expanding windows, this is an unprecedented deal for our company and our industry,” WBWTD president Jeffrey Schlesinger said at the time.

Speaking at Goldman Sachs, Bewkes said a lesson might be learned by the fact that Netflix (and HBO) doesn’t license its original programming to third parties. Of course, Bewkes was ignoring the fact that Netflix typically doesn’t own its own shows, but the message was clear: Pay-TV distributors need to offer more content on demand.

“Why wouldn't the natural thing for a network that's breaking through with — TNT’s “Falling Skies” [or] “Rizzoli & Isles” … have even more than that one season?,” Bewkes said. “We think there's a real question of whether it wouldn't make sense to put even more than that on as part of a network rather than part of some other kind of volume aggregation.”

MoffettNathanson analyst Michael Nathanson contends that as the “implications” of SVOD manifest at the pay-TV sub bottom line, he hopes that the industry embraces a strategy that “trades today’s lunch for tomorrow’s dinner.”

“While few Netflix shareholders appear to be paying attention or are concerned about the potential loss of this source valuable off-network content, the tides does seem to be turning slightly,” Nathanson wrote in a Sept. 21 blog.   

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