Netflix and Canadian TV: Menace or Messiah?
We hear a lot about Netflix, and we hear it often, by both those who love and loathe it. It has become a fixture on the Canadian media scene in a very short time.
Indeed, there has been much gnashing of teeth since Netflix’s inception in this country in 2010, including the tightening up of bandwidth caps, inquiries by the CRTC, as well as the constant invocation of the streaming video on demand service (SVOD) in regulatory proceedings, from the CRTC’s 91h hearings just last week and no doubt in the one that it is set to start next week for Bell and Astral’s proposed amalgamation.
With roughly 1.6 million subscribers at the end of last year (IHS Screen Digest), it’s revenues can be estimated to have been about $134.3 million in 2012. This is a sizeable amount for sure, but where does it fit within the existing $7.5 billion industry (not counting the carriage and distribution side of the biz)?
So, the question for our post today: Netflix, menace or Messiah?
Netflix’s estimated 1.6 million subcribers, no doubt lean toward the latter view, even if they have to endure deliberately downgraded quality (i.e. no HD) to ensure they don’t blow their monthly bandwith caps and a slimmer catalogue to choose from. Even those in the TV biz regularly tell investors that they don’t expect any short- to mid-term harm, while the long-run is still anybody’s guess.
However, look further and read the pages of leading newspapers in this country (take this piece by Andrew Coyne from the National Post just two days ago for starters), and Netflix is often cast as ushering in the death of “old TV” and as the spearhead of a much bigger ‘video revolution’ that is poised to bring Canada’s big four vertically integrated media goliaths to their knees: Quebecor, Rogers, Bell and Shaw.
The long list of new content acquisition deals, and charts showing internet traffic attributable to Netflix going through the roof (here and here), all seem to have a point, and who knows, maybe all of the kerfuffle is on the mark. I don’t want to offer anything definitive on the point other than to say that, me, I’m skeptical.
However, what I do want to know is something a bit more systematic about where things stand. And so as I’m won’t to do, I’ve encouraged my students to have a look at things and recently, one of them, Patrick Foley, did a real bang up job putting together the following chart showing Netflix’s content acquisition and development.
I’ve added to the table here and there and then developed some commentary of my own afterwards, but I think it’s good to, first, take a deep breadth and take stock of what kinds of content deals that Netflix has and hasn’t done. Otherwise, I’m afraid that a compendium of disparate press releases will add up to the impression that there are barbarians at the gate and unless we do something fast, they’re gonna tear the place apart – that “place” being the “Canadian television system” as we know it.
So here we go, a selection of Netflix’s content acquisition and development deals over the past few years.
Netflix’s Content Acquisition and Development Deals
|Starz||2008||2008 5 yr. deal. $30 million per year.||Access to 2,500 titles, including “classic films” such as “Scarface” and “Beetlejuice”|
|NBC Universal||2010||Renewed contract for 5 additional years, worth $1 billion.||Rights to titles from Paramount, MGM, and Lionsgate studios. Also acquires rights to old and new episodes of ”SNL,” “30 Rock”, “The Office,” and other popular shows. Can offer SVOD (streaming video on demand) 90 days after airing on Pay TV.|
|CBS Corp.||2011||4 yr. “Pay- as-you-go” deal with The CW Network (jointly owned by CBS and Time Warner)||700 hours of old CW programming and rights to new episodes. Older shows like “Cheers” can now be streamed. So too for newer ones, e.g. “Gossip Girl” and “Vampire Diaries”|
|Time Warner||2013||“Pay-as-you-go” deal between Netflix Turner Broadcasting & Warner Bros (TW subsidiaries) ($100s millions).||New and old Warner Bros content produced for TV (i.e. shows already aired on ABC, NBC, FOX, HBO, Cartoon Network, TNT, etc.), including “666 Park Avenue” “Revolution”|
|Disney||2012||$200-$300 Annually||Classic Disney titles and access to newly released Disney movies for 3 years (7 months after theatre release). Latter came its way after Disney’s contract with Starz ended. Classics like ”Pocahontas”, ”Alice in Wonderland” and LucasFilms productions available for internet streaming.Beginning in 2016 Netflix can exclusively stream films from Pixar, Marvel, DisneyNature, and Disney Animation Studios.|
|Starz||2013||Netflix did not renew contract||Netflix loses rights to 2,500 “classic films” such as “Scarface” and “Beetlejuice”|
|2012||Arrested Development||Former Fox TV series revived. May be prequel to movie.|
|Media Rights Capital||2011/12 – 2013||House of Cards||Adaptation of previous BBC miniseries of same name. First TV series to premier on Netflix, beginning Feb. 1, 2013.|
|Viacom / Dreamworks||2013||Turbo F.A.S.T. (Kids animation series)||Original animated series based on forthcoming Dreamworks’ movie, Turbo.|
There’s much to be said about the above list of activities. Instead of writing another of my trademark long, long posts, however, let me distill a few points that I think are the most important.
Characteristics of Netflix deals:
- Acquire old, classic, established libraries of content.
- Acquire rights to air new episodes from ongoing TV series, and newly produced movies, after time delay.
- Youth/kid/teen oriented content is really important.
- ‘Old TV’ is the main ingredient of ‘new TV’, with established TV series revived and remade into new ones (Arrested Development; House of Cards) and forthcoming movies become TV series before they even hit the box office (Turbo F.A.S.T). In other words, original content is derivative of existing content.
Make Peace Not War: or how the Traditional US (but not Canadian) TV and Film companies learned to live with Netflix
- Netflix breathes new life into classic/old content.
- It opens a new distribution window: ‘streaming video on demand’: SVOD, slotted into the pre-existing, window-based Hollywood model that staggers the release of movies between regions and across time. Hollywood always learns to, at least eventually, embrace these new windows, even if late in the game, as my professor Janet Wasko taught us many years ago. Why? Because they are new markets, sources of revenue, that’s why (see here for latest evidence of growth of new windows relative to box office.).
- Netflix is complementary because Netflix subscribers tend to watch more TV rather than less, as the MediaTechnologyMonitor studies have repeatedly shown. As the most recent MTM study says, for instance, “Netflix customers are not so-called cord cutters. . . . In fact, Netflix users were found to be more likely than other consumers to shell out for a premium TV package, even while paying $8 a month for the streaming service”. UK communication and media regulator, Ofcom (see p. 3), has come to similar conclusions (also see here with respect to UK).
- Netflix may increase “packaged-media sales” (DVDs, DVD box sets, etc.) and cable VOD by sizeable amounts (15-30%), some Time Warner execs have claimed, although some of the scholarly literature I have read seems less convinced.
- Adds foreign films that lack North American theatrical release (thanks Patrick).
- Enables time-shifting and space-shifting via Microsoft’s Xbox 360, the Nintendo Wii, Sony’s PS3, Blu-ray disc players, and internet-based video players like Apple devices (again, thanks Patrick).
- And some stalwarts of the ‘traditional mediacos’ have a position on Netflix’s Board of Directors alongside internet and tech companies and that affords them at least a small lever of influence and control: e.g. Ann Mather (Walt Disney, Pixar, Google, MGM, Village Roadshow Pictures), Leslie Kilgore (Amazon, LinkedIn), Jay Hoak (Technology Crossover Ventures) A. G. Battle (Ask Jeeves, Expedia), Reed Hastings (Netflix, Facebook, Microsoft) (Netflix, 2012).
Why Canada’s Vertically-Integrated Players Continue to Hate Netflix:
- Must compete with Netflix over rights to new distribution window vs. treating them as an inexpensive bolt on to the existing suite of rights they acquire.
- They don’t have much original content of their own so must compete even more with Netflix.
- Netflix seems to give media workers more creative autonomy in their work and a bigger slice of the pie and more say afterwards.
- The creation of a new window – SVOD – increases pressure to compress ‘old windows’, especially VOD – a lucrative cash cow for existing BDUs’ specialty and pay TV services that continue to rake in operating profits in the mid- to high-20% range (see p. 1).
- Netflix enables time-shifting and space-shifting on other company’s devices — Microsoft’s Xbox 360, the Nintendo Wii, Sony’s PS3, Blu-ray disc players, Apple, etc. – rather than their own.
- Finally, Canadian media execs seem to loathe Netflix because they have no position of influence or control at Netflix, or anything like it.
Does this mean that nothing’s changing? Absolutely not! Television and how it is made, circulated, controlled and consumed is changing dramatically.
Fast disappearing is the old scheduled model of tv programming punched out by vertically-integrated tv cos modelled on the Fordist approach to car production (ownership of everything from inputs to manufacturing and dealerships), with highly unionized workforces and subsidized consumption brought to you courtesy of advertisers and government funding.
And what’s coming online? Hold your breath, folks, but it just may be the the centuries’ old ‘publishing model’. In this model, TV execs function as commissioning editors signing contracts and royalty cheques with creative talent. Most media work becomes more and more precarious, less unionized and less well paid. Disappearing are the “old days” when union bosses negotiated long-term contracts for media workers with durable media jobs and clear roles and back are the really old old days when everybody had to fend for themselves.
In addition, in the publishing model, as with books, people pay for what they get while the ratio of advertising and government subsidies to public service media steadily declines. Audiences’ preferences become more closely aligned with what they pay for as a result, but the gap between the media rich and media poor expands.
Think catalogues of movie and TV program titles, not a linear scheduled flow of appointment viewing. Long live TV, while everything changes.
So, Netflix, Menace or Messiah? You be the judge.