CW–Netflix Deal Puts Broadcasters on Edge

Executives concerned big-money pact may be a sign of future bidding for prominent off-network series

By Paige Albiniak -- Broadcasting & Cable, 10/24/2011 12:01:00 AM

Almost everyone agrees that The CW’s recent deal to license its serialized dramas to Netflix was a best-case scenario for all involved, but the move put broadcasters on alert. Such deals could portend greater efforts by subscription video on demand (SVOD) services to acquire some of TV’s more in-demand shows, and that could drive up prices for those properties.

“If you are a broadcaster, you can’t ignore the possibility that someone might spend $1 billion to get some sitcom that you want,” says one broadcast executive. “That raises the price, and all of a sudden the prices for all sitcoms go up.”

That scenario already has played out between broadcasters and cable networks. For example, broadcasters would have liked to have had Warner Bros.’ The Big Bang Theory exclusively, but they couldn’t come up with enough money—another $1.5 million per episode—to convince Warner Bros. not to sell the show to TBS. Similarly, the entry of SVOD providers into the marketplace could drive prices up even further, as potential buyers battle over details like time slots and exclusivity.

“It’s the same factor that came into play with cable,” says Bill Carroll, VP of programming for Katz Television Group Programming. “Before cable was an aggressive player—before TBS got into the current programming business—over-the-air broadcast syndication was really the only game in town. Once cable got into the game, the whole environment changed.”

None of this was a concern in the CW-Netflix deal, which was largely hailed as a victory for all parties— particularly The CW, which has struggled to find ratings for its well-produced shows over its five-year history. While the shows themselves may have earned money for their producing studios, mainly through international licensing deals, The CW has not been pro" table. This new deal with Netflix could be worth as much as $1 billion to Warner Bros. and CBS, according to some analysts, and that’s certainly enough to make it worth Warner Bros. and CBS’ while to keep The CW in business.

After Lionsgate sold Mad Men to Netflix in April 2010 for nearly $1 million an episode, “everyone came to the realization that serialized dramas could have a home online somewhere,” says David Bank, an analyst with RBC Capital Markets. “What’s different about The CW deal is that when they looked themselves in the eye, they had to admit that their ratings are significantly down again this year. What was the justification for having this network in existence?”

The Netflix deal gives The CW a much-needed financial safety net, and that comes as a relief to the TV stations that air the network. While station executives have complained that The CW’s programming, which targets young women, isn’t appealing to the adults 25-54 audiences who watch their stations up until primetime, they would still much rather run The CW than nothing at all. “If The CW can stay healthy in any way, I think that’s a good thing,” says a broadcaster who airs The CW in some markets.

Still, broadcasters admit that deals like Netfiix-CW make them nervous. “Anytime someone can run to their Playstation and queue up any show at any time, that’s taking eyeballs away from broadcast and cable television,” says another broadcast executive. “That’s why many broadcasters have been hard at work creating their own original programming. Broadcasters need to protect themselves.”

Broadcasters are turning to original and local programming in order to maintain their unique brands in the local marketplace. When SVOD and streaming plays are added on top of cable and broadcast runs, a program’s value becomes even more diluted. “The more exposures a program has, the less unique it is for broadcast and thus the less valuable it is,” says Carroll.

Thus far, no streaming deal has impacted the off-net programming—specifically, the highly rated sitcoms and crime procedurals—that broadcasters and cable networks most need. Last year, Warner Bros.’ sold The Big Bang Theory to broadcasters and to TBS for a collective $4 million per episode, which could total as much as $700 million in revenue for the show’s first cycle alone. On the heels of that sale, Twentieth made similarly priced deals for Modern Family, which sold to USA Network and Fox.

Cable networks also pay big bucks for top-rated procedural dramas, with TNT acquiring CBS Television Distribution’s Hawaii Five-O last year for nearly $2.5 million an episode. CTD’s NCIS: Los Angeles and Warner Bros.’ The Mentalist went to USA and TNT in 2009, respectively, at analogous prices.

TV stations and cable networks are willing to pony up for these shows because they can draw audiences and build brands around them. Shows that have been sold thus far to SVOD services have been series that couldn’t otherwise find buyers. Warner Bros. sold Nip/ Tuck to Netflix and Logo last year when it couldn’t secure one strong cable buyer.

But the day could come when the SVOD services outbid traditional distributors for TV’s most desirable offnet shows, and that’s what has broadcasters worried.

E-mail comments to palbiniak@gmail.com and follow her on Twitter: @PaigeA