NATPE: Are Happy Days Here Again?NATPE marks its 50th year amid rising tide of on-demand revenue 1/28/2013 12:01:00 AM Eastern
As the National Association of Television Programming Executives
(NATPE) conference and exhibition celebrates its 50th birthday this week,
attendees have good reason to sense some enthusiasm among their conversations
in the cabanas, bars, suites and poolside parties around the
famed Fontainebleau in Miami Beach, Fla.
No, there’s not a secret million-dollar party being
planned (not that we’re invited to anyway). And the
elaborate, city-like exhibition floors are gone for good.
But a new force is in the mix with the potential to do
what really always made NATPE exciting in its go-go
days: Make owners of TV content a lot of money.
Subscription video-on-demand (SVOD) services
have grown up as a TV programming buyer practically
overnight. Since April 2011, when Netflix acquired
the streaming rights to Lionsgate’s Mad Men—sparking
hope for owners of serialized TV everywhere that,
like Lionsgate, struggled to find a syndication home for
their complicated story lines—the over-the-top (OTT)
subscription market has gone from looking like a certain
threat to the traditional TV industry to one whose
consumer spending has exploded into the billions.
Dan Cryan, senior director of digital media, IHS
Electronics and Media, pegs the value of the OTT subscription
market in terms of consumer spending at $3.2
billion in 2012, up from $1.6 billion in 2011. Given the
rapid adoption of WiFi and the relative bargain SVOD
services arguably go for, it’s understandable that Cryan
projects that spending will reach $5 billion in 2016.
That market features such services as Netflix, which
currently represents nearly 70% of the SVOD market,
including movies, as well as Hulu Plus and online
sports subscriptions, such as MLB At Bat, said Cryan.
It does not yet include Amazon Prime, because that
still represents a small fragment of the market; Apple’s
iTunes, which is not subscription-based; or Google/
YouTube, which is only advertising-based, more closely
mirroring free over-the-air TV, according to Cryan.
Netflix, Hulu and Amazon may not have big sales
booths plunked down at the conference—this year.
However, Netflix chief content officer Ted Sarandos
will be on hand at NATPE this week in Miami, for the
fourth year running.
“It’s sort of miraculous,” said Frances Manfredi, president
of NBCUniversal Cable & New Media Distribution,
who forged one of TV’s first OTT streaming deals and has
gone on to sell shows such as Saturday Night Live, 30 Rock,
The Office, Law & Order: SVU and Friday Night Lights to
Netflix, Amazon and others. “How many times in this industry
do you see something go practically overnight from
negativity and fear to this sort of ecosystem opportunity?”
Although Mad Men sent up the first flags, the deal
that really alerted the industry to this opportunity was
closed in October 2011, when Warner Bros. and CBS
licensed all of The CW’s series to Netflix through the
2014-15 TV season in a deal estimated at $1 billion. Simultaneously,
Warner Bros. and CBS licensed in-season
episodes of The CW’s shows to Hulu. The CW, which
targets young women, has been ratings-challenged since
its 2006 launch, and its continued existence has often
come into question.
“That deal meant everything for The CW,” said Jordan
Levin, former CEO of The WB (which was combined
with UPN to create The CW) and founding partner/
CEO of Generate, owned by Alloy Digital. “It kept the
lights on over there.”
That echoes what Warner Bros. Television Group
boss Bruce Rosenblum told B&C last April (“Bruce
Rosenblum: Maintaining His Independent Streak,”
April 16, 2012): “The Netflix and Hulu deals were very
important in securing the financial stability for the network
for the foreseeable future.”
Those deals also made Rosenblum bullish in April
about what SVOD will mean for the TV business over
the next decade. “This SVOD business will evolve to a
place where the names will change, there will be various
cycles of ups and downs, but over the next 10 years it will
evolve to a place of equilibrium where the business model
will work and where there will be increased value for the
episodic stories that we all produce,” he said.
With a nod to both the potential—and mystery—of
SVOD’s impact on the TV ecosystem, NATPE adopted
the theme “Beyond Disruption.” As the industry gathers
in Miami Jan. 28-30, the conference program will take a
close look at the widespread implications of the array of
deep-pocketed and proudly disruptive digital platforms.
“Collectively, we’re emphasizing and trying to demystify
the world of digital, because everyone is well aware that
there are these big shifts going on in our business,” said
NATPE CEO Rod Perth, who is overseeing his first NATPE.
Finding the First-Run Balance
One theoretical area of growth that lands right in
NATPE’s sweet spot is licensing windows of syndication’s first-run shows, such as Ellen DeGeneres or Steve
Harvey, to SVOD providers. Both of those shows, and
several others, already offer free YouTube channels that
run complementary fare.
This fall, syndicators will premiere such new first-run
shows as CBS Television Distribution’s The Arsenio Hall
Show and The Test; Warner Bros.’ Bethenny and TMZ
Live; Sony Pictures Television’s Queen Latifah; MGM’s
Paternity Court and Trifecta’s OK TV and America Now.
While SVOD deals aren’t expected to be in play for
these shows right now, distributors are considering the
possibilities as they look to maximize revenue.
“There’s an opportunity [with SVOD services] to
provide, on a limited basis, programming that’s already
premiered on the stations to promote the broadcast series,”
said Ken Werner, president of Warner Bros. Domestic
Television Distribution, one of the key architects
of that first CW deal.
It’s a tricky question, however. Distributors need to
eke more revenue out of their first-run content, but the
advantages of those shows for TV stations is that they
are exclusive in the station’s local market—so station
owners and managers might object to SVOD sales of
these shows. And viewers tend to watch the shows inpattern,
allowing them to see the advertisements. Most
viewers do not record shows such as Judge Judy or Live!
With Kelly and Michael to watch later, because there’s
always a new episode coming tomorrow.
“First-run is really the last bastion of TV-station exclusivity,”
said one distributor. “And when those episodes
end up on an on-demand service, the consumer
gets really overwhelmed by the volume of content.”
While SVOD represents potentially powerful new
revenue, it’s unlikely that it will supersede TV’s most
lucrative off-network deals, such as Warner Bros.’ sale
of The Big Bang Theory to TV stations and TBS, or Twentieth’s
sale of Modern Family to USA and TV stations,
which premieres this fall. Those deals, in which shows
sell for an estimated $2 million-plus an episode and
then bring in millions more via advertising sales, are
the deals that power studios, allowing them to develop
and distribute all of their other series.
Those big sitcoms can also change a network or TV
station’s fate: The Big Bang Theory regularly propels TBS
to the top of the cable rankings, while Warner Bros.’
Two and a Half Men kept the Tribune-owned stations
afloat during troubled times.
Indeed, while distributors are currently enjoying the
found money that SVOD providers are funneling into the
traditional TV business, they’re not necessarily counting
on that revenue to fund their futures. Admitted one syndication
executive: “SVOD services will never be able to
pay us enough money for those big sitcoms.”
For now, the rule on SVOD sales of off-net fare is that
the bigger the draw the show is to traditional players, the
less chance there is that it will end up in SVOD distribution.
For example, Warner Bros.’ The Big Bang Theory is
sold to TV stations and to TBS but isn’t widely available
over SVOD because the big players were more than willing
to pay enough money to maintain some exclusivity
with it. A more niche sitcom, such as NBCU’s Parks &
Recreation, which was just acquired by WGN America, is
more likely to end up on SVOD because the more established
players won’t pony up for the exclusivity.
Look, too, for more SVOD deals for drama staples later
in their syndication runs after having done big tours of
off-net duty, like the deal CBS struck with Netflix for CSI:
Miami, which has run successfully for years on A&E.
Just as studios have long witnessed bumps in primary
runs of shows when they enter syndication, content
owners also are looking to SVOD services to boost
viewership. Especially for shows that are serialized and
ripe for the much-buzzed-about binge viewer.
“SVOD services set up a place where you can, on a
regular basis, catch up on shows that you’ve missed,”
said Werner, who earlier this month closed another
deal with Netflix, licensing such Warner Bros.-
produced cable fare as Cartoon Network’s Ben Ten, Adventure
Time and Johnny Bravo for Netflix’ Just for Kids
section, as well as previous-season episodes of network
shows such as TNT’s Dallas, Fox’s The Following, A&E’s
Longmire, NBC’s Revolution, ABC’s 666 Park Ave. and USA’s
six-episode miniseries Political Animals. The fact that Time
Warner CEO Jeff Bewkes, who has been publicly skeptical
of Netflix in the past, was willing to make the deal demonstrates
traditional media’s changing attitude toward SVOD.
Some industry executives do remain cautious about
SVOD services’ ability to spend their way to growth,
pointing to the possibility that they’ll spend more money
to acquire content than they’ll reap in new subscriptions.
“The problem that we all face is how much money SVOD
providers can continue to pay for content given what we
know about this new environment,” said one distributor.
“Yesterday’s deal doesn’t necessarily establish today’s deal.”
In announcing fourth-quarter earnings on Jan. 23,
Netflix said it reached 27.1 million U.S. streaming subscriptions
but faces steep cost demands for content, especially
overseas. Cryan of IHS expects the subscriber
gains to justify content costs for the foreseeable future.
The strong fourth-quarter earnings report boosted Netflix stock to a 52-week high on Jan. 24 to $149.17,
nearly triple its 52-week low of $52.81 in NASDAQ
trading. It closed the day at $146.86.
The potential dilemma doesn’t seem to concern Netflix’
Sarandos. “Prices are definitely sustainable as long as
the viewing is high,” Sarandos told B&C. “It’s a true meritocracy
in terms of licensing fees. I will pay an enormous
amount of money for programming that gets watched an
enormous amount of times. The business model only
gets upside-down if you pay an enormous amount of
money for content that people aren’t watching.”
SVOD Originals on the Horizon
As SVOD services begin to dabble in launching original
programming, they face the challenge of not having
their own air over which to promote upcoming premieres,
which could present opportunity for yet a new
generation of partnerships with networks.
“The only way I believe original production on SVOD
works is as coproductions,” said one distribution executive.
“They need to recruit a linear TV partner and let that
partner have a secondary run of their original show.”
That’s happened to some extent in the satellite TV
space, with DirecTV taking over distribution for critically
adored but ratings-challenged shows: NBC’s Friday
Night Lights and FX’s Damages. In the future, those
kinds of deals could also include an SVOD window.
Insiders suggest we may soon start to see SVOD
partnerships among networks and studios involving
an SVOD player sharing distribution rights with the
network from the get-go—as part of the launch plan.
Meanwhile, the SVOD services also are producing
original shows, with Netflix having already launched
Lilyhammer. On Feb. 1, Netflix will make all 13 episodes
of House of Cards, starring Kevin Spacey, available.
It also has new episodes of former Fox series Arrested
Development in the works, among their slate. Amazon,
which opened its own production studio in 2010, has
six pilots in production. Hulu also offers plenty of original
series, including three that it’s releasing this year:
The Awesomes, The Wrong Mans and Behind the Masks.
And there are endless channels on YouTube, although
monetizing those digital channels via advertising remains
challenging. “What’s important is keeping really
low economies of scale on production,” said Levin,
whose Alloy/Generate networks, such as Smosh, garner
as many as 100 million unique views on YouTube.
“The reason these channels are profitable is because
they produce in a really ef! cient manner and because
they’ve reached such a degree of scale.”
Today, those original productions and channels may be
small potatoes, but they represent a brave new frontier.
Perhaps a little like the days of yesteryear, when upstart
producers sold unknown shows like The Oprah Winfrey
Show to TV stations.
Andrea Morabito contributed to this story.
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