One short year ago, as top execs gathered for NATPE, the TV business looked starkly different than it does today.
Gannett did not own Belo. Tribune did not own Local TV. Young and Media General were two separate companies. And Sinclair had just begun its multibillion- dollar buying spree.
In addition, subscription video-ondemand (SVOD) services such as Netflix and Amazon Prime were relatively new, and while Netflix in particular was making a big splash with on-demand streaming of TV series, these services weren’t the accepted part of the TV landscape they suddenly are today. True, SVOD services had already given high-end dramas a financial shot in the arm, but they hadn’t yet become sitcom players and no one knew how their original offerings would pan out.
What a difference a year makes.
These industry mega-trends have created huge changes on both the first-run and off-network sides of the syndication business, which are bound to be billboard topics as NATPE gets underway, Jan. 27 in Miami. Thanks to the changes, the biggest TV station groups have drastically increased their leverage with syndicators, as many groups are partnering with studios to create first-run programming that best fits their needs instead of choosing from what the studios have to offer.
Meanwhile, SVOD has given distributors one more solid place to turn when it comes to selling off-network programming. That’s been true for one-hour serialized dramas for years, but last year, SVOD services began paying real money for comedy.
While the sitcoms heading to SVOD players aren’t as appealing to traditional broadcast and cable buyers, SVOD’s willingness to swoop in and buy these programs means broadcasters and cable networks can’t scoop them up at bargain-basement prices. More buyers are always better for the seller.
Bigger Is Better? Depends on the Perspective
Last year’s massive station group consolidation has its pros and cons for studios.
In the wake of last year’s frantic purchasing pace, Sinclair Broadcast Group owns 167 stations in 77 markets, covering nearly 40% of the country. Among its affiliate assets, Sinclair now boasts 41 Fox, 22 MyTV, 25 CW, 29 ABC, 26 CBS, 17 NBC, five Univision, one Azteca and one independent. Even though Sinclair still does not own stations in the country’s top-three markets—New York, Los Angeles and Chicago— it is impossible to avoid the group when taking a show out for sale.
That kind of size gives the bigger station groups added leverage when it comes to making deals with syndicators. If a group wants a show, it can offer many stations and markets all at once, so it’s that much harder for the syndicator to refuse.
“Every show should have a different home in every market,” said one syndication chief. “If a station group said, ‘we’ll take it in 50 markets,’ from a sales point of view you get the thrill of the kill, but it’s likely that 20 of those markets are wrong for the show. It’s a very challenging marketplace from that standpoint.”
One way stations have been partnering well with syndicators is by airing tests. A few years ago, only a few syndicators—Debmar-Mercury, Twentieth— were doing them. Today, nearly all syndicators are, with but a few hold-outs.
“Tests are a funky thing because you aren’t really testing the real show,” said the syndication chief. “You aren’t building the right set or putting the right marketing behind the show. You are testing a half-baked product.”
Moreover, once a syndicator agrees to do a test with a station group, the group earns the right of first refusal on the show and can pre-set its license fees to some extent. While that is limiting—especially later if the show becomes a hit and fee levels started out low—other syndicators argue that tests require TV stations to take certain risks, disrupt their schedules and add expenses without commensurate revenues.
And while tests are becoming more the norm, many shows are still kicking off with a national launch.
Tribune made a deal with Debmar-Mercury for Celebrity Name Game—going so far as to become part owner in the show—across all of its markets without first testing it. Sinclair also bought that show, which stars Craig Ferguson, in 57 markets. Tribune launched Arsenio Hall, in partnership with CTD, this fall without a test, and Sony Pictures Television did the same with Queen Latifah.
On the other hand, without last summer’s successful test on Fox stations, Warner Bros.’ The Real probably wouldn’t be headed into national syndication. “When you have doubts, when you aren’t quite sure, that’s the best time to do a test,” said Sean Compton, Tribune’s president of programming and entertainment, which is working with CBS Television Distribution right now on a three-week test of Serch in eight markets.
Getting In On the Ground Floor
Meanwhile, other groups are building shows from the ground up. Raycom partnered with ITV Studios America to develop America Now, which is being sold nationally by Trifecta; this fall, Raycom will also launch two new weekly series, Fix It & Finish It and Flip My Food, in partnership with Bellum Entertainment.
The E. W. Scripps Co. rattled the industry two years ago by dropping SPT’s Wheel of Fortune and Jeopardy! and replacing those shows with Let’s Ask America, which it developed in partnership with Warner Bros., and its own The List. Scripps also worked with Cox and Raycom on RightThisMinute, a viral video half-hour that now airs in national syndication, distributed by MGM.
This fall, Scripps almost crossed the finish line on a strip with Debmar-Mercury that would have brought a legal panel starring Star Jones to air, but the deal fell apart at the last minute.
“Studios are now realizing that we are serious and in it for the long haul,” said Bob Sullivan, Scripps VP of programming. “It’s not that we’re no longer in the business of purchasing shows from syndicators; we are. But we want to marry that with our own development.”
That’s the take of many station groups who want more control over their programming lineups.
“Station groups want to control their destinies on the programming side a little more,” said Ira Bernstein, copresident of Debmar-Mercury. “They feel like they need to get a piece of the show so if it hits, the syndicator can’t take it away and the group can share in the show’s success.”
And stations are definitely at risk of losing shows, especially if they are strong performers. Sinclair just completed a raid of sorts, ending up with Warner Bros.’ Ellen in three more markets, bringing that show’s total Sinclair markets to 21; CBS Television Distribution’s Dr. Phil in nine more markets, bringing it to 29 Sinclair markets; and NBCUniversal’s Steve Harvey in 17 markets, putting that show in 39 Sinclair markets.
“We’ve been very aggressively gathering up quality programming,” said Bill Butler, VP of programming and promotion at Sinclair. “We’ve added classic affiliates to our station mix and one of the best ways to support those stations’ local newscasts is with strong lead-in programs. We are doing that with both hands.”
One thing remains true in TV and always will: People will pay for a hit.
“While we do have leverage, we only have leverage on start-ups and mediocrely-rated shows,” said Tribune’s Compton.
One Station Group’s No Is an SVOD Service’s Yes
Meanwhile, as some station groups back off from airing acquired off-net sitcoms in access and late fringe—particularly Tribune, which has replaced its late-night sitcoms with Arsenio Hall—SVOD players have begun picking up those sitcoms.
Last year at this time, no one expected that SVOD services would be interested in comedies—they didn’t seem like binge-viewing fare and were considered too expensive. That changed last fall when Netflix paid $900,000 per episode for Twentieth’s New Girl and $750,000 per episode for SPT’s Community.
Those deals happened because neither of those shows were able to attract the kind of money gained by The Big Bang Theory in the traditional broadcast and cable marketplaces, but it also confirmed that SVOD services are willing to pony up—for specific sitcoms.
“I think SVOD is a competitor for sitcoms depending on the project,” said Scott Koondel, senior VP of corporate licensing and distribution at CBS Corp. “If it’s something niche and edgy that pushes the envelope, if you can’t get enough of it, that’s a good candidate for SVOD.”
That said, it remains unlikely— near impossible in fact—for SVOD providers to compete against broadcast and cable players for television’s top sitcoms due to one continued advantage: barter.
Netflix carries no advertising— one big reason why everyone likes it so much—but barter advertising sales make up as much as half (or more) of revenues off of sitcom sales.
Then and now, distributors assert that SVOD will never be able to go head-to-head with traditional broadcast and cable partners for top sitcoms, and that will remain true as long as advertising is in the mix.
“No matter how you slice it, it would be tough for a distributor to sell a top-rated sitcom to SVOD and broadcast vs. cable and broadcast because of barter. And hard to imagine a cable buyer paying top dollar and not demanding exclusivity against SVOD,” said Frances Manfredi, president, NBCUniversal Television and New Media Distribution.
SVOD Originals on Fire
It seems like part of the distant past when Netflix wasn’t considered a premium provider of original programming, but headed into NATPE 2013, Netflix had just premiered its first original: Lilyhammer, starring Steven Van Zandt. Netflix just renewed the show for a third season, but it hasn’t made many waves.
That has not been the case, however, for two other Netflix originals: House of Cards and Orange Is the New Black, both of which received warm critical receptions.
House of Cards was an unknown last NATPE; this year, no one can wait until the second season premiere on February 14. The lushly shot and beautifully acted drama went on to become the first SVOD series to be nominated for major categories at the Primetime Emmys last September. House of Cards’ Robin Wright took home a best actress Golden Globe on Jan. 12 for her icy portrayal of Claire Underwood, wife of Kevin Spacey’s scheming Rep. Frank Underwood. Orange Is the New Black was universally acclaimed, with the show’s star, Taylor Schilling, also nominated for a Golden Globe. And the original programming keeps on coming, with Amazon Prime and Hulu Plus both getting into the game.
One challenge studios face when working with Netflix is the fact that the company won’t allow distributors to put entire current seasons of series on competing on-demand platforms for viewers to play catch up.
“We have some downstream SVOD licensers right now that are trying to block us from the ability to stack those shows and actually allow the consumer to consume them,” FX’s John Landgraf told an HRTS audience last September. “To me, it’s illogical that we would be spending 80% of the money—between marketing and licensing to create the show, as well as taking all of the risks and being the front-end user— and never be able to offer a full experience of actually watching the program to our consumers. That is not sustainable in the long run.”
That doesn’t hold true when a show premieres, because Netflix doesn’t yet own the rights to it. But should Netflix acquire a show midway through its run, it then limits, via its contracts, the ability of the licensing studio to allow that show to be played on other on-demand platforms.
For example, if Netflix should acquire a show such as Fox’s first-season hit Sleepy Hollow, the show is then prevented—via Twentieth’s contract with Netflix—from having more than five in-season episodes put up on other on-demand platforms, whether those are found on cable set-top boxes or on Fox’s own on-demand or streaming services. That hinders Fox from being able to build Sleepy Hollow’s audience and market the show by encouraging catch-up viewing, unless it pushes viewers to competitive service Netflix.
The benefit of that sort of viewing is arguably real. AMC’s Breaking Bad went from a little-watched, critically adored cult series to a viable hit. More than ten million viewers tuned into the series finale last September after viewers were able to binge on the series via Netflix. That same observation can be made for shows such as AMC’s Mad Men and PBS’ Downton Abbey.
Netflix’s argument is that it’s paying enough for these series to maintain that sort of exclusivity. One seller points out that Netflix is willing to let the prices it pays to acquire shows leak out, in order to justify its decisions, even though it’s managed to keep viewing levels under lock and key.
Paying those high prices does allow Netflix to exert a certain amount of control. Program sellers are answerable to profit participants and corporate shareholders and thus must eke the most revenue possible out of these series. As a result, they find themselves in a bind: If they are to sell a program to the highest bidder, Netflix is often the winner. But sellers then sacrifice networks’ ability to place the shows on other platforms in the ongoing effort to attract new viewers. It is, as they say, a sticky wicket. “What Netflix is legislating is having an impact on all of us from a vertical brand standpoint,” said the studio executive.
That may change soon. Amazon has begun to pay prices for programming that are in the same range or more as Netflix, and “Amazon prides itself on being a better partner for content providers,” the exec added.
Amazon has come on strong in the past year, partnering with CBS on a first: streaming a primetime series, Under the Dome, on an SVOD platform concurrent with its broadcast run. That experiment proved successful, with Under the Dome averaging nearly 14 million viewers per episode last summer. CBS has set up a similar situation for it’s upcoming sci-fi series, Extant, starring Halle Berry. Amazon also has begun offering its own original series, including Alpha House, starring John Goodman.
The Coming Set-Top Box Wars
The next fight between traditional TV and SVOD lies on the set-top box. Netflix is gunning hard to be included on cable operators’ set-top boxes, much as HBO is included on cable operators’ premium tiers. Right now, Netflix is available as an app on TiVo boxes, and overseas it’s becoming available on Virgin Media. But thus far, no multichannel video programming distributor has agreed to carry Netflix as a separate service on a set-top box. Once one does, all bets are off. “When this happens—and it’s going to happen— we will no longer have any ability to have concurrency of platforms,” said another studio executive.
That means that if Comcast is offering NBCU-produced programs on-demand with advertisements via its set-top boxes, NBCUniversal has the opportunity to figure the cume for those ratings. Once Netflix is offering those same shows, advertising-free, on those same set-top boxes, consumers are likely to choose Netflix, reducing the value of those on-demand plays.
Netflix already has hedged its bets in order to make this happen, including set-top box rights in all of its acquisition deals, say sources. It’s another point that forces Netflix to pay super-premium prices for programming, but at the same time hamstrings distributors when it comes to placing shows on various platforms and possibly getting the biggest bang for their promotional buck.
For the moment, “price still dictates,” said CBS’ Koondel. “Everything has its price. If [SVOD providers] are willing to buy out a show, and that one price is more than the sum of all other potential buyers, then they’ll get that show.”
That’s all well and good. Some things, however, matter more than price.