Reversal of Fortune

A unique Netflix-Univision deal disrupts the usual linear-SVOD sequence—and could lead to a wider rethink of content distribution
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Amid a blitz of news during the broadcast network upfronts week in May—at the same time a portion of the industry was at the INTX show—Univision and Netflix made a bit of TV history that drew fleeting attention. Their announcement introduces a significant new wrinkle in the most sensitive and stressed-out part of the TV ecosystem: programming release windows. And it suggests that Netflix, which faces growing skepticism about its growth potential, could find some potent ways to mobilize that content outside of its own app.

Here was the headline: The largest Spanish-language U.S. broadcaster and the top subscription video-on-demand (SVOD) player said Univision would air two of Netflix’s original series on its networks, marking the industry’s first major pact for a broadcast net to air original programming from an OTT service. The two companies also said they were coproducing a third new original show.

Ahead of the return of Narcos to Netflix on Sept. 2, Univision plans to air season 1 on its main network, Univision, while airing another Spanish-language Netflix show, Club de Cuervos, on younger-skewing UniMás. The season 2 premiere date for that show has not been set yet.

Narcos and Club de Cuervos are opportunities to introduce shows to Spanish-preference households, so we know how many people enable Spanish subtitles when they watch,” Netflix chief content officer Ted Sarandos said during a July 27 appearance at TCA summer press tour. “We think there’s still a big unaddressed audience for us in Spanish-preference households in the U.S. Even though Netflix out-indexes in Latino households, we think we under-index in Spanish-preference households.”

Univision and Netflix also are coproducing an original series titled El Chapo, based on the life story of the famed Mexican drug lord Joaquin Guzman, which will first air in the U.S. on UniMás in 2017 and then head to Netflix. In the rest of the world, however, El Chapo will premiere exclusively on Netflix.

Industry sources indicate the partnership is primarily about marketing, with little money said to be changing hands. It’s a classic barter arrangement applied to the modern TV landscape. Univision gets a zeitgeist-y show to lure viewers with. In return, Netflix reaches an important, broad swath of potential subscribers as it mines a seemingly well-tapped U.S. market.

The leading SVOD services—Netflix, Amazon Prime Video and Hulu—like basic cable networks before them launched their TV business by acquiring shows from TV studios that had already aired on broadcast and cable networks. But as those deals got harder and more expensive to cut, and as Netflix wanted to own the global rights to its shows, Netflix has moved away from acquisitions and toward originals. Looking ahead, Netflix expects to spend as much as $6 billion in the next year on original and acquired programming, Sarandos said at TCA, and both Amazon and Hulu also have upped their production spends. Sarandos has said originals will increasingly crowd out acquisitions on the Netflix. Univision declined to comment for this story.

There are obviously plenty of high-end series on SVOD services. But taking an original series and airing it on a broadcast network in the U.S. heads in the opposite direction of the typical series sale.

Several cable executives confirmed that studios and streaming services have approached them about airing original series that had already run on SVOD services, including Netflix’s initial original hit, House of Cards. Another Netflix mainstay, Orange Is the New Black, has been mentioned as a candidate for a cable pickup given its pedigree and broad playability.

One cable executive said he was open to the idea: “I’m always looking for good content,” he said, but the asking price for the shows in question was too high.

Another cable executive said he definitively declined the offer, explaining that shows that work on streaming services tend to be serialized, and those shows have a long history of not working in traditional syndication.

For example, A&E famously paid $195 million (or $2.27 million an episode) for the syndicated basic-cable rights to HBO’s groundbreaking The Sopranos, and that show famously tanked when it aired on basic cable.

Other huge broadcast hits—24, Desperate Housewives, Lost—failed when they went into syndication because viewers needed to find the shows on these new channels and then watch them in pattern to keep up with the story. Even in the pre-binge-viewing age, viewers rejected watching these shows in that way.

“Look at the lesson the industry finally learned about serialized shows on the back end: No serialized show in the history of syndication has ever worked,” said the cable exec who passed on picking up shows from streaming services. It’s exactly the serialized nature of shows that makes them so bingeable—with viewers consuming multiple episodes consecutively—and thus so attractive to SVOD services. That new TV habit, arguably established by Netflix when it released full seasons of series all at once, led to new demand for serialized dramas. Those sorts of dramas—think House of Cards, Breaking Bad, Mad Men—had been in decline because they didn’t play in repeats, thus causing the broadcast networks to shy away from them.

Comedies are a syndication mainstay—with shows including The Big Bang Theory, Two and a Half Men, Friends and Seinfeld—earning billions of dollars and remaining on the air on TV stations and basic-cable networks for years.

But comedies that play on SVOD services tend to be single-camera—such as Netflix’s Unbreakable Kimmy Schmidt and Master of None, Amazon’s Transparent and Catastrophe and Hulu’s Casual and Difficult People—and historically those have not played well in syndication. Modern Family was launched into syndication in 2013 with high hopes of becoming the next Big Bang Theory, but that show currently is performing around series low levels, two full ratings points behind Big Bang.

Streaming services thus far have not played much on the multi-camera side—think of shows that have characters coming in and out of sets, such as Big Bang and Friends—and when they have, the shows haven’t been considered to be strong enough to syndicate, or there aren’t enough episodes, like Netflix’s revival of Full House, Fuller House.

There are, however, always exceptions to rules, especially considering that many of these shows are produced by studios that also own broadcast and cable networks. Unbreakable Kimmy Schmidt and Difficult People were produced under the NBCUniversal tent with linear network slots in mind, but several factors pushed them into the streaming world. One show, High Maintenance, launched on Vevo (a smaller SVOD player) and after winning a Writers Guild Award and a cognoscenti following, snagged a deal from HBO to make new episodes on the pay-TV network.

For a short while, the streaming services were agreeing to pay huge license fees for series created to first run on other networks. In September 2014, Netflix acquired Gotham from Warner Bros. for all of its territories around the world. It was the first deal that signaled Netflix’s intent to acquire shows that it could run across all of its markets worldwide, and the service has expanded quickly. At CES in January, Netflix CEO Reed Hastings announced that the service was available in 130 countries around the world, excluding China.

To service those markets, Netflix wants to own the global rights to the shows it buys, and that makes it tough for sellers, especially the big studios that have existing output deals in many countries, obligating them to sell to that buyer. That’s largely why Netflix has been ordering shows that it can own exclusively and globally, eliminating those licensing snafus.

Whether or not Netflix will be able to produce profit on all of that content remains in question. Many industry observers note that Netflix isn’t monetizing its content on a show-by-show basis—selling them internationally and into cable and SVOD syndication—which is the practice of healthy networks, such as CBS.

“The models are being broken every single day all over the world,” said Paul Buccieri, president, A&E and History. “There’s such a proliferation of content. The big challenge is the monetization of that content. Eventually, the risk is that someone is going to be left holding the bag.”

Currently, Netflix earns its revenue on subscriptions, and by continuing to grow. Most of that growth is happening by expanding internationally. Domestically, there seems to be less opportunity for growth, but that is another reason why the deal with Univision makes sense. By giving U.S. Latinos a taste of what they will experience on Netflix, they might be driven to subscribe to get more of it.

While U.S. audiences aren’t used to seeing SVOD series on broadcast or cable networks—although with so many series available to watch on so many platforms, they probably wouldn’t notice—it’s not uncommon in other countries.

“There’s precedent for this internationally,” said Dan Cryan, senior director, broadband technology at analyst firm IHS. “Generally speaking over the last few years they have made sure they are in an increasingly exclusive position for the shows they commission. There are good reasons for that—it helps drive people to subscribe to Netflix. However, making select shows more widely available is a good way to attract audiences that you may not otherwise be reaching.”

Abroad, the flow of show to network is less rigid than it is in the U.S. For example, in the UK and Germany, HBO-produced Game of Thrones airs on pay-TV channel Sky Atlantic, although the show is also available on HBO’s streaming service, HBO Go, in those countries. Netflix worked with France’s TF1 to air its French-language series, Marseilles, starring Gerard Depardieu, after it debuted on Netflix, and many of Netflix’s original series, such as House of Cards, aired on networks in different countries before Netflix was available there. U.K.-produced Catastrophe, just renewed for seasons 3 and 4, first airs on the U.K.’s Channel 4 before coming over to Amazon Prime Video.

Still, the Univision-Netflix partnership shouldn’t be seen as a syndication deal. Monetizing its originals on linear “is possible, but it’s not the intent,” Sarandos said at TCA. “It’s not what we’re testing for here.”

Univision is only covering the residual costs—the fees the creative guilds pay to producers, directors, writers and actors who created the show—for Narcos and Club de Cuervos, according to reports. Those fees can be seen as the promotional opportunity cost for Univision. While broadcast and cable networks aren’t what they used to be in terms of ratings and reach, they still gather huge audiences.

“What are networks but barker channels for your wares?” said the cable executive.

Univision is looking to age down its audience. Univision, which still gets most of its programming via an output deal with Mexico’s Televisa, remains by far the most-watched Spanish-language network in the U.S. Telemundo, however, has made some in-roads in the past year, especially among younger viewers, with its edgy, new “super series,” including El Señor de los Cielos and La Reina del Sur, which first was a hit for Telemundo and now is premiering as an English-language drama on USA Network. (Both Telemundo and USA Network are owned by NBCUniversal.)

Coming up for Telemundo is Hugo Chavez, El Comandante, announced at upfronts, starring Andres Parra as the late president of Venezuela, who became arguably the most powerful and controversial Latin American leader of his time.

“These are not your abuela’s [grandmother’s] novelas,” said Chris Sloan, chief creative officer of Miami-based 2C Creative, which produces TV marketing and promotional content as well as TV series, such as WE tv’s recently greenlit Dr. Miami.

Telemundo also is acting more like a television studio than a TV network in many ways, producing its own content and then selling it worldwide, with some of its series dubbed into English and other languages.

In June, Telemundo beat Univision an “unprecedented 10 times among adults 18-49 in Monday through Friday, 7-11 p.m. primetime,” according to Telemundo. It also has closed the gap with Univision among young adults 18-49 and 18-34 by 62% and 64%, respectively.

In 2015, Telemundo, surging with its originally produced series, hit its highest ratings in the history of the network. Meanwhile, Univision’s ratings were down 31% among adults 18-49 in May from the prior year, which isn’t helpful for a company that’s trying to return to the public markets after selling to private equity in 2007.

That explains why Univision is looking for new ways to attract younger viewers. “I think Narcos has a certain amount of cachet to it, coming out of Netflix. There’s a little bit of hipness to it,” said a broadcast marketer.

As more broadcast and cable networks own streaming services, this sort of cross-promotion between them is likely to become common. For example, CBS’ Star Trek reboot will first premiere on CBS and then migrate to CBS All Access, a move specifically designed to attract fans on CBS’ biggest platform and then drive them to its subscription-based streaming service. CBS also is developing a spin-off of The Good Wife, starring Christine Baranski, for All Access.

The rights to series remain hugely valuable, one reason bottom line-conscious networks—whose owned-and-operated broadcast stations are increasingly favoring cheaper self-produced news content instead of pricey acquisitions—remain wary of writing big checks. So, leaving aside the corporate synergy of Disney and Marvel, don’t expect Netflix’s Jessica Jones to end up on ABC anytime soon, especially with ABC recently beefing up its Watch ABC app in part because of the Netflix threat.

When it comes to pure marketing and cobranding, though, nearly anything goes.

“Anything that is promotional or marketing-based could always happen for many reasons, including the network is being paid to do it,” said a cable executive. “There will always be things done for marketing or promotional reasons, but that’s not what drives value.”

During a July 27 panel for Narcos at the TCA summer press tour, executive producers Eric Newman and Jose Padilha expressed enthusiasm for the wider exposure. “I know we’re doing well and Netflix is happy with the numbers,” Newman said. “I’m actually kinda interested to see what a typical broadcast audience thinks of the show, particularly a Spanish-speaking one. I just want people to see it.” Added Padilha: “Univision has a huge audience and it’s a Latino audience, and it’s also an audience that understands what it means to produce and export cocaine, so I think it’s awesome.…The more subscribers they get, the more money they get and the more money we get.”—additional reporting by Dade Hayes and Stephanie Robbins

Amid a blitz of news during the broadcast network upfronts week in May—at the same time a portion of the industry was at the INTX show—Univision and Netflix made a bit of TV history that drew fleeting attention. Their announcement introduces a significant new wrinkle in the most sensitive and stressed-out part of the TV ecosystem: programming release windows. And it suggests that Netflix, which faces growing skepticism about its growth potential, could find some potent ways to mobilize that content outside of its own app.

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