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Netflix’s first Emmy nominations were widely taken as a sign that subscription video-on-demand (SVOD) services have come of age. But how these services mature over the next few years will be increasingly dependent on international programming markets such as this year’s MIPCOM, Oct. 7-10 in Cannes, France.
Why This Matters
That’s because funding from international markets, both in terms of sales to local broadcasters and the launch of the services outside the U.S., is becoming a major cornerstone of attempts by SVOD players to more directly compete with TV channels with higher-profile acquisitions and bigger-budget originals like multi-Emmy nominee House of Cards.
How that competition will develop and its longterm impact on the international sales business is still an open question. But there is little doubt that these over-the-top (OTT) services have already become major players, both in providing new outlets for U.S. fare and in creating new programming.
“Every time a new entrant comes into the market through technology or regulatory change, it is both disruptive and invigorating,” says Jeffrey R. Schlesinger, president, Warner Bros. Worldwide Television Distribution, who adds, “On a cumulative basis they now represent a reasonably significant percent of our revenue today, and in some territories they are paying very significant money.”
Sony has already sold House of Cards in more than 100 territories; Lionsgate has widely sold the Nextflix original Orange Is the New Black to broadcasters; and CBS has said the combination of international sales for Under the Dome and the early window on Amazon.com has pushed the rookie series into profit.
“They are creating a lot of opportunities for us both as a program supplier to create programming for them and as a program distributor to sell our content to them,” says Armando Nuñez, president and CEO of the CBS Global Distribution Group.
Originals from Hulu, Yahoo and other over-the-top players have also been sold to TV channels in international markets. Vuguru’s The Booth at the End, for example, bowed on Hulu in the U.S. and was sold to Fox International Channels in a number of markets, reports Larry Tanz, Vuguru CEO.
In addition to the sales of House of Cards, Sony Pictures Television has been successfully selling originals from its advertising video-on-demand (AVOD) service Crackle around the world, says Keith LeGoy, president of international distribution at SPT.
Financing from SVOD players has become a cornerstone of DreamWorks Classics’ plans to provide some 1,000 half-hours of kids’ fare over the next five years. In the U.S. the shows will first air on Netflix and be sold internationally to TV channels where Netflix hasn’t launched services. “By Netflix being our anchor telecaster in the U.S. it allows a level of production that would not be otherwise possible,” says Eric Ellenbogen, co-head of International TV at Dream- Works Classics, which has already inked an output deal with Super RTL in Germany.
Meanwhile, the growing consumer interest in online and mobile video is encouraging the studios to launch their own OTT services. Ben Pyne president, global distribution, Disney Media Networks, says more than a dozen international markets now have access to Disney’s Hot From the U.S. transaction VOD service that makes the studio’s new shows available within 48 hours after airing in the U.S. Disney has also launched SVOD ABC TV on Demand in 15-plus territories and Disney Movies on Demand in more than six markets.
“It is impacting everything in the business on every level, not just sales but acquisition, programming, finance and exploitation planning,” says Prentiss Fraser, SVP, worldwide sales and acquisitions at Entertainment One Television International, which is successfully selling The Yard after its run on HBO in Canada and on Hulu in the U.S.
While these services are opening up new opportunities, they have also created new complexities in the windowing of product through various outlets, studio executives say. Newer TV product tends to be sold to SVOD services about a year after it airs internationally. But some SVOD players have acquired first pay-TV windows for movies, beating out traditional premium channels for the right, and in a few cases have begun bidding for new TV product in the first pay window.
“With the ever-changing business and technical structure, complexity has become kind of the norm,” says Gina Brogi, executive VP of worldwide pay television and SVOD at Twentieth Century Fox Television Distribution.
One of the complexities is settling on the right partner in each market for the various windows. While SVOD services have opened up many new sales opportunities, distributors still have to find outlets that can give their programs the greatest possible exposure.
This issue is particularly tricky in the first pay window. Traditionally, films and series have gone to premium pay services such as HBO or Sky in the U.K. but SVOD services are increasingly bidding for first pay TV rights.
"They are SVOD partners looking to be earlier in the windowing chain and are playing more in the first pay window for movies or the second pay windows after the first pay window," says Sony's LeGoy.
Schlesinger at Warner Bros. adds that "In some cases, Netflix is jumping the line and playing the first pay window, competing with Sky in the U.K. and Sky Deutschland in Germany. We have a first pay window deal with Netflix in Scandinavia" and other studios and independent distributors have cut similar deals in some European territories.
For the most part, however, traditional premium channels remain the largest clients.
"I still believe that the appropriate first window is with traditional pay TV clients," Brogi says. "For various reasons, I think that is what makes the most sense today for the entire ecosystem and the vast majority of licensing starts in a traditional window."
Gene George, Starz executive VP of worldwide distribution agrees. Like Brogi, he has done deals with SVOD players and sees them as a promising new sales outlet for their growing catalog of original programs.
However, he adds that, "you have to consider the awareness created by SVOD versus traditional pay TV sales and the impact that might have on DVD sales. I think that they still offer broader exposure to enhance DVD sales and I still see pay TV as the best outlet."
Studio executives also note that the arrival of SVOD players has pushed them to carve out new windows, which can potentially be quite lucrative.
"In the U.K., we license our films immediately after Sky to Love Film" owned by Amazon in an extended second pay window, Schlesinger says. "The license fees that Love Film is paying us are quite substantial to be preemptive of the first free TV window."
The move by operators to create TV everywhere offerings in international markets creates additional complexities as pay TV programmers are increasingly looking to acquire the online and mobile rights to create services such as HBO Go.
"It enables the pay services to compete with some of the features and utilities that the over-the-top services have," Brogi says. In addition, the arrival of newer local players is making the windowing process more complex.
Several advertising supported or AVOD services are being created in China and Russia, for example. This is encouraging the studios to change their windows in those markets in a way that could also help reduce rampant piracy.
But if the studios are being more flexible in their windowing strategies, executives also stress that their prime directive is to maximize overall revenue. "For us it is not so much about being more flexible as about being more strategic and setting out a plan for exploiting the product on every level," says Fraser at Entertainment One.
"It's not about making a dollar, but managing all the nickels you get from each window so that you can make 25 nickels," adds George at Starz.