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Summary:

The power struggle between Netflix and content providers became more pronounced in earnings calls for Time Warner and News Corp. Execs from both companies made it clear that they want more money for their content — because Netflix is seen as a rival to other distribution platforms.

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The entertainment industry’s attitude towards Netflix has been growing sour for a while, and in earnings calls yesterday both Time Warner CEO Jeff Bewkes and News Corp COO Chase Carey came out strong on the reason why: the proper valuation of content.

Time Warner, Bewkes said in Seeking Alpha’s transcript, will be increasing what they charge Netflix and Redbox for DVDs, and will also determine whether to lengthen the window for new releases — believing, he says, that “the value that film companies or our company should get for that period of exhibition is considerably higher than what’s there now.”

Meanwhile, Carey referred to the Netflix/Starz deal as being “probably the ultimate example of product being sold beyond cheap,” stating that he felt more comfortable pursuing other syndication options for premium FX programming like Sons of Anarchy.

While the message that studios feel that they aren’t getting proper value for their content is clear, what’s also clear is this: Netflix is now seen as direct competition to other platforms, including cable TV. As Carey said, in regards to FX’s acquisition of second-run content: “I would not be buying reruns, syndication rights to a an expensive piece of programming and letting it go reside on Netflix for 20 million copies up.”

This means that Carey is comfortable with Netflix streaming what he termed “library content,” referring to the complete seasons of shows like Buffy the Vampire Slayer, Arrested Development and The X-Files, shows for whom the syndication glory days are over. But if Netflix wants to run more recent shows, say for example Breaking Bad or Mad Men, it might have to seriously up its rates in order to get exclusive access — a cost that would likely be passed down to the consumer.

The question then becomes — would the average Netflix user accept a significant increase in his or her subscription fee for access to high-level programming? As Ryan pointed out recently, it might well have to, as a lack of quality content is becoming a major complaint about the company’s library. Netflix may have the audience, but as long as studios control the content, the power lies with them.

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  1. These companies should be thanking Netflix because it is much easier to stream a movie, or even wait a day for it to arrive in the mail, than to pirate one.

    1. and these companies are getting a PAYING outlet for shows and movies people are not rushing out to buy on DVD or stations to get in sydication.

      1. The question is, would people be more willing to pay for the same content on DVD or even online if they weren’t getting the shows or movies for $7.99 a month?

      2. Just like Netflix’s deals for stremaing content are not indefinite, i don’t believe the 28 day window is either. netflix can just say forget you and go back to purchasing DVD’s through retailers. Most of the content Time Warner (and FOX) talks big about, it doesn’t currently license for streaming anyway. Netflix is also not always looking for exclusive access (especially for television content)which makes that claim outlandish as well. What exactly do I need to pay more for (I am on the 9.99 DVD sub) to get these TV series? TW doesn’t have Netflix over the barrel like they think.

  2. Time Warner is acting like a sissy. A dumb sissy. Netflix’s library content is its bread and butter. What the heck do you think most of cable content is? I love Netflix the way it is and WB can shove it or sell it for all I care.

  3. @shannon, while your title hints at it, you fall into just repeating what you’ve read re: “proper value for their content”.

    value and price are not at all the same thing, you recognize this, mr bewkes of time warner recognizes this, he just wants to get paid more than the market will bear for what he’s selling, and is more than happy to baffle with bu!!$#!t in pursuit of this end.

  4. @justin- for the most part, the content providers hold all the cards. Netflix pulled the wool over Starz’ eyes and got a sweetheart deal- good for them, they negotiated well and got a great deal, but that woke up the content providers to the fact that they can no longer take them for granted. Netflix won’t be so lucky going forward in negotiations with providers.

    Sure, they can stay in their current business model with their meager streaming library, or even regress back to DVD’s, but if they want to move forward and actually offer streaming of current content, they will have to pay for it (just like all the Telco’s, satellite and cable providers do).

    So the question bacomes whether or not you want to pay a Netflix sub fee that all of a sudden has possibly doubled or tripled. I for one have already dropped Netflix as I see the writing on the wall for them and Hulu Plus is a superior product, as I like TV more than films.

    Sometimes I feel Netflix would be best served to stand pat in their current form, because I feel they might get buried if they go after current content. The cost they would then have to pass onto the customers might just make a lot of them leave.

    @Alex- great argument. netflix vs. breaking the law. Is that a real argument? I hope you were joking. Pirating isn’t part of the debate as this all pertains to legal activity. While pirating is an issue, it wasn’t even part of this article.

    1. “Netflix pulled the wool over Starz’ eyes and got a sweetheart deal”

      Tom I disagree with this statement. Without Starz’s incredible foresight and willingness to take a risk, Netflix would still be sending you DVDs in the mail. Starz’s played this perfectly – no one knew what the library was worth at the time. They took a risk and that risk is turning into a reward. They charged an industry standard $10k/title license and watched what would happen. Now that Netflix built up the market with their content, they can reap the rewards and ask 10x or more for access to their library. Brilliant move on Starz’s part.

  5. “Carey referred to the Netflix/Starz deal as being “probably the ultimate example of product being sold beyond cheap”

    Carey is a fat cat sitting back pontificating on his view of a past event. What an ass. He has the ability to shape the digital frontier by taking a few risks and making it happen but he decides to sit back and criticize Starz.

    I guess he should be smarting after the MySpace deal which is the “ultimate example of produce being sold beyond expensive”. With MySpace they had the opportunity to shape social media and they let Facebook cut their grass.

  6. @Tom, To ignore how pirating plays into all this is foolish. If you hike the price up, pirating will go up. Ease-of-use is only one factor and for net-savvy people a minor one.

    I have no sympathy for Netflix. They are a middleman and nothing more. The people who they are talking to are also moneybags/middlemen and not produces of the programs they sell. They pay others to produce the content they then sell ads on and distribute.

    Netflix needs to become at least a moneybag/middleman so it has its own content to offer its subscribers. Better still, it should become a content producer itself. If you are always dependent on others for the products you sell, they have you at a big disadvantage. The more content they produce, the more people will come to them for that content and the less dependent Netflix will be on other providers. That puts Netflix in a better bargaining position. Right now they are just playing moneybags/middlemen off of each other and they are starting to wise up.

    1. “Better still, it should become a content producer itself.”

      That model doesn’t work so well. Let them do what they do best and let the value chain shrink/expand accordingly. By getting into the production business, which they have in a limited way, you are diverting resources that would be better spent making the service better.

      The production business is a different beast than distribution. Their motivations are different and they don’t play well in the same sandbox.

      Netflix is a democratizer. They make it easier for producers to get their content seen.

      1. “Netflix is a democratizer. They make it easier for producers to get their content seen.”

        No, Netflix doesn’t. It doesn’t deal directly with content producers but moneybags/middlemen. If it were to, that would be better but it doesn’t. It needs to.

  7. @ Scott- I didn’t mean pirating wasn’t a legit concern, it is, I just thought it was weird to bring it up in this forum as it wasn’t even mentioned in the original article. But I admit pirating holds no fascination for me, I’ve never understood the mentality of stealing something to save a few bucks.
    @Time- I meant Netflix got a great deal from Straz, and was reiterating the sentiment of the article that the Starz content, in hindsight was a bargain. Sure, Starz was making a deal in a completely new arena so I’m sure they made what they thought was a fair agreement. Now they see where the market has gone and they most certainly make the same agreement again.

    1. Apparently you have never been a poor teenager, poor college student, or poor as an adult. I envy your silver spoon life.

  8. Netflix is providing a choice. A choice that really works for me. I don’t own or want to own a TV. I don’t want to pay $100 per month for cable so that I can get lots of channels I could care less about.

    When it comes to Time Warner I don’t understand why no one in their earnings calls has asked them if spinning off HBO into a separate company wouldn’t provide more value (i.e. money) to shareholders!

    I for one would be open to paying my Netflix fee plus the $13 to $15 per month to subscribe to a premium channel like HBO through Netflix. What’s the business rational (other than conflicts of interest in Time Warner) from providing me this choice? Fact is that there are artificial barriers to becoming an HBO client!

  9. I’m a Netflix subscriber and I watch at lot of really good Foreign and Indie films that were not produced or distributed by the big Hollywood studios. So, from my point of view, Mr. Bewkes will merely push more people to discover “good” video entertainment, and care less about “current” releases.

    Frankly, this could be good news for the smaller content producers who will likely increase their market share. Also, much of the new content coming out of Hollywood is unappealing to me, and I’d guess to others as well.

    Therefore, if I was a entertainment industry analyst, then I’d be concerned about Mr. Bewkes point of view — he sounds out of touch with the fragmented consumer marketplace (a “mass-market” for video in 2011 may be a figment of an uninformed Hollywood executive’s imagination). As a Time Warner investor, I’d be even more concerned about this myopic commentary.

  10. The content owners wanting more money doesn’t surprise me but I hope Netflix doesn’t get suckered into another bad deal like Epix($1 billion over five years). I believe Netflix(and us) should pay a fair price for content, I will not tolerate price gouging.

    @Scott Jensen,
    I don’t know if you are deranged or a troll. First of all most studios are the content producers and they hold the copyrights, Netflix must negotiate license agreements with the studios. It’s foolish to think that Netflix would produce their own content.

    Secondly you are condoning piracy which is not the topic here, I was a poor college student and I never pirated anything(music or movies).

    1. Mike,

      You need to read up how TV shows are produced. ABC, CBS, Fox, and NBC only self-produce a very limited scope of their programming (namely news) and contract out the rest of their programming to production companies. Same is the case with all cable TV channels, except for the new channels (FNC, MSNBC, CNN, etc.). These non-network production companies don’t even get paid the full cost of producing their shows since the networks don’t own the syndication rights to the shows and the production companies do. If you read up on the industry, you’ll commonly come across references to 100 as the magical number for TV shows. This has NOTHING to do with their network appearances and EVERYTHING to do with them becoming a syndicated property. 100 is viewed as the minimum number of episodes a TV show needs to thrive in syndication. It was almost the reason why the original Star Trek wasn’t syndicated since it only had 79 episodes. Fortunately for Star Trek fans, Paramount took the gamble and syndicated Star Trek. But most TV shows are not syndicated unless they hit the magical number of 100 … which means they have been on the air for at least four years (which is very likely why poorly-rated “Star Trek: Enterprise” got a fourth year). It is only in syndication that the production companies expect to turn a profit on their TV shows.

      However, who Netflix is negotiating with isn’t the production companies but the networks which own just the right rights to force Netflix to deal with them. You see the networks (broadcast or cable) own not only the first airing of a TV show episode but also at least the second airing (and usually at least a few more past that) so they can re-run the episode before it gets syndicated. The networks view this as a way to get back their money from what they paid the production companies for the networks typically don’t turn a profit on their TV shows until they re-run them. This is why news is viewed as a sinkhole by the networks since news shows have no re-run potential. News magazine shows to a very limited extent (mainly during the summer) but not your morning or evening news shows.

      But because of these re-run rights that the networks do hold, Netflix has to deal with them or they have to wait until the network have done all their re-runs of the episode and the show is put into syndication. But Netflix (and their like) don’t want to wait that long since the viewers don’t want to wait that long. The fresher the episode, the more it is requested.

      As for Netflix producing its own content, others in the industry are expecting it is only a matter of time before they do.
      http://www.thewrap.com/movies/blog-post/prediction-netflix-will-soon-produce-original-content-22097

      As for my condoning of piracy, I’m not. I’m just realistic about it. In 2003, I did a white paper on it. Here’s a link to it:
      http://miketurco.com/library/p2prev.pdf

      As for my comment about you directly, it still holds. I’m amazed you don’t understand how a few dollars means a lot to poor people and I don’t believe you are a poor college student. My guess is mommy and daddy are footing your college bills.

      1. Scott,
        You truly are deranged, I wrote “I was a poor college student”. I paid for my education because my parents couldn’t.

        As for your white paper it’s nothing more than an anti-establishment rant where you propose that everyone should pirate because they are entitled to the content.

        I’m done baiting the troll.

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