So now we know why Netflix (s NFLX) has decided to go-it-alone and license new original programming directly from production companies: It’s soon going to see some popular scripted series from cable networks such as Showtime (s CBS) begin disappearing from its streaming library.
According to a report in Crain’s New York Business, Showtime will stop making early episodes of popular TV series’ Dexter and Californication available to Netflix streaming customers by the middle of this year. (Hat tip to TV by the Numbers for the link.) That move comes as cable networks are increasingly looking to TV Everywhere as the distribution model for on-demand content online and on connected devices.
Cable networks like Showtime increasingly view Netflix as both a competitor and a threat to their businesses, a vast change from the attitude they had just a few years ago. In 2009, Showtime used Netflix streaming as a promotional vehicle, running the season premieres of The United States of Tara, The L Word and Secret Diary of a Call Girl on the video service. But now, speaking to Crain’s, Showtime CEO Matthew Blank had this to say:
“We’re more conscious of [the competition] now… With all the options out there, we want to be sure people know they have to subscribe to see Dexter or The Borgias.”
Of course, it’s easy to understand why Showtime might want to limit viewership of current or even recent seasons of popular shows, ensuring that viewers are either pay TV subscribers or purchasers of show DVDs. However, by pulling back episodes of those series from Netflix, Showtime is undermining a popular discovery mechanism for its TV series. For those, like me, who rely on Netflix to introduce us to new content, having a season or two of a show that we’ve never seen before is a powerful method of creating new viewers.
Currently, just two seasons of Dexter and Californication are available through Netflix streaming, but in both cases that was enough to get me hooked and make me want to watch subsequent seasons of the shows. While I personally didn’t subscribe to cable in order to catch later seasons, I did purchase season passes for the shows through iTunes (s aapl) to catch up on the future adventures of Dexter Morgan and Hank Moody. (Coincidentally, in the run-up to the final season of Lost, I also used Netflix to catch up on all previous seasons before watching the linear broadcasts of the show.)
Not only are cable networks like Showtime losing the promotional aspect of running previous episodes of their current shows through alternative services like Netflix, they’re also passing up on potentially lucrative licensing fees to do so. That might not be the best solution for some basic cable networks, but premium cable nets like HBO and Showtime could potentially fare better.
Instead of licensing fees from Netflix, Showtime and others are counting on additional fees from companies like Comcast, (s CMCSA) Time Warner Cable (s TWC) and Verizon (s VZ) for the ability to build multiplatform video services built around the concept of TV Everywhere. If you’re a Showtime subscriber, that means you get access to all episodes from the most current season of Dexter and Californication — along with episodes from the network’s newer series like Shameless and The Big C.
The departure of some cable network programming means that Netflix will have to get creative to keep its 20 million-plus subscriber base happy. Original scripted dramas has been a big part of the company’s success with subscribers, so losing shows like Dexter could have an impact on its ability to grow. Perhaps knowing this was coming, Netflix has increasingly sought to differentiate itself from cable networks by grabbing exclusive rights to content that no one else has.
Last year, it struck deals with Relativity Media and other independent studios for exclusive rights to films in what is normally the pay TV window, giving it access to movies like The Fighter that would otherwise have shown up on HBO or Showtime.
Netflix followed that up with a deal to license a new show called House of Cards from production company Media Rights Capital — its first foray into original scripted TV programming. While it’s too early to tell if House of Cards will be successful, we can probably expect Netflix to do more deals like is as a way to bring new interesting content online without having to depend on the cable networks for their shows.