Forget about digital pennies and analog dollars; programmers like Viacom are finally starting to see a real uptick in the money they get from digital distributors. And that money will continue to grow as more competitors pop up in the digital realm.
On Viacom’s fiscal third quarter earnings call Friday morning, the company reported that affiliate revenues grew 20 percent domestically and 16 percent worldwide. That growth was due in part to digital deals that the company has struck recently, including new ones with Netflix and Hulu that make its shows available for streaming.
Viacom CEO Philippe Dauman said to expect more deals like those as competition heats up. He didn’t really name names, but with new entrants like Amazon and possibly Google or Apple entering the bidding for digital rights, programmers like Viacom are ready to reap the benefits. As a result of increased digital interest, the company expects affiliate fees to continue to grow in the “high single digits or low double digits” for the foreseeable future.
But it’s not just the streaming tech crowd that will grow its digital affiliate revenues. On the call, Dauman said that so-called traditional distributors are also interested in acquiring incremental digital rights to its content. That includes cable, satellite and IPTV providers that it already has long-term agreements with. Now those partners are also getting increasingly interested in being able to stream Viacom content to their subscribers online and on mobile and other connected devices.
And finally, there’s the international opportunity. The only streaming video provider Dauman actually mentioned by name is Lovefilm, which was acquired by Amazon earlier this year and operates throughout parts of Europe. But there’s also Netflix, which has a streaming-only plan available in Canada and will soon launch throughout 43 countries in Latin America. Netflix is also expected to enter Spain and the U.K. in early 2012.
While additional revenue is nice, the big advantage of doing digital deals is that for companies like Viacom, they’re very profitable. Dauman said the margins on the digital rights it’s licensing are about 75 percent. Since it has already produced and owns the content, almost all of that money is incremental to its existing businesses.
Viacom isn’t alone in seeing an uptick from digital licensing: CBS also mentioned an increase in streaming money contributing to its bottom line on its earnings call. And Time Warner, while generally shying away from Netflix, has seen increases in affiliate revenues from traditional providers due to its TV Everywhere push. As time goes on, we expect even more money to begin pouring in from digital licensees, especially as the market becomes more mature.