Netflix Dominance Pushing Studios to Earlier Release Window

Big spending digital players Netflix and Amazon are shaking up traditional TV stalwarts. Netflix is expected to spend $6 billion on original and acquired programming this year, up $1 billion from last year. That figure is five times more than what cable outlets FX (owned by 21st Century Fox) and Showtime (owned by CBS Corp.) spend and more than twice that spent by Time Warner’s premium channel HBO. TV actors are demanding $250,000 an episode, twice their previous rate, and there’s a feeding frenzy for A-list below-the-line crews.

The Wall Street Journal reports that the TV networks and studios played a role in leading to the present circumstances, since “when streaming video led to a plunge in DVD sales about a decade ago, licensing shows to Netflix was seen as a new way to cash in and extend the financial life of expensive programming.” Still, the results have been dire: “one veteran television executive likened Netflix’s onslaught to Genghis Khan’s.”

Netflix is also luring away TV executives, including senior NBCUniversal Television executive Stacey Silverman, 20 21st Century Fox employees and others from Sony and Disney.

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To combat Netflix’s growing domination, “TV chiefs are redoubling efforts to discover new writers, show creators and less-expensive stars” such as a new HGTV show “Home Town” starring a couple found on Instagram. Media companies such as NBCUniversal also highlight their ability to “promote a show across its entire suite of cable networks … as well as other businesses like theme parks.”

Some TV executives and “Wall Street skeptics” wonder if Netflix can add enough subscribers to “justify a $60 billion market capitalization that values Netflix at more than 300-times its 2016 earnings.” Overall subscriptions grew 25 percent in 2016 from 2015, to a total of almost 94 million.

Elsewhere, WSJ reports that the Netflix pressure is behind Hollywood studios’ decision to push the issue of an early release window, most likely 45 days after films’ theatrical debut. This issue has long been a bone of contention between the studios and theater owners, but the two groups are “finally discussing a compromise,” say sources, who add that feature films will likely become available on premium VOD “as soon as a few weeks after their theatrical debut for between $30 and $50.”

In the current market, films are not available for at least 90 days after their theatrical release. The home entertainment business declined 7 percent in 2016, after a 6 percent drop in 2015, leading to “a growing consensus in Hollywood that a months-long delay is anachronistic, given the vast array of content, including movies, that consumers can stream at their convenience on an Internet-connected TV, tablet or phone.”

The issue is likely to be discussed at CinemaCon this week; studio executives have debated release windows as short as 10 days to as many as 45. Sources say that if an accord is not reached, “at least one studio may force the issue by announcing a premium VOD policy,” which would prompt other studios to follow suit and force theaters to cooperate.

The studios may share 10 percent to 20 percent of VOD revenue, to compensate for lost box office revenue, but “the sticking point” in the discussions is “for how many years theaters would be guaranteed to receive their share and that prices for early home release won’t fall too low.”