Will Money Hungry Networks Take Netflix Down?

With networks asking for more money for their series and films, Netflix may have to give in and raise subscription costs so they can maintain their streaming library. But will customers be willing to pay?

Netflix currently resides in a strange kind of content purgatory. Obviously the online streaming and DVD-by-mail service wants to buy up as much content as it can to keep its customers happy, but networks and distributers, wary of Netflix’s effect on syndication and the film and television industry as a whole, keep asking for more money for their series and films. Netflix will have to give in and raise subscription costs so they can maintain a full streaming and rental library or they’ll have some very unhappy customers on their hands. But will customers be willing to pay more for this additional content?

Just last month HBO gave Netflix an ultimatum – they said that, “If Netflix expects to get a meaningful amount of HBO content, it would have to raise the price of its streaming-only service from $7.99 a month to $20 a month before the economics made sense.” Netflix responded with, “[HBO makes] incredibly great content that is very expensive to produce. But we’re buyers and they’re sellers, so we’ll figure out a deal that makes sense. If we don’t then the service doesn’t have everything, and that’s OK too.” But did Netflix speak too soon? It looks like other networks are following in the footsteps of HBO, being hesitant about striking cheap deals with Netflix. If Netflix is unable to strike deals with all of these networks then they could be stuck with a lot content gaps on their hands.

In a Time Warner earnings call earlier this month, CEO Jeffrey Bewkes commented on the company’s re-evaluation of their content deals with Netflix and Redbox. He commented on the fact that they currently have a 28-day window before release to services like Netflix, “in terms of supporting higher-priced DVD sales, electronic sell-through and rental and VOD.” However, he continues to say that, “the current pricing and window are not really commensurate with the value that those kinds of availability of our films are extracting…We just think that the value that film companies or our company should get for that period of exhibition is considerably higher than what’s there now.” And Bewkes definitely has a point. When people can stream content on sites like Netflix or get cheap rentals from Netflix and Redbox they are less likely to purchase that content at higher prices. The networks, production companies and distributers need to ask Netflix for more money if they want to cut their losses.

New Corp COO Chase Carey expressed similar opinion in a News Corporation Management earning call as well. He said that while Netflix is indeed another buyer for their product, which is great, but that selling to Netflix definitely changes the valuation for content in terms of selling to other distribution services. He says, “We have to make sure that we’re getting fair value for our product. We shouldn’t be selling it cheap and I think at times people have sold their products cheap. I think the Star’s deal with Netflix is probably the ultimate example of product being sold beyond cheap. And I think we can get fair value for our products.”

Liz Shannon Miller of GigaOM’s NewTeeVee points out another important fact, which is that “Netflix is now seen as direct competition to other platforms, including cable TV.” This adds to the dilemma a lot of networks are having when it comes to selling to Netflix. After all, it’s never really the best idea in business to sell your product to your direct competitors. But what do you do when your competitor (in this case, Netflix) is emerging as one of the top destinations for your viewers and fans to find content? Either the networks will have to give in and sell their content to Netflix for less than they’d like or Netflix will have to start charging their users more so they can afford to supply more content. But will viewers be willing to pay? And are there any other options? What do you think?