Is Netflix digging its own grave with its success? The DVD-by-mail and online streaming service is stuck in a Catch-22. It seems that the more popular they become the worse it is for the networks, studios and distributors out there. The problem? Netflix relies on these networks and distributors for its content – the reason why its subscribers pay for their service. As Netflix gets bigger, viewers are abandoning these networks and distributors to get their content fill on Netflix. And the networks and distributers are not too pleased.
The trouble first reared its head earlier this year, when HBO’s Senior VP of Corporate Affairs, Jeff Cusson, spoke out saying that, “HBO considers Netflix more of a competitor than a potential partner. HBO believes in content exclusivity, especially for high-value content. That’s our rationale for not selling streaming rights to a competing subscription service.” Rumors that Netflix was to blame for the fall of Blockbuster spread as well, and networks besides HBO also started to express feelings of distaste towards Netflix, implying that they may start asking for more money for their content.
In a Time Warner earnings call, CEO Jeffrey Bawkes commented on Time Warner’s re-evaluation of deals with companies like Netflix and Redbox. He said, “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.” The COO of News Corp, Chase Carey, expressed a similar viewpoint in a News Corporation Management earning call. Carey said, “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 Starz 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.”
The original Starz-Netflix deal was one of the original Netflix deals and Netflix paid a very small price for Starz content. However, over the summer when Netflix signed a deal with Epix estimated at close to $1 billion, rumors flew that Starz would definitely not be willing to renew the uber-cheap original deal. Starz and Netflix are currently working on a new deal, but according to Multichannel News we’ll be seeing some big changes. For one, Starz will be delaying Netflix’s access to its new original series by 90 days. Additionally, Showtime Networks will no longer be providing episodes of their currently airing series, such as Californication and Dexter. According to Todd Spangler at Multichannel News, regarding the Showtime change, Netflix VP of corporate communications Steve Swasey said, “We’re perplexed…because we expect to continue providing Showtime titles.”
Could it have something to do with the fact that Netflix has recently announced its foray into its own original content, successfully bidding on a new original series called ‘House Of Cards’ starring Kevin Spacey? Is Netflix surprised that many of the networks that provide Netflix with content saw the bid as a slap in the face? Major companies including HBO and AMC were also bidding for distribution rights. With Netflix taking this content out from under them they understand that Netflix could prove even bigger competition for them in the future. But what will become of Netflix profit if all of its content providers pull out or start charging higher prices for their content? How will Netflix subscribers react? Are they digging their own grave with their success? What do you think?