The CW Ends Their Netflix Deal (and that Hulu/Disney news)

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Distracted by a new birth in my (extended) family, and a big article that will launch next week, I didn’t get to write a lot for this website this week. But I’ll be back in a big way next week. In the meantime, I had lots of stories to choose from for this week’s round up of entertainment business news.

(Seriously, if you’re a TV journalist, be on the lookout around Tuesday for a big number you should definitely retweet or pick up as an article. It involves GoT. So you’ll get clicks. Consider this my first “hey, pick up this story” plea.)

The Most Important Story of the Week – The CW Ends Their Netflix Output Deal

This story made the usual “Upfronts” news cycle, but I think it deserves a bigger look than that. And yeah, I think it is bigger than the Hulu news. Disney was going to get Comcast’s Hulu portion eventually. Meanwhile, I don’t trust AT&T and CBS to pass up cash when they can get it, so kudos for making the right call here. We may look back on this move as when AT&T finally took control of their streaming future. (CBS has already done that.)

That said, the headlines gave a different flavor of the news than the full articles did. Even my headline is slightly misleading, so before the strategy implications, let’s correct some initial misconceptions.

First, “The CW” is less accurate than “Warner Bros TV/CBS TV”

Because The CW is a network. The shows are produced and eventually owned by the parent TV studios of Warner Bros TV and CBS TV. These are licensed shows on The CW, not shows owned by The CW. I explained the difference between owned and licensed here.

The CW has been one of my favorite channels since business school. They are the subject of a pretty widely used Harvard case study–if you take the entertainment biz classes–and I’ve followed them since. The CW is is a fascinating joint venture between CBS and Warner Bros (get where the C and W come from, if you didn’t know?) that only exists so that those TV production studios have another broadcast channel to sell to. So the vast majority of CW series come from Warner Bros/DC, Warner Bros TV, CBS TV or, in a lot of cases, both. So that’s really who we should say ended this output deal, those parent library companies.

Second, this only applies to new shows going forward.

This is key, because these CW series are really valuable to Netflix. In the last two weeks, Netflix has started releasing weekly “top ten most popular” lists in the UK and Ireland as tests. Assuming the data is accurate–and with the caveat we have no idea how this is calculated–here is what Netflix is telling us is popular on their platform in the UK (hat tip to All Your Screen Rick for the data)…

Screen Shot 2019-05-17 at 3.10.09 PM

So in the UK, CW series make up 3 of the top 10 in these last two weeks. That’s really valuable. Is it irreplaceable? Surely not. But you can only lose so much content before it begins to impact engagement, retention, acquisition and general content performance.

The key, though, as I first read in The Verge, is that these shows won’t be leaving. If a show premiered before 2018/19 season, it will eventually wind up on Netlfix. So it’s not like suddenly a lot of Riverdale fans will need to subscribe to another streaming service to catch up.

Third, Netflix will still bid on individual series (and may have cancelled the deal).

Meanwhile, it seems like both sides wanted to end a library output deal and move to individual series acquisitions. I can see the logic. For the TV studios, you can now put the series directly on your aspiring streaming platforms. For Netflix, the entire deal may not be as worth it as individual series–so Riverdale isn’t worth the tax of the underperforming series in the deal–especially if you won’t control the rights in perpetuity. As Netflix moves to a wholly-owned strategy, this makes sense.

(Though, I’ll be honest, most of the tech sites seem to default to “Netflix is right” in their commentary, so part of me thinks this may be Netflix positive spin, and Netflix may have wanted to keep the deal going.)

The Strategy Impacts for the Future

With those misconceptions cleared up, it’s time for the lessons for us for the streaming strategy going forward. Well, as I started saying, AT&T and CBS are getting serious about streaming. Couple this with the AT&T news that they plan make Friends and ER exclusive to their new streaming platform, and you start to see a serious strategy. (I’m focusing on AT&T, because CBS has at least already launched its streaming service.)

If you’ve been following me, you know how valuable I think some of these library TV series are. Both at engaging customers–especially as no Netflix shows make it to fourth seasons–but even for acquiring customers. When you scan the homepage of a streaming site, it helps to see a bunch of shows you recognize. Warner Bros TV has a killer library catalogue, in this respect, and finally getting it all on their own streaming platform could be a huge head start.

Meanwhile, I love the approach used by The CW. If you believe internet Twitter, literally no one watches broadcast TV. Not a soul. That’s what some Netflix bulls will tell you. And yet, these shows often get 500K live viewers and multiple in later viewings. Those are real customers, in just one windwo. Here’s a Salil Dalvi tweet that explains the CW business model:

I’m a Mark Pedowitz fan in general, and he sees his job to launch TV series into future windows. This strategy for the CW makes sense given both the state of his network and his dual corporate ownership. He provides a channel to build awareness, and meanwhile he lets his corporate studios sell into lucrative second windows.

He also got on the comic book trend early–while finding a hit maker in Greg Berlanti–and meanwhile he doesn’t cancel all his shows every year, meaning he can let shows build audiences. He also saw how much more valuable scripted series were than reality series for the streamers, so almost all of his programming is scripted dramas.

As to the comic books, and since whenever we mention AT&T, invariably we find some messed up part of their strategy their screwing up, what the hell is going to happen to DC Universe, their streaming platform? I mean, if you’re taking back the rights to Batgirl, and it could be a hit, why wouldn’t you put it on your DC streaming site instead of the WarnerMedia site? I don’t in general believe in the niche approach to OTT sites, and I can’t tell if AT&T does either. Sometimes they support niche sites and then other times they don’t.

Other Contender for Most Important Story – Disney Acquires the Rest of Hulu Stake (Eventually)

Early this week, we had our lead contender for “the most important story of the week” and it is big enough news I’m giving it it’s own section.

Besides the deal terms–which I haven’t modeled myself, so I won’t talk about the price–what sticks out to me is that this seems like a moment when the branching paths of the traditional studios are definitively diverging. From this point on, CBS and Disney/Fox are going to launch their own OTT services. And Disney with Hulu will try to be an vMVPD aggregator.

But Comcast and AT&T–the legacy telcos minds you–will keep doing business as usual, as much as they can. That’s why they’re launching streaming platforms, but mainly to keep legacy pay TV subscribers involved. The sneaky story, related to this, is AT&T saying they’re going to let HBO subscribers access their streaming service. This mimics Comcast saying pay TV subscribers will have access to their NBCUniversal streaming service. It doesn’t seem like much of a leap for Comcast and AT&T to look at each other and come to an agreement that each company’s pay TV people get the other’s streaming platform too.

It’s like the initial vision of Hulu–one streaming platform for all TV–just divided up among multiple streaming platform. Or the opposite of the initial Hulu vision.

That said, I may be overselling how much Disney is really breaking off from the other traditional big six studios. Both the agreements with Comcast and AT&T to buy their Hulu shares have provisions extending the licensing arrangements through 2022, so even Disney wants to keep the status quo as long as possible.

Speaking of Disney, well this Hulu deal just makes sense, no matter the price. It will be easier to have a successful Hulu if you own 100% of it and can keep the strategy clear. In success, this deal will be easily affordable. With the Fox acquisition, they have enough content to keep it a float, even without the NBC and Warner Bros TV content.

Other Candidates for Most Important Story

TV Broadcast Cancellations and Renewals – Flatter and Lower Than the Past

Friday of last week was the subject of a host of news about series that are being cancelled or renewed across the broadcast landscape. So much so that I refer you to the Variety’s and THR’s of the world to get the updates. The broad takeaways, though, seem to be that this year’s overall pickup and renewal volume is flat compared to last year. Stability is the word when it comes to shows.

Live Long and Prosper, The Big Bang Theory

Or I should have said, “Bazinga!”. Either way, it seems strange that highest rated show on broadcast and more people watching than any other series on TV–a crown it traded with Game of Thrones this season–got so much less coverage than GoT. This isn’t a huge mystery; Game of Thrones fans are more likely to read print articles at work than Big Bang Theory fans.

The fascinating business question is where this series ends up on streaming. If my first section is correct, AT&T is smart now and will put it on their streaming platform. Which is what they should do and that will hurt Netflix. And don’t pretend otherwise: The Big Bang Theory in reruns would get more viewers than any other sitcom on Netflix. Broad sitcoms travel really well internationally (and domestically in age) and with the dozens of seasons worth of content would help keep people hooked on a streaming service. Just like Friends and The Office. Hat tip to the Wall Street Journal for first raising this question.

Long Reads of the Week – Valar Morghulis, Game of Thrones

Meanwhile, the rest of us are reading and reacting and signing petitions about Game of Thrones. I’ll join in next week with my big guest article, some spin off articles from that, and an exploration into a Game of Thrones murder mystery.

But I’m not the only one putting out great content on the end of Game of Thrones. Tara Lachapelle wrote how HBO will miss Game of Thrones more than it realizes. The churn on digital will be the key number to look for. She also points to the fact that in addition to quality, the new streamers will need quantity to keep people engaged.

Dylan Byers had an interview with HBO’s head of programming Casey Bloys in his newsletter this week. Bloys will be key to the future of the king of the premium channels. (We missed you during the week off Byer’s Market newsletter.) I liked Bloys’ answer to the prequel series being the “next Game of Thrones”. The point is he wants to just build the universe; if even 25% of the audience tunes back in they’ll have a hit on their hands. (And making multiple superhero films hasn’t hurt Marvel…)

Finally, Daniel D’Addario has a great column on how Thrones fit into the culture of TV in the 2010s. Few other shows will define a decade as completely as it did, both fitting in and being separate from any other series on television.

Data of the Week – Nacho Analytics on Game of Thrones Viewership

I’m still figuring out exactly how Nacho Analytic’s data works–it appears to be browser based on a consumer survey extrapolated to the size of a website’s traffic–but my gut is it is “directionally” accurate. With teh caveat that again, it is only browser and not mobile/living room optimized. That said, even with those caveats, it is amazing how Game of Thrones drives clicks across not just HBO, but the internet. It is a phenomenon.


The Entertainment Strategy Guy

The Entertainment Strategy Guy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.


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