TV execs often lament how the legacy companies helped create the Netflix monster. In licensing so much library and original content to the streaming behemoth, they found a lucrative new revenue stream — but they also managed to change viewer habits as we know it. In particular, the fast availability of so many hit broadcast and cable shows on streaming helped doom home entertainment, dramatically shifted the traditional syndication window, and changed the way viewers sample new shows.
Now, as we enter 2019, the entire television industry faces another inflection point. This is the year that the congloms finally try to put the genie back in the bottle — or at least, finally own their own bottles. Ultimately, what happens this coming year may set a new course for both the future of Netflix and the fate of traditional media companies.
As Disney and WarnerMedia enter the streaming wars (with Comcast expected to join as well) — a decade after Netflix first entered the space — the goal now is to stay in control of their content while going where the consumers are.
The first battleground in the Streamocalypse of 2019 won’t be in original programming, but what happens to the library content that drives what consumers buy. Old-school media companies face a new challenge: Popular series like “Friends” and “The Office” will be critical to help launch their services. But if those shows move exclusively in-house, will consumers arrive in large enough droves to help offset the revenue they currently get from Netflix and its streamer ilk?
Or will the promise of rich license fees — and larger viewership — from the likes of Netflix and Hulu continue to be too big to ignore? (And if so, will that stymie the growth of these new offerings?) So far, the traditional media companies aren’t quite ready to make a clean break, as witnessed by WarnerMedia’s willingness to cash Netflix’s $100 million “Friends” check.
“I really found it interesting that Warner Bros. didn’t put one of the first real bullet wounds into Netflix by not renewing ‘Friends,'” said one veteran TV exec. “If you looked at where the drum beats were about three weeks ago, people were getting pissed that Netflix was going to lose ‘Friends.’
But if that library content does move exclusively to those new streaming services, how does that ultimately impact Netflix, once consumers realize most of their favorite library programs are gone?
As that exec noted, “Now, project yourself two, three, four years in the future when not only is ‘Friends’ gone from there, but a whole lot of other shows that are TV favorites and all that’s left there are primarily those Netflix originals.”
We could very well be talking about Netflix’s library problem in a few years. But for now, at least, Netflix is still in the driver’s seat — as the traditional congloms have long allowed Netflix to be synonymous with the great aggregator of all things TV. For much of this decade, the major studios struck deals with Netflix and others to place their fare on the streaming services soon after a show’s linear run. That was a fresh revenue stream for the congloms, but it also inadvertently created new viewer habits — teaching audiences to wait and sample buzzworthy shows when they become available on the streamers.
It often takes much of a show’s first season for word-of-mouth to reach consumers. When the networks started making deals with Netflix and others, it allowed audiences to catch up faster. The hope was that audiences would turn around and then watch the show’s first-run episodes on the originator network. That happened to a degree (think of how “Breaking Bad” thrived on AMC after audiences found it on Netflix) — but recent evidence shows that audiences are more likely now to wait and binge a network or cable show only after it enters its streaming run. Witness NBC’s “The Good Place,” which (anecdotally, of course) is believed to be one of the most-binged comedies on Netflix — but still does so-so in its initial NBC ratings.
That quick window from primetime to off-net streaming also accelerated the death of the once-lucrative home entertainment market. Remember all those TV DVD box sets you stocked up on in the mid-2000s? Sure seem unnecessary now.
“Shows used to get discovered in year two and year three,” said one exec. “You might be in the middle of the season and then you go and check it out. If the show looked great, you go back and you try to find the early episodes and you probably had to do it with home entertainment. The world got changed by the collapse of home entertainment and the belief that streaming was the replacement — when in fact it became the replacement for syndication.”
Traditional syndication comes after four years and 100 episodes — enough to strip a show on local stations or cable. But with repeats now often available after the first year of a show (and sometimes sooner) in streaming, shows have become less valuable in traditional long-lead syndication.
“There used to be able to be a home entertainment window and a syndication window, as well as the original commission window,” noted an exec. “Now it’s the commission window and a syndication window, which basically now you’ve got the combination of home entertainment and syndication. It actually didn’t space things out well enough and it didn’t understand the psychology of the viewer enough that in essence the industry lost a window of revenue opportunity as a result.”
Now, viewers are expecting to watch a show via streaming almost immediately after its linear run. But here’s a new Catch-22: What if the studio decided not to cut a streaming deal, in order to hold on to more of its value? If a program can’t be easily streamed, and audiences can’t find it, does it even exist?
Now that there are nearly 500 original scripted series on U.S. TV, that’s a question that traditional linear networks and their in-house studios can’t afford to get wrong. As audience viewing habits quickly evolve — especially when it comes to program discovery — the audience willing to sample new shows on old platforms appears to be wearing thin, particularly for series targeted toward young adults. IndieWire’s recent roundup of 2018 network ratings showed yet another year of double-digit declines for young-skewing networks such as Freeform, Adult Swim, Syfy, and FX.
Now, when viewers hear about a new show that interests them, chances are good that their first stop is Netflix, which currently has nearly 60 million subscribers in the United States.
A new report by Hub Entertainment Research bears that out: The company’s 2018 report found that just 39 percent of consumers say their primary viewing comes from live, linear TV — down from 48 percent two years ago. And when asked to name the source of a recently discovered favorite show, the report said that for the first time, Netflix (32 percent) was higher than all linear networks combined (26 percent).
That could be a problem for new young-skewing shows that don’t pop up on Netflix — particularly in this age of “Peak TV.” If it’s not there, viewers might search for it on Amazon or Hulu. But if a show can’t be found there as well, or readily on demand (at least for cable subscribers), there’s a good chance audiences may wind up down a different path and watch another show instead. Critically acclaimed shows, like the recently canceled Comedy Central series “Detroiters,” get lost in the shuffle.
“Why watch live linear TV?” BTIG analyst Rich Greenfield asked in a recent Twitter post.
Go where the young audience is — that explains why MTV recently launched a studio focused on producing content (including a “Real World” revival) for streaming services rather than its own linear outlet. In another interesting case, FX has launched a marketing campaign reminding viewers that if they receive FX via linear means like cable or satellite, they also have access to stream the network’s shows via its FX Now app.
Both FX and HBO have both even borrowed the language of streamers in recent marketing campaigns, as they suggest viewers go online to “binge” their hit series “American Horror Story” and “Game of Thrones,” respectively.
Then there’s the now-standard practice of premiering new series online, rather than the traditional on-air methods. If networks hope to get any sort of sampling for a new show, they’ve got to make it easy for audiences to watch immediately. Over the holidays, that meant new series like Showtime’s “Black Monday” and Syfy’s “Deadly Class” were available to watch online weeks before their linear premieres.
“There are so many choices now for an audience to go to,” said Sony Pictures Television co-president Chris Parnell, whose studio produces “Deadly Class.” “So the key is finding that perfect bulls’ eye of the audience for a particular show and reaching out and trying to connect with them directly. It’s just smart business.”
Audiences will have a lot to chew on this year — what to watch, where to watch it, and who to buy — and a lot of it will be unpredictable. At stake is nothing short than the future of the TV ecosystem. Summed up one network exec: “That’s going be fascinating to watch in the future because it’s coming and it’s coming fast.”