http://www.businessweek.com/articles/2013-09-03/life-after-netflix-for-original-shows-streaming-is-just-the-first-stop

Hollywood

Life After Netflix: For Original Shows, Streaming Is Just the First Stop


A scene from the Netflix exclusive Orange Is the New Black

Photograph by Jessica Miglio/Netflix/Everett Collection

A scene from the Netflix exclusive Orange Is the New Black

Netflix (NFLX) and its video-streaming rivals are pouring millions into exclusive original shows in a bid to compete with cable-TV’s edgiest channels—HBO (TWX), AMC (AMCX), Showtime (CBS)—as must-have entertainment services. But while Orange Is the New Black has started its life as a streaming original on Netflix, that won’t be the end of the line for the prison comedy. Television programs are commodities bound to be sold and resold, from international rights to DVD to broadcast syndication.

Most of these originals premiering on Netflix, Hulu, or Amazon (AMZN) aren’t owned by those companies, and the producers of the shows are in a bit of bind when it comes time to license subsequent rights. How can content owners and potential buyers gauge any show’s popularity—and its value in the market—when the streaming services don’t share what one TV executive calls “near-perfect data” on audience viewing habits? There’s not yet a Nielsen (NLSN) ratings equivalent in the digital-video realm. The lack of clear precedent or audience data leaves producers, distributors, and buyers largely in the dark as streaming companies open their wallets to obtain more shows.

The decision to produce House of Cards—an enormously expensive project involving marquee talent in director David Fincher and stars Kevin Spacey and Robin Wright—was made, in part, because the show would appeal to a global audience. But after Netflix committed to 26 episodes and agreed to heavily market the show in a $100 million deal, a big question arose for production studio Media Rights Capital: “How do you value a Netflix license relative to an HBO or a Showtime license?” says Modi Wiczyk, co-chief executive officer of the studio. “MRC has to go out into the rest of the world now—which is not Netflix’s problem, it’s MRC’s problem—and establish this is a show that is on par with other premium-cable shows.” Netflix’s payments cover only a portion of the political thriller’s production costs; MRC declined to discuss the show’s full budget.

Netflix released in one fell swoop all 13 episodes of the first season of producer Eli Roth’s horror-thriller Hemlock Grove, as has become the streaming service’s custom with its original programming. Show producer Gaumont International Television (GAM:FP) then went on to sell Hemlock Grove in Germany as part of an international expansion cheered by Roth. “I don’t just want this to be a hit on Netflix in America,” he told the Guardian earlier this year. “I want the show to become a global phenomenon, because horror is one of the few areas where you can really appeal to a worldwide audience.” But as it slowly goes global the show remains unavailable on DVD—breaking the pattern of TV shows, with their predictable migration to home video. Executives at Los Angeles-based Gaumont declined to comment.

In some cases, Hulu or Netflix have licensed shows that were produced abroad. Such was the situation with Pramface, a BBC Three comedy acquired by Hulu to show in the U.S., and Derek, the new Ricky Gervais comedy/drama premièring on Netflix this month after starting out on England’s Channel 4. In this way, as with major studio films, a television series is a global product and streaming services are just a few more potential buyers in a broad marketplace. The Sony (SNE)-backed European police drama Crossing Lines on NBC (CMCSA), starring Donald Sutherland and William Fichtner, has been sold by its German producer in more than 180 territories after its first 10-episode season.

Lionsgate Television’s (LGF) Orange Is the New Black was available for streaming in China on Youku Tudou (YOKU) starting on July 12, the day after its Netflix première in the U.S. And while it’s virtually certain that Orange—currently filming its second season—will make it to DVD at some point, it’s not clear when or where else in the world the prison comedy will be seen. Sony Television, on the other hand, licensed the DVD rights for House of Cards and rushed the first season into stores in June, four months after Netflix released the political drama. MRC has also sold rights to the show in about 100 countries so far.

“We think that the channels interact with each other,” says Michael Thornton, chief revenue officer at Starz (STRZA), the pay-TV and distribution company with a long history commissioning original shows such as Spartacus and the forthcoming Michael Bay drama Black Sails. “The more experiences and the more buzz you can get around [a show] is really great. You want to create as much momentum as you can.”

For a streamer like Netflix, bringing its original shows to DVD is ultimately irrelevant to the company’s aims of promoting its brand with exclusives and luring new subscribers. Sure, it may be nice to have a show exposed to more people through a new sales channel, but the exclusive streaming license is where the company derives its primary value. Even though Netflix now makes House of Cards available to its DVDs-by-mail subscribers, it’s no secret the company envisions a day when it won’t have to spend a fortune storing, sorting, and shipping discs across the country.

Still, nonstreaming holdouts have little to fear. Whatever hot new show is online, you can bet it will eventually make its way around the globe on a variety of platforms. The economics of TV demand it.

Bachman is an associate editor for Businessweek.com.

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