Deeper Dive—How Netflix is bracing for the coming licensed content exodus

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If new research is right, Netflix could be at risk of losing 20% of its licensed content. (Netflix)

Netflix is well aware that Disney, WarnerMedia, Comcast and others will eventually pull back their content for their own platforms. But new figures paint a dire portrait of the aftermath of that shift.

Ampere Analysis’ research—spotted by Recode—suggests Netflix could lose 20% of its content when Comcast, Disney, Fox and WarnerMedia snatch back their shows and movies. The figures are based on the amount of hours of content available on the Netflix platform.

While those four media companies (soon to be three should Disney succeed in acquiring Fox for $71.3 billion) represent a big chunk of Netflix’s content hours, they aren’t the only studios with massive presences on the U.S.’ largest streaming service. Viacom, CBS, Sony, BBC, PBS, MGM and HBO also represent a combined 13.2% of content hours on Netflix, and other production companies represent a combined 59.2%. Netflix originals account for 8%.

As Recode points out, total content hours does not necessarily encompass overall value of all the licensed content on Netflix. And clearly if the company is willing to pay such a high premium to keep a show like “Friends” as part of a non-exclusive deal with WarnerMedia, it’s obvious that some licensed shows are extremely valuable to Netflix.

Disney has made it known for more than a year now that it intends to pull back its popular films and use them to fill out its direct-to-consumer streaming product launching in the back half of 2019. So, Netflix has had plenty of time to brace for that change.

But this week, amid a flurry of investor conference appearances, new information emerged about Comcast’s and WarnerMedia’s plans for their content and direct-to-consumer ambitions.

AT&T CEO Randall Stephenson referenced the “Friends” agreement with Netflix during a UBS investor conference and how because it’s non-exclusive, “Friends” can also show up on WarnerMedia’s streaming platform. He also described the WarnerMedia content library from which the company will pull to populate its service as not being as big as Netflix’s content warehouse.

“It's not a pervasive library of content warehouse like Netflix, but we think it is a very impressive product that will achieve very high penetration. Our expectations are very high for this product. So, going to market with something without—we’re not going to have to spend another $11 billion to rival Netflix. We think we have enough IP and enough capability that we can put a product together that will be very, very attractive,” Stephenson said according to a Seeking Alpha transcript.

Stephenson’s comments suggest that WarnerMedia might more protective of its content—on which it’s relying to establish direct consumer relationships—and only license it out within high-priced, nonexclusive deals. Even though Netflix is expected to shell out between $12 billion and $13 billion for content in 2018, it’s unclear how long it could continue paying $100 million per year to license a single series.

Comcast CFO Mike Cavanagh appeared at the same UBS conference and spoke highly of the growth opportunity for NBCUniversal in licensing its content to partners like Netflix. That being said, Comcast will eventually launch its own direct-to-consumer product.

“When it comes to DTC we’re working on our plans there. We want to be where consumers are and we want to make sure that the content we create is best monetized for us,” Cavanagh said.

Many of these plans for Disney, Comcast and WarnerMedia are just beginning to come into focus, but Netflix sounds like it began anticipating the shift years ago. Ted Sarandos, chief content officer at Netflix, popped in on the UBS conference this week as well and talked about how Netflix is dealing with the potential loss of licensed content.

“…Today when you talk about like access to programming, there is our own product, which is ramping up dramatically. We have run-of series deals with many of the programs that are on Netflix. So, it's not like tomorrow we would yank the show because they said they don't want to do business with us anymore. They're run-of series contracts so, as long as they’re making the show, plus the long-tail, they come to us,” Sarandos said.

He said that Netflix currently does a lot of co-productions with other studios.

“So, we’re doing all these different ways to make sure we have a steady pipeline of great programming on Netflix regardless of what happens in the rest of the world,” said Sarandos. “We’re better off deciding our own destiny and making our own choices with the consumer in mind than with a bunch of competitors in mind. Because other people are going to try things and some of them are going to be successful. I don’t think they’ll be to the detriment of Netflix. I think there’s plenty of room in this business for other players to be successful.”