For the past few years, the big TV networks made easy money selling their reruns to Netflix.
Now they’re having second thoughts.
So are they ready to pull back on sales to Netflix and other digital services in the hope of keeping their core business intact?
Investors will be looking for an answer to that question this week and next, as most of the big entertainment companies report their Q3 earnings and take questions from analysts. But several key TV executives have already signaled that they’re going to stop selling their best stuff to digital services — particularly Netflix.
They’re responding to rising concerns that Netflix has been using the shows the TV guys have sold them to build up its brand and business, while simultaneously pulling viewers and subscribers away from the TV Industrial Complex.
That’s what 21st Century Fox CEO James Murdoch was talking about in September, when he said his company was changing the “business rules” about the way it sells shows to digital services. And it’s what Time Warner CEO Jeff Bewkes was referencing when he said his company wanted to make sure that it didn’t “[undercut] yourself by having somebody else pay a fraction of the cost and create a better inventory on the various shows you yourself invented.”
Then Discovery CEO David Zaslav piled on: “It’s just not rational that all of us in the content business sold our content to a distributor and have allowed that distributor to gain so much share and offer it without our brands.”
Each of those companies is likely to take a different tack toward this — in part because they can’t work together without setting off antitrust alarms — but they seem to be telling Wall Street (and each other) that they’re willing to go without some digital money in the near term.
Nomura analyst Anthony DiClemente has already baked this strategy into his forecasts. He figures that digital subscription money for the big guys will shrink to 2 percent of their total revenue next year, down from 2.1 percent in 2014, and 2.2 percent this year.
Netflix has been anticipating this discussion, as well. “Some studios will choose to license content to SVOD services like Hulu, Amazon Prime Instant Video and Netflix. Others may not,” it told shareholders in its quarterly investor letter last month, before telling them not to worry. “We have a lot of content to select from.”
And, as Netflix CEO Reed Hastings argued in the company’s subsequent earnings call, the networks and studios can’t simply announce that they won’t sell to Netflix — they need to be able to demonstrate to the show’s creators, and other people who have a claim to any money a show throws off, that they’ve gotten a market price for the episodes they sell.
On the other hand, it is helpful for three of the big networks — Fox, ABC and NBC* — to own Hulu, a streaming service that can compete with Netflix (and Amazon) for the rights to those networks’ shows, and which has landed several of them in the last year or so.
Another way to pull video back from Netflix is to hold it back from all of the digital subscription services. Some programmers are talking about keeping their shows tied to their networks — and only making them available to pay TV subscribers as part of “TV Everywhere” programs — for a longer stretch of time, so more of the value (theoretically) goes to the networks that paid for them.
Yet another strategy: Create shows that only live on your own streaming services. That’s what CBS announced it would do yesterday: The network said it would produce new episodes of “Star Trek,” and air all of the new shows, with the exception of a pilot episode, on its $6-a-month “CBS All Access” streaming service.
* NBC is owned by Comcast, which is an investor in Vox Media, which owns this website.
This article originally appeared on Recode.net.