More TV Content for Netflix

Several sources including the LA Times have reported that Netflix has struck a new deal with Disney to gain access to more of its television content. This includes episodes from prior seasons of popular ABC shows such as “Lost” and “Grey’s Anatomy”. According to the LA Times article, episodes from the current season still will be only available on Hulu. Some of shows from other Disney networks — ABC Family and the Disney Channel — will be available as early as 15 days after the initial broadcast date.

There are two interesting aspects to this story. First, the Netflix camel’s nose is nudging insitently under the tent. No longer are they just streaming content that’s avaiable on DVDs; they are getting into television episodes in a big way. Sure, it’s not every episode of every show, but at the end of that sentence, you have to put a great big “YET”. The company is in the right place at the right time to capitalize on the studios’ worries about revenues and retransmission rights and plummeting DVD sales. So expect to see more deals that will expand the scope of the content, and compress the delay between initial release and streaming availability.

The other part of the LA Times story that I found interesting is how much Netflix is willing to spend. According to the newspaper’s unnamed sources, the company will pay Disney-ABC between $50,000 and $150,000 per episode for the major shows. That may seem like a lot of money, until you find out that some networks pay $1.4 million per episode for reruns of popular shows. Now, the initial conclusion might be that Netflix can’t afford to increase their offer by 10-fold to compete with these cable networks. I think that’s looking at the wrong end of the telescope. What happens to the studio revenues if cable and satellite services offer more stripped-down packages, or even shift to a la carte pricing? Many of these networks that have these rerun deals may see their subscriber count drop, which reduces ad revenues, which limits what they can pay for the programming. If this happens, it’s likely that Netflix could pick up much of the slack, as subscribers would not be paying extra to gain access to these shows. Netflix revenues increase, and is able to pay the studios more. As they become the major outlet, their bargaining position also gets stronger. It will be interesting to see how the money side of episodic television programming develops.