M+E Daily
Studios Gaining the Upper Hand in Subscription VOD
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Having been fooled once by Netflix, the studios seem determined not to let it happen again with subscription on-demand streaming.
According to a Reuters report Epix’s recent subscription streaming deal with Amazon, which replaced its previous, exclusive deal with Netflix, contains an earn-out provision under which Amazon’s licensing fee will increase as the number of Amazon Prime Instant Video subscribers increases. Epix is a partnership between Paramount, MGM and Lionsgate.
For the studios, the deal structure would make subscription video-on-demand more like pay-TV, where distributors typically pay the networks a per-subscriber fee to carry their channels. But it’s a marked contrast from the streaming deals originally put in place between the studios and Netflix.
Netflix’s original streaming deals were generally an outgrowth of its existing DVD purchasing arrangements with the studios. Netflix bought the discs outright and kept 100 percent of the subscription revenue they helped generate. When it launched its streaming service it typically paid the studio a flat fee for streaming rights and then kept all of the subscription revenue.
Those deals worked out extremely well for Netflix, particularly early on as its streaming service was growing rapidly, because the fees were based on subscriber levels at the time the deals were struck. Any upside from those deals in the form of new subscribers was reaped by Netflix, not the studios.
One result of that imbalance was that the studios became reluctant to license subscription VOD rights to other potential distributors, at least on Netflix-like terms.
Now, however, the studios appear to have found a deal structure they can live with by persuading distributors to let them share in the upside their content helps generate by attracting subscribers. In addition to the Amazon, Redbox and Verizon reportedly have agreed to a per-subscriber fee schedule for the streaming service they plan to launch later this year.
The question remains whether the new deals — should they become standard — still work for the distributor. netflix has long resisted per-subscriber license fees because they act as a ceiling on the distributor’s gross margins. But if Amazon and Redbox-Verizon are successful under the new terms the leverage will be with the studios in dealing with Netflix.
