In the race to beat Netflix, the studios yield billions of dollars in profits



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As large conglomerates prepare their own streaming services, they leave lucrative license fees on the table to compete for subscriptions to a contest that, at least in the short run, may "cost world".

On February 10, Epix launched a streaming service, becoming the last network – like CBS, Showtime, and HBO – to extract more profit from its library. This list will increase when Disney and WarnerMedia unveil their services in 2019 and NBCUniversal will debut in 2020.

On paper, it's a no-brainer. Netflix has become a $ 152 billion monster since the introduction of streaming in 2007 and the fact that its stock has taken off 8,000% since. What entertainment conglomerate would not want to emulate this success? The problem is that every time an entity does it alone, it enters an overcrowded world while potentially giving up its share of the $ 5 billion that Netflix spends each year to license content. Then there's about $ 4 billion that could be spent by Amazon, $ 1 billion from Facebook, and so on.

WarnerMedia, for example, convinced Netflix to shell out $ 100 million to keep sitcom reruns friends Kevin Reilly, the newly installed content leader for WarnerMedia's OTT effort, made clear on Feb. 11 that another deal of this type was not planned. "This is not a good model to share," he told attendees at an annual meeting organized by the Television Critics Association. He also said that the service yet to be named would be launched with approximately 42,000 hours of existing programming from Turner, DC, The CW and Warner Bros., but that the original content will not arrive before.

Like WarnerMedia and NBCU, Disney has not disclosed a rate or launch date for its service, although it has a name, Disney +. Richard Greenfield, an analyst at BTIG, estimates that it will debut Oct. 1 at $ 7 a month and will have 2 million subscribers by the end of the year. But he estimates that Disney needs about 7 million customers to compensate for the $ 500 million it would not receive each year by selling content to Netflix. "We continue to believe that Disney wants to compete with Netflix instead of remaining an arms dealer who will pay the most for its content," he said.

We must also make expensive marketing because 50% of American adults have little or no idea that Disney + is on the horizon and even more do not know the same way WarnerMedia's streaming products (55%) and NBCU (53%), a recent Hollywood Reporter/ Morning Survey survey found. By contrast, only 17% have not heard of Netflix, which already has 58.5 million streaming customers in the United States.

In addition, the Big Three who develop their own streamers already have one: Hulu, led by CEO Randy Freer. When Disney and Fox complete their partial merger, Disney will control 60% of Hulu, while Comcast's NBCU will retain 30% and AT & T's WarnerMedia will hold 10%. "Hulu owners would be better served than licensing and using their content in Hulu," said Michael Pachter, an analyst at Wedbush Securities. "They do not need to create their own autonomous services, and I think the coming wars will cost everyone money."

When Lionsgate announced its latest results on Feb. 7 for its Starz unit, it may have unintentionally pointed to the high cost of competing with Netflix. Starz closed the last quarter with 1.1 million additional streaming and traditional customers, for a total of 25.1 million, due to "strong growth in the number of subscribers," the company said. But while the cable product generated a profit of $ 136 million, the streaming industry lost $ 1.4 million. In fact, in the first nine months of Lionsgate's fiscal year, the Starz streamer blew $ 31.1 million worth of red ink, compared to a $ 346 million profit for Starz on cable.

Similarly, Disney revealed in January that losses from its streaming business – including its ESPN + service, initial spending on Disney + and costs associated with its BAMTech technology asset – totaled $ 1 billion. dollars in the last fiscal year. "Even credit card, same username, same password … if they wanted to buy all three, we would give them this opportunity, potentially at a reduced price," he said.

Netflix, of course, reacts to the competition and the potential loss of many licensed content by creating exclusive programs and films – to the tune of about $ 8 billion a year. Those who are optimistic about Disney's upcoming streamers, WarnerMedia and NBCU note that they already have extensive libraries to populate them and that much of the new content will have already earned money at box office and via traditional television. which, in the long run, will be tastier on their own services than would be licensed to a third party.

What all newcomers hope for is that consumers pay for several streamers, which, according to analyst Bruce Leichtman, is about 43 million American households. "Autonomous systems are not just about generating more revenue, but about adapting and experimenting with business models," he said. "The scenario of scrapping their autonomous services would leave them essentially where they are today, which is not a bad place, but that would not allow them to explore future opportunities. . "

This story was first published in the Feb. 20 issue of Hollywood Reporter. To receive the magazine, click here to subscribe.

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