Squid Game Reaffirms Netflix’s Smarts, Local Broadcasters Looking For OTT Retrans Fees

1. Squid Game Reaffirms Netflix’s Smarts

Say what you will about Netflix, but they seem to “get it” in a way that no other industry player does. 

Mostly it’s about a willingness to change course midstream and adapt to existing market conditions versus the usual industry habit, which is to dig in your heels, bury your head in the sand or both.

Their success with Squid Game, which reached 111 million of Netflix’s 209 million subscribers is the latest proof of this, as is their decision to offer a reboot of That 70s Show.

Why It Matters

Netflix seems to have grasped three truths about the current state of the “Streaming Wars.”

The first is that the battleground has moved out of the U.S., where all of the major players are well entrenched, and into the overseas markets, where victory is completely up for grabs.

And while Netflix has first mover advantage—they have been in almost every country on earth for some time now—competitors like Disney and HBO have strong name recognition.

They also have American programming, which is why Netflix is so smart here. By seeking out talent in other markets, they are finding shows that have universal appeal while also building up goodwill in those markets and ensuring they are not seen as Yet Another American TV Company Practicing Cultural Imperialism, which will serve to set them apart far more than anything else they are doing.

The second truth is that everyone (including HBO) is now making the sort of “HBO-like” originals that helped put Netflix on the map, and that like Elizabeth Warren, those shows only appeal to a small, affluent, educated slice of the broader audience. That’s why hiring talent like Shonda Rhimes, whose Bridgerton series has far more mass appeal than critically acclaimed darlings like BoJack Horseman, was such a smart move. Netflix gets that the next wave of viewers coming to streaming are going to be looking for shows that are far more similar to what they’ve experienced on network prime time and don’t have much of a soft spot for dark comedies with complex antiheroes. And that the beauty of streaming is that you can cater to both audiences at once—time no longer being a limitation.

The third truth Netflix gets is that shows with built-in audiences are easier to promote and that reboots of popular network TV series of yore are a great way to immediately attract an audience that’s previously been reluctant to try streaming. It’s an even better deal for Netflix, which unlike its competitors, still releases its series all-at-once and so will benefit bigly from the buzz around That 90s Show and not having to sell audiences that hard on the broader premise of the show.

This is not to say that Netflix doesn’t have some storm clouds on the horizon—the lack of any sort of news or sports programming being the most prominent of these—but their ability to adapt and reinvent themselves is still most impressive.

What You Need To Do About It

If you’re Netflix, just keep on doing what you’re doing in terms of discovering and nurturing non-US talent. You will need to figure out the news and sports thing though, as that gives Disney and DiscoveryWarner a huge advantage when people are deciding which services to subscribe to.

If you’re one of the other Flixes, watch and learn, especially as you try and achieve Total World Domination. There are many advantages to finding talent in other countries and in expanding your brand to include a sensibility that’s not 100% American.

If you’re a Netflix subscriber, yes there’s a lot more crap on there lately than there used to be, but there’s a lot of great stuff too and the promise of even more to come from all corners of the globe.

2. Local Broadcasters Looking For OTT Retrans Fees

On the complete other side of the TV Universe are the local broadcast stations, whose mere existence can often seem like a buzzkill for the Everyone Is Going To Be On Streaming By Next Year crowd.

In addition to ad revenue, local broadcasters earn money from retrans fees, the money that MVPDs pay to local broadcasters for the right to retransmit their signals on cable (as opposed to carriage fees, which is what they pay to carry cable networks.)

And so now, as the vMVPDs assume a bigger role in the pay TV universe, local stations are asking the FCC to make them pay retrans fees as well.

Why It Matters

This is actually part of a much bigger battle. 

The big network groups have all launched their own SVOD services and it seems pretty clear to most everyone that they want to eventually have all of their programming on those apps.

In fact, it’s likely just a matter of time until they stop creating high production budget dramas and sitcoms exclusively for broadcast.

Which brings us to the other elephant in the room, which is that if a network’s original programming is all on streaming, there’s no real reason for local stations to exist, other than as a source of local news and other local programming.

It’s not that easy though as local TV is protected by a series of regulations intended to promote fairness and a diversity of voices in the news sphere. 

By asking for retrans fees from vMVPDs, local broadcasters are mostly trying to ensure they still have a seat at the table and that the networks they have affiliate agreements with remember why they exist.

There’s no real easy solution here either, and the issue of local broadcast seems to call up strong emotions.

The crux seems to be what the MVPDs eventually decide to do about their pay TV businesses.

Once the audience for pay TV shrinks to around 30 to 40 million households, many MVPDs are likely to decide it’s not financially worthwhile to keep their current pay TV business given that they make the bulk of their money from selling broadband. 

At which point their options are to either get out of pay TV altogether and offer a deal with one or more vMPVDs, or to stay in the game by offering a streaming bundle where they combine broadband with a certain number of streaming services for a set price each month. 

If these new streaming bundles also include access to local broadcast stations, the local broadcasters are in good shape. If not, it’s time to look at Plan B.

Given the many legal issues that are likely to arise from banishing local broadcast, coupled with the fact that no one’s really been able to solve for local news on streaming, my guess is that the new streaming bundles will include local broadcast.

What You Need To Do About It

If you’re a big broadcast group, you need to figure out what to do about local, both your own stations and your affiliates. Right now ViacomCBS seems to be the only ones giving it real thought by incorporating CBS’s local stations into the top tier of Paramount+. Time for everyone else to step up.

If you’re a local broadcaster, you need to keep making a case for yourself, working with companies that help you pitch yourself as a great reach extension source for national TV advertisers and making sure your nightly news show is reaching a younger audience. That’s a lot of work, but it will ultimately prove worthwhile.

If you’re Joe Biden, you need to make appointments to the FCC—it’s already October—so that body is fully staffed to handle the issue of what to do about local broadcasters.

And if you are the FCC, bear in mind how much of a hit local news is already taking as newspapers close down and ask yourself if that’s a positive development. If the answer is “no” then it’s up to you to do something about it by supporting local TV.