Warner Spares Netflix. But At What Cost?

Sometime in the spring of 2015, a secret memo went out to 12-year-old girls across America. “Log into your parents Netflix account and start watching Grey’s Anatomy,” it commanded. “All 17 seasons.”

The vast majority seemed to obey the memo, which was followed closely by similar memos commanding them to watch Gilmore Girls, The Office, Parks and Recreation and Friends.

There are several ways to explain the phenomenon, the easiest being that these 90s and early 00s series were aimed at a mass audience, with characters and plot lines that were broad enough for middle schoolers to watch while simultaneously doing their math homework. The fact that the stories are relatively timeless (or at least not tied to a specific era) helps too.

It’s all part of the reason why around 80% of what’s watched on Netflix is allegedly library content. (“Library content” is just a fancy way of saying “reruns.”)

It’s what we (TVREV) have been calling “Comfort Food TV”, series where you already know all the characters and the basic plot lines and if you don’t they’re pretty easy to figure out. You may not have seen every episode or even every season when the series first aired, but you know the basic storylines, and so asking someone to sit through two hours of The Office or The Simpsons isn’t really much of an ask, it’s more like visiting with old friends.

Original series, OTOH, are a big ask. We’ve got to become acquainted with a whole new cast of characters and frequently complex plotlines on a show we may soon decide we don't actually like and which none of our friends are even watching.

Time waste potential is huge.

Comfort Food TV doesn’t have those issues. There are no complicated plotlines. Characters behave the way you’d expect them to (and if they don’t, it’s resolved by the episode's end.) Your friends all know who Chandler Bing is, even if you’re in middle school and were born long after Friends went off the air.

Which is why it was no surprise to read about the furious bidding war between Netflix, Apple and Hulu for the 2019-only rights to Friends, which is owned by Warner, which is in turn owned by AT&T.

Friends is alleged to be one of the most popular shows on Netflix, if not the most popular. (Netflix does not, of course, release ratings.)

Netflix is not the only place you can watch Friends (it is widely syndicated on local broadcast, plus TBS and TV Land.) It is, however, the only place you can binge watch Friends and the only place you can watch it ad-free.

But What About The Flixes?

Which brings us around to the key takeaway from all this: in 2020, there will be six giant “Flixes”, each with dozens, if not hundreds of original series.

That’s all well and good, but as noted, watching original series is a huge ask. So unless a lot of people you know are watching a new show, you’re probably not going to start watching it just because a clever algorithm put it in your queue. No matter how much data that algorithm has on you.

Two hours worth of Friends or The Office however, is not a big ask.  Comfort Food TV doesn’t require a whole lot of energy or forethought. It’s not all that different than having a football game on between two teams you’re only moderately interested in. You can get a lot of math homework or work emailing done while it's on.

Which means that the Flixes with the most Comfort Food TV are probably in the best shape come 2020.

That means Disney, which has a whole pack of familiar superhero shows on tap, a High School Musical series, plus all those princesses and the Disney name brand. Getting someone to watch The Lion King, even if it’s for the twelfth time, is not that big of a hurdle. (And Disney owns the aforementioned Grey’s Anatomy plus a bunch of other very popular Comfort Food shows.)

Warner should be in a good position. Warner owns a lot of popular TV series and having Comfort Food TV shows like Friends, ER, Gilmore Girls and Pretty Little Liars should give them a leg up, despite the confusing three-tiered system they seem intent on rolling out. And of course "WarnerFlix" is just a polite way of saying "HBO-On-Steroids" and it would take a lot to tarnish HBO's sterling reputation, not to mention the fact that they have their own library of hits. (The Sopranos is not exactly comfort food, but it's compelling enough, and old enough, to draw in a new generation of viewers.)

Hulu should be in good shape too, as they will have the rights to most of the Disney and FX series that are deemed too “adult” for Disney+, along with (possibly) all of NBCU’s series. (Which they may wind up giving to Warner. Or saving for when they launch a Flix of their own. But for now they're likely to remain with Hulu.) And Hulu is the only Flix that has current season VOD content. 

Apple and Netflix, OTOH, are kind of behind the 8-ball here.

They don’t own any comfort food content outright and are at the mercy of the various studios and networks to provide them with these shows.

Apple does not appear to have bought much (any?) library content, but then again, their whole distribution strategy is shrouded in mystery and reports of iCloud storage bundles. So who really knows.

Netflix, as noted previously, is big into library content and relies on it to keep those new subscriptions rolling in.

Which is why it’s so surprising that Warner renewed the Friends deal.

If, as analyst Matthew Ball suggested yesterday, Warner had chosen to withhold Friends for the year, they would certainly deprive Netflix of one of its key selling points. However (as Ball further pointed out) the $100 million or so they got from the new 2019 licensing deal was likely too much for them to turn down, despite all the seemingly obvious reasons for doing so.

So the question is, how addicted are all these companies to Netflix’s money, and will they see the long game in letting go?

For AT&T, the deal is a hedge, a way to get $100 million today and still retain the ability to run Friends on WarnerFlix in 2020, while possibly still collecting the same $100 million from Netflix for what would then be a non-exclusive deal.

In that view, having Friends available on Warnerflix would undercut Netflix’s selling proposition, while still netting AT&T some massive licensing fees, which in turn would more than offset whatever advantage Netflix gained by having an extra year to cement its relationship with viewers.

To understand AT&T'S thinking, it’s important to look at how we got here: Back in the day, Netflix was a mail-order DVD-rental company.  When they launched their streaming service, no one expected it to take off so quickly: internet speeds were still super slow (many people still had dial-up), buffering was huge issue, and it required a bit of tech savvy too, especially if you wanted to hook up your laptop to the TV set. 

In retrospect, Netflix’s success was not the least bit surprising. The rental DVD experience circa 2009 had maximum levels of suckitude. Discs were easily scratched, frequently skipped and restarting them meant spending a long time trying to figure out how to get back to where you’d left off. And if the disc still didn't work, you had to wait days for them to mail you a new one. So a little buffering was peanuts by comparison.

Anyway, once Netflix streaming service started to take off, the movie studios freaked out big time as they saw their multibillion dollar DVD business about to fade away. So they put pressure on the company that sold first-run movies to Netflix, getting them to put the kibosh on a renewal deal. For Netflix, that meant they were left with a C-list movie catalog and not much else.

And then they remembered television.

You see TV studios make their money on syndication and overseas rights. And the generally accepted rule was that once a series hit 100 episodes (about 5 seasons in) it was ready for syndication. Which meant that on a hit series, seasons 2, 3, and 4 were just sitting on the shelf taking up space until Season 5 was done and the whole thing could be sold for syndication.

Netflix came in and offered the networks and studios some serious cash money for all those seasons 2, 3 and 4. The pitch was “people will start watching your shows on Netflix and catch up and then they’ll start watching them live on your network and so we both win and you get millions of dollars you weren't expecting to boot!”

That pitch worked, especially for networks like AMC, which saw shows like The Walking Dead and Breaking Bad take off.

Until, of course, Netflix started producing originals and expanding overseas and all that. But those multimillion dollar hits of cash for otherwise fallow programming were like crack and the networks and studios were loathe to give them up, even when they knew that it was only helping Netflix get bigger and bigger.

So that’s where we’re at today.

Warner, Disney, Comcast et al, can choose to starve Netflix, leaving them with a bunch (okay, hundreds) of their own originals, the TV equivalent of their C-list movie catalog.

Or they can continue to sell to them and hope that the non-exclusive nature of Netflix's Comfort Food TV programming is enough to make many subscribers take pause, or at least consider giving Netflix up when the time comes.

From where we sit, starvation seems like an easy decision, only we don’t know what other factors come into play: how badly they need the money, what sorts of promotions they’re banking on (if say, AT&T gives Warnerflix away for free for a full year with a 5G broadband subscription, they may feel that’s going to more than offset whatever advantages Netflix gets from another year of Friends.)

Still, we can’t but think the whole thing seems just like one of those movies where the hero has his sword against the villain's throat, and then, rather than going in for the kill, decides to spars him and walks away.

The good news is we won't need to wait 16 months to see how that plot twist turned out.