Rationale behind the CW-Netflix deal
In early July 2016, Time Warner’s (TWX) The CW Television Network, or The CW, signed an agreement with Netflix (NFLX). Under the terms of the agreement, Netflix becomes the exclusive SVOD (subscription-video-on-demand) service for earlier seasons of television shows broadcast on The CW.
The CW is a joint venture between CBS (CBS) and Time Warner’s Warner Bros. network. Beginning with the 2016–2017 broadcast season, Netflix subscribers will be able to stream full seasons of shows from The CW eight days after the broadcast of the show’s season finale on The CW.
When Time Warner was asked about its thinking behind the deal at the company’s 2Q16 earnings call, the company explained that The CW is slightly different from other broadcast networks. According to Time Warner, The CW does not get any “material carriage fees,” and so the company has decided to “put more aggressive VOD rights and stacking rights on The CW for the current season.”
Time Warner Chief Executive Officer Jeffrey Bewkes also indicated during the company’s 2Q16 earnings call that for a popular television series, consumers prefer more “more on-demand access to the series, particularly series that become serialized plots over a long period of time.” As a result, television networks have also been willing to offer on-demand access to television series.
How will this deal work for Netflix?
Even after the content licensing deal with The CW, Netflix’s original programming still remains popular. According to a Business Insider report in April (citing research from AllFlicks), Netflix’s original content has an average rating of 3.9 out of 5, and Netflix Originals perform 11.5% better.
Netflix plans to spend $5 billion on original programming in 2016 and over $6 billion in 2017 on a cash basis. Netflix also intends to spend 5% of its content spending on original movies.
Continue to the next part for a look at Time Warner’s strategy with Sling TV.