Netflix pays more up-front for TV shows to become king of content (Copy)
Select language to see a machine translation of this article. The original language of the Article is English and the translation is provided for your convenience.

Netflix pays more up-front for TV shows to become king of content (Copy)

Streaming video on demand (SVOD) kingpin Netflix is desperate to get its hands on the best content out there. To accomplish that goal, it’s testing a different model when it comes to paying TV shows. The company is offering far more money up front than traditional TV networks – but, on the off chance those shows become hits, it’s offering fewer payouts down the line. This guaranteed income for creators is having the desired effect: few TV networks are able to compete with it.

Netflix’s share price has almost doubled in the last 12 months

graph 1608 netflix

SOURCE: Yahoo Finance

Netflix’s hyper-competitiveness when it comes to content is the driving force behind its success. Exclusive access to its own original programming, including hits like Orange is the New Black and Stranger Things, is a strong incentive for viewers to keep paying subscription fees – as long, that is, as they can’t get access to the same stuff somewhere else.

According to CNBC, five anonymous sources have come forward to describe the deals Netflix is offering. They refer to the standard model as “cost plus”. That is, Netflix pays the entire production cost, then a percentage of that figure in addition. The “standard” payment is, apparently, 30% on top – although bigger outfits have been able to negotiate bigger cuts.

Given that traditional networks only offer up-front sums of around 60% to 70% of production costs, Netflix’s offer is a big draw: sell your show to a TV network, you could make a loss. Sell it to Netflix, you’re guaranteed to make a profit.

The reason Netflix pays less down the line is that show runners are not in a position to pursue things like syndication, licensing deals, and more. But there is an additional upside: not having to worry about advertisers’ sensibilities, creators on Netflix have way more freedom than their stuck-in-TV peers.

Will the model push Netflix to even higher levels of success? Well, it’s done well so far. But Netflix isn’t the only company using the “cost plus” model. HBO invented it. Apple, Amazon, and other big names are beginning to catch on. Still, for now, Netflix’s aggressive championing of this model has put it in a great position to take the lead over other streaming services when it comes to content.

Disclosure

Dominion holds Netflix in its Global Trends Ecommerce Fund.


If you would you like to receive the Newsfeeds daily, please click here to sign up now!

Help us make this Newsfeed better by rating this article. 1 star = Poor and 5 stars = Excellent
0.0/5 rating (0 votes)

Disclaimer
The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.