SVOD services are shaking up the syndication model, spending more on individual shows than they did on bulk libraries just a few years ago.
That’s according to an in-depth report from RBC Capital Markets titled “TV Content: Traditional and Digital Syndication,” penned by analyst David Bank and released Thursday.
While the bulk of off-network syndication revenues will still come from agreements with cable channels ($18.4 billion), in 2015 SVOD syndication deals will be worth $6.8 billion to content producers, according to the report. That’s up from the $5.2 billion that Hulu, Netflix and Amazon collectively spent on content this year.
Single shows vs. bulk buys
As they mature, SVOD players are getting to know themselves — and their consumers — a lot better. Thanks to their growing collection of data, streaming services now have a clearer idea of what people want to watch than they did in years past. As a result, there is a greater move towards show-specific acquisitions, rather than bulk buys.
“Our proprietary analysis suggests that Netflix, Amazon and Hulu are spending more money on one or two individual shows than they did in their initial bulk library deals,” Bank writes.
Take, for instance, Fox’s New Girl, which just launched on Netflix in the U.S. this month. Netflix bought 3 seasons of the show for $900K/episode, paying more than MTV/TBS, which jointly shelled out $400K/episode, the RBC report states.
The message is that if there’s a show the SVOD services really want, they’re willing to spend big bucks on it rather than buying cheaper content that the studios bundle together.
Other notable examples of hefty deals include The Good Wife, which, according to the report sold to Amazon and Hulu for a combined $1.8 million per episode, and The Blacklist from Sony/Universal, the exclusive rights of which sold to Netflix for $2 million/episode.
Getting exclusive rights has become imperative for “The Big 3” streaming services (Netflix, Hulu, Amazon), who want to differentiate themselves in an increasingly crowded market.
“Even in the case of original productions, our sense from the channels is that exclusivity is far more important for these new players than ownership of the content itself (which on some level, achieves the same end, for at least some period of time),” writes Bank.
Once again, the SVOD players are willing to move fast and spend big to achieve this goal. Hulu, for instance, bought exclusive streaming rights to Manhattan before the show even aired in a deal reportedly worth $800K-$1M/episode.
Why original SVOD content is still an unproven model
Ted Sarandos has said Netflix’s TV-to-film ratio is 70/30 — this means the streaming service has to keep feeding the beast and pump out serialized content to satisfy consumer demand. Despite the attention original programming generates, 90% of the $3 billion the network will spend on content this year will be on licensed, rather than original programming.
SVOD originals are still a nascent category, and the financial model for this type of content hasn’t been proven, the report points out.
Perhaps that is why mini-majors and independent studios like Lionsgate (Orange is the New Black (pictured), Deadbeat), Legendary TV (Love) and Electus (Marco Polo) are more comfortable experimenting in this space than the big network players like CBS, Warner Bros. and Fox.
“We have yet to see a jump from ‘off-net SVOD’ to another platform that would demonstrate that SVOD originals have true syndication value outside of window one,” Bank writes.
The analyst notes that OITNB will be a “litmus test” for the viability of the SVOD originals model once Lionsgate’s deal with Netflix runs out.
“Our sense from the channels is that Netflix’s exclusive window on the first four seasons of Orange will end sometime shortly after the fourth season is delivered. At that point, Lionsgate will be free to sell Orange to the highest SVOD (and/or linear TV) bidder,” the report states.
It will also be interesting to watch what Amazon does with shows produced through Amazon Studios, given that Prime Instant Video has limited international presence, and viewers in, say, Canada, will want to watch critically acclaimed series like Transparent.
Once traditional networks start bidding on digital originals, the opportunities within the syndication model will likely be usurped once again. And we’ll need another report to put it all into perspective.
Other key takeaways from the RBC Capital Markets study on the TV ecosystem:
- Hulu is expected to increase its content spend from about $800 million to $1.5 billion in 2015, as signaled by its order of 11/22/63, which the RBC report says costs $4 million to $5 million per episode.
- RBC researchers noted there’s “significant potential” for the SVOD market to tap more of the Showtime originals, as series like Shameless, Masters of Sex and House of Lies are not currently available on any SVOD service. “Significant opportunity also exists for Ray Donovan and Nurse Jackie,” the report states.
- Early on in their launch, SVOD players cut syndication deals for reality TV or documentary programming, but the move away from broad-based bulk purchases has meant fewer deals for factual content carriers.
- The report points out Amazon ended a deal with Scripps earlier this year, while Netfix has over the past 2 years dropped agreements with Discovery Networks, A&E and History.