Hollywood Adjusts Netflix Strategy as Cord-Cutting Fears Grow

Fox, Time Warner Among Companies Rethinking Strategy

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After years of selling old seasons of hit shows exclusively to Netflix, some of the world's biggest media companies are adjusting their strategy, signing deals with other streaming video services or making more episodes available on demand via traditional pay-TV distributors.

Investors have become increasingly concerned that TV producers may be jeopardizing long-term prospects for lucrative short-term deals with subscription video on-demand providers like Netflix, which have grown in popularity and taken viewers away from regular TV watching. Comments by media executives including James Murdoch at a conference last week were the strongest signs yet that some are shifting their approach.

"Certainly the business rules around how we sell to SVOD providers are changing, and our thinking is evolving," Mr. Murdoch, who runs 21st Century Fox, said at conference hosted by Goldman Sachs in New York.

Although the relationship with Netflix has "been good for both sides," Fox has done more business recently with Hulu because the streaming service -- which is jointly owned by Fox, Walt Disney and Comcast -- pays per subscriber, Mr. Murdoch said. That means potentially more revenue for Fox if its popularity keeps growing. Hulu also allows Fox to control the advertising. Netflix traditionally pays a flat fee to networks and doesn't have advertising. Last December, Fox signed a deal that gave Hulu the exclusive streaming rights to shows on Fox's cable channel, FX.

'Right Balance'
At the same conference, Time Warner CEO Jeff Bewkes said his company tries to sell its old shows to streaming video services without taking subscribers away from the cable-TV bundle that is the basis of the TV industry's business model.

"You don't want the money that they offer you to replace more money that somebody else used to be able to offer you," Mr. Bewkes said. "We've all been on a journey of trying to figure out what was the right balance to strike."

Time Warner, which owns the cable channels TNT and TBS, is responding to Netflix's popularity by pushing for pay-TV distributors to make all episodes of a season or more than one season available on demand, Mr. Bewkes said. That allows viewers to "binge-watch" shows as they do on streaming services.

Mr. Murdoch and Mr. Bewkes appeared to "finally articulate an SVOD approach that makes sense," MoffettNathanson analyst Michael Nathanson said Monday.

"While few Netflix shareholders appear to be paying attention or are concerned about the potential loss of this source of valuable off-network content, the tide does seem to be turning slightly," Mr. Nathanson wrote in a note to investors.

Netflix spokeswoman Anne Marie Squeo declined to comment on the note, but cited an announcement last week that the company will be the exclusive provider of the first season of ABC's hit show "How to Get Away with Murder."

Media Selloff
Concerns about the growing number of consumers who drop TV packages and watch programs on services offered by Netflix or Amazon led to a sell-off in media stocks in August, with entertainment companies losing more than $60 billion in value over two days.

Netflix has also been ramping up its production of original programming, which would make it less dependent on buying content from TV networks. Rich Greenfield, an analyst at BTIG Research, said Netflix has become so powerful that it has cut out TV networks and started striking deals directly with studios for content. The company also has a deal with Disney that will allow its subscribers to stream new Disney movies starting next year.

The question of whether to sell shows to Netflix becomes more complex as TV networks and Netflix move aggressively overseas. AMC Networks Chief Financial Officer Sean Sullivan said Netflix's global ambitions -- it wants to be in more than 150 countries by the end of 2016 -- is "certainly a consideration" when deciding whether to sell shows to the streaming service, which had 65 million subscribers in June.

AMC has also been expanding its international distribution. In April, AMC sold to Hulu the streaming rights to popular series like "Fear the Walking Dead" after previously selling old seasons of shows to Netflix.

"The good news is with Amazon, Hulu and Netflix it is a very robust market," Mr. Sullivan said at the conference.

~Bloomberg News~

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