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Cable Technology Feature Article

October 15, 2013

With a Big Sony TV Deal, is Netflix the New HBO?

By Tara Seals, TMCnet Contributor

Hot on the heels of the news that Netflix is in talks with cable MSOs to be a part of their on-demand TV offerings via set-top, the over-the-top (OTT) streamer has snagged a deal with a big media powerhouse: Sony Pictures Television.

According to the Wall Street Journal, SPT will produce original content to be launched via Netflix, marking the first big-studio deal that the company has signed for its original content stable. Netflix hits like House of Cards and Arrested Development have been indie-produced affairs, but SPT—the force behind AMC's "Breaking Bad" and the new NBC drama "The Blacklist"—will up the ante with Big Hollywood credibility.

The WSJ also reported that “several other major studios” including Warner Bros. and Twentieth Century Fox Television are mulling over deals with Netflix. If the floodgates open, Netflix is well on its way to cementing its status as being on par with a premium cable network like HBO as a home for top-notch original series.

SPT will initially begin production early next year on a one-hour psychological thriller that will explore "the complex bonds between parents and children, brothers and sisters, and the rivalries, jealousies and betrayals at the core of every family." It will come from the creators of the FX legal drama "Damages." 

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The agreement is an outcropping of Netflix's recent licensing of past seasons of existing Sony shows, Netflix execs said. And licensing library content is typically what Big Media looks to the OTT world for—it’s a way to generate additional revenue from re-runs that would typically be moldering on a shelf or bringing in limited syndication cash. But for new shows, there’s a push-pull in the industry because media companies look to garner the best deal for content rights, of course, and that means marketing it broadcast and cable nets, which are able to monetize the content via advertising and therefore pay more for it. Most studios have also been wary of undercutting their cable, IPTV (News - Alert) and satellite pay-TV distribution partners, which are their bread and butter, by giving their OTT rivals a differentiator like top-class originals.

At the same time, services like Netflix offer immense reach: Netflix is, after all, technically the world’s largest TV operator with 38 million members in 40 countries. And the transition to digital viewing and the embrace of online video by consumers is beginning to open the door to innovation.

"We're willing to do different things and bet on the future," said Steve Mosko, president of SPT, speaking to the WSJ. "We're pumped up—it's a challenge to show a major studio can be in business with one of these services."

Netflix will premiere the show both domestically and internationally, which is also unusual—typically studios use different distribution arms for international rights in order to cast a wide net on networks and pricing.

Sony "does not fear new models. They are one of our most progressive studio partners," said Netflix Chief Content Officer Ted Sarandos.

Netflix is clearly looking to transition its role to become more of a legitimate network, and to be seen as part of the pay-TV ecosystem rather than a threat. Evidence of this surfaced over the weekend with the news that Netflix is reportedly in the early stages of talks with cable MSOs to become a service that’s delivered via operator-branded set-tops—a move that would significantly shake up the effects of OTT video on the competitive pay-TV landscape, and which again, would move Netflix closer to an HBO or Showtime model.

The WSJ reported Sunday that Netflix is talking to both Comcast (News - Alert) and Suddenlink Communications about delivering a native on-demand app alongside the pay-TV operators’ own video on demand (VOD) fare.

MSOs have long looked to create value around the OTT phenomenon, typically by cashing in on the bandwidth that it uses, in order to upsell subscribers to higher, more expensive broadband tiers. The WSJ sources said that the talks have hit a snag because Netflix wants the MSOs to agree to use its OpenConnect content delivery network (CDN), which caches content closer to subscribers on the network and thus improves viewer experience. Concerned with Net neutrality (News - Alert) implications, neither of them are interested in the CDN scheme, the sources said.

The sources told the WSJ that the talks were in the very early stages, but the rest of the scope of the deal could be extrapolated from Netflix’ recently signed pay-TV deal with UK cable operator Virgin Media (News - Alert). Virgin, which was recently acquired by Liberty Media, will provide the service to its TiVo-based customers from the Apps & Games section of Virgin Media's TiVo (News - Alert) user interface. Netflix members can log in using their existing Netflix credentials and new members can sign up for Netflix via the app. Netflix retains the billing relationship.

Deployment will take the form of an initial pilot roll-out to 40,000 Virgin Media homes followed by availability to Virgin's 1.7 million TiVo homes later in 2013 after the successful completion of the pilot.

Edited by Alisen Downey

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