Stream Works: Hollywood Searches for a Netflix Alternative

With the disc business fading fast, and Netflix charging hard, film and TV studios are eager to find new online distribution platforms

Last Updated: March 30, 2011 @ 6:33 PM

Hollywood is pushing back against the streaming behemoth Netflix, placing new restrictions on its content and dabbling with new alternatives like Facebook.

In the past week, two premium channels restricted the online rental service’s immediate access to current TV programming. During the same period, Warner Bros. expanded its Facebook streaming test to five additional titles, even though apparently less than 100,000 people rented “The Dark Knight,” a movie that has been available on home video for some time, during the studio’s inaugural test.

“What you’re starting to see is just another aspect of a general pullback that has been going on,” said Tom Adams, longtime home entertainment analyst.

(Update): A Warner executive who declined to be identified agreed, saying that the Facebook foray was just one part of the studio's broader new media strategy: "Facebook is one piece of the puzzle of how to change the ownership model," said this executive. "We want to make ownership more valuable for consumers versus an all-you-can-eat streaming model like Netflix."

With the disc business fading fast, studios are scrambling to find new ways to leverage their content.

They’re certainly scrutinizing licensing deals more closely than they were a few years ago. Wall Street and Hollywood have been tracking Netflix’s contract negotiations with Starz closely for that reason.

In its deal last week, Starz imposed a 90-day delay before its original series would become available for streaming on Netflix, beginning with the high-profile April 1 debut of "Camelot." In the past, Netflix has offered original Starz programs for streaming the day after they debuted on the pay cable channel.

This deal came on the heels of the online video service’s new streaming agreement with Showtime, which is also more restrictive.

Showtime will no longer stream the latest episodes of "Californication" and "Dexter" on Netflix as of this summer, placing them exclusively on its own Showtime Anytime broadband service, a subscription platform that offers free on-demand programming.

Netflix downplayed the significance of these moves, its spokesman noting that licensing deals come and go all the time.

“What’s happening is the natural ebb and flow of licensing,” representative Steve Swasey said.

He refuted the notion that Hollywood is pulling back its content for streaming on the service, pointing to all the content that the service has added — including Netflix's entry into the original TV programming arena with the Kevin Spacey political drama "House of Cards."

However, it’s clear that Hollywood is becoming more careful about giving its freshest content to Netflix right away. Netflix previously worked out a 28-day rental window for physical discs in exchange for lower cost of goods.

Although some analysts, such as Wrap contributor Edward Jay Epstein, believe that Netflix will lose subscribers due to the proliferating amount of free streaming available elsewhere, Adams believes that the new TV restrictions won’t ultimately hurt Netflix much. He said that subscribers are unlikely to cancel the “all you can eat” subscription plan because TV shows aren’t immediately available.

Lack of immediate access to the freshest film and TV programming doesn’t seem to be a factor yet.

Netflix’s subscriber base mushroomed from 13 million to 20 million last year, thanks in part to its growing streaming content. According to Swasey, about half of the content streamed is TV programming; for only about 20-25 percent of discs rented are TV titles.

Adams believes that studios and networks will only go so far in pulling back their content from Netflix, because they benefit when customers rent or stream shows under the service’s subscription plan, become hooked and then sign up for pay channels.

Netflix availability of Starz TV programming didn’t hurt that channel; its subscriber rolls rose by 800,000 in the fourth quarter of last year alone. HBO, which doesn’t allow its content on Netflix, saw declines in its subscriber ranks.

Swasey does acknowledge that some content providers are leery of Netflix, concerned that they don't get enough return from the subscription service. “Tens of thousands of people love it because we’re writing big checks,” he said. “Content providers love it when you pay big money. Some people are unsettled by that.”

However, it’s also safe to say that nothing makes Hollywood more nervous than a distribution partner with too much power. Once it was Blockbuster, then Wal-Mart, and lately, Apple and its iTunes Store, and Netflix.

"Nobody wants to walk away from Netflix money, but people are scared of them gaining too much power," said one studio executive who asked not to be named. "That's why you see everybody looking for alternatives … and then wondering if the alternatives can ever be as lucrative as those Netflix contracts."

For this reason alone, certain quarters are rooting for Warner’s Facebook experiment to succeed.

Facebook members can click a button on the fan page for each film and immediately stream the movie using "Facebook credits." Those credits, which in the past have largely been used for gaming, can be purchased on the site for 10 cents each; unlimited streaming for a 48-hour period costs 30 or 40 credits, which is to $3 or $4.

Warners began the program in early March with "The Dark Knight." In its first three weeks, according to the Inside Facebook blog, more than 98,000 users streamed the three-year-old movie through the app on the site.

Warner Bros. would not comment on the test, other than to say that it was pleased with the results. “Facebook is a great platform that is only going to grow in importance and we are looking forward to a long and mutually beneficial relationship,” representative Jim Noonan said.

Direct revenue aside, a large part of Facebook’s appeal is as a recommendation engine. In just a few weeks, “The Dark Knight” fan page racked up 2 million likes from Facebook users.

"The good news for us is that there are multiple entities competing for theatrically-released films when they get to the digital window," said Roadside Attractions co-chief Howard Cohen. "That can only be healthy for our business."

Still, he adds, the prices that Netflix pays for content continue to make that service attractive to content providers.

"I think Netflix has certainly shown willingness step up in terms of valuing theatrically-released films, so I'd hardly say that other options are suddenly preferable to them. But I applaud new options and competition."