Digital TV Wars: How Hollywood Leverages Amazon, Netflix and Hulu

8:30 AM PST 07/16/2014 by Lacey Rose
AP Images/Invision
James Patterson

With major deals for "South Park" and a new James Patterson show, bidding wars are emerging among the players.

This story first appeared in the July 25 issue of The Hollywood Reporter magazine.

The battle among digital players is creating a clear winner: content owners.

Consider CBS, which recently pitted Amazon and Netflix against each other for exclusive licensing rights to its 2015 summer drama Zoo, based on James Patterson's thriller. Having lost out to Amazon for CBS' current event series Extant, Netflix stepped up to ensure it wouldn't do so again. Meanwhile, South Park creators Trey Parker and Matt Stone were able to leverage Hulu's desire to stand out in a crowded landscape into a deal reportedly worth more than $80 million for streaming rights to the cartoon.

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In both cases, being untethered to one of the major streaming providers proved advantageous. CBS' pioneering summer model, which relies on a heavily truncated SVOD window that enables its scripted programming to be profitable prelaunch, wouldn't be as feasible for CBS' chief dealmaker Scott Koondel if his company were an owner in Hulu like rivals Disney, NBCUniversal and Fox. But being able to leverage Netflix and Amazon — Hulu, which scooped up digital rights to CBS' Elementary and Blue Bloods earlier this year, did not bid — resulted in Netflix paying in the $1.5 million range per episode for the not-yet-produced Zoo, according to a knowledgeable source.

Not only is that seven-figure fee roughly double what Amazon paid for the first season of CBS' 2013 effort Under the Dome — season two and Extant are at about $900,000 per episode, say sources — the Netflix pact keeps the series exclusive to CBS until after its season finale airs. (Amazon offers episodes of Extant and Dome four days after they've aired on CBS.)

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Execs who have licensed content to all three key players suggest each has advantages. Netflix often pays more and can offer the biggest possible audience given its global subscriber base of some 48 million. And despite a focus on expanding its growing slate of originals, it remains committed to TV licensing. In fact, Netflix currently licenses 32 percent of the 75 top-rated TV shows over the past four seasons, compared with just 12 percent at Amazon Prime Instant Video, according to Piper Jaffray & Co.

Hulu, initially envisioned as a digital repository for its owners' product, remains the biggest provider of those licensed hits, with 51 percent of the top 75. A megadeal for South Park suggests that it will continue to amp up on licensing, particularly when such deals include exclusivity. And it's no different at Amazon, which this spring agreed to pay in the $300 million-plus range for streaming rights to old HBO series. "It's a marketing machine," notes a top exec, adding that Amazon works closely with the host network to promote a series in a way that Netflix does not. 

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