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NEW YORK – CBS Corp. and Time Warner’s Warner Bros. Television Group said Thursday that the CW has struck a four-year licensing agreement with Netflix allowing the company’s subscribers to instantly watch previous seasons of scripted series that air on CW from its current schedule through the 2014-2015 season.
The agreement is seen as strengthening the financial position of what has been a network that has been losing money and allows it to monetize its serialized dramas, a genre that observers say doesn’t do well in traditional syndication. It is also seen as contibuting to the bottom lines of CW owners CBS Corp., which has been striking a slew of online distribution deals, and TW, which under CEO Jeffrey Bewkes has been more cautious about doing deals with Netflix, even though it has made some library shows available on the streaming service.
“We believe the deal was structured in a way that benefits all parties (CBS/TW/CW) and at the same time keep CW “alive” as it is probably viewed
by both TW and CBS as a decent platform to launch shows, despite it being a loss generator,” said RBC Capital Markets analyst David Bank.
Under the Netflix deal, which is believed to be worth up to around $1 billion over time, with the final value determined over time by the performance of the CW programs, Netflix has licensed the rights to stream more than 700 hours of previous-season episodes of The CW’s young-skewing dramas as well as future programs.
The rights extend for four years after each series, current or future, ends its broadcast run on the network.
Programming available to Netflix subscribers will include the eight dramas on The CW’s fall 2011 schedule, including new series Ringer, Hart of Dixie and The Secret Circle, as well as returning hits The Vampire Diaries, Gossip Girl, 90210, Supernatural, Nikita and mid-season series One Tree Hil.
Previous seasons of Vampire Diaries, Gossip Girl, One Tree Hill and Nikita will be available to watch instantly on Oct. 15, with previous seasons of Supernatural and 90210 beginning in January.
Financial details weren’t disclosed, but sources said the deal could be worth around $1 billion over up to around 10 years.
Bank said in a report that CBS and TW each recognize an equity loss of $40 million-$50 million per year for their ownership stake in the CW. “This loss could narrow materially” with the Netflix deal, he said, estimating that the revenue recognized by each company could be around $50 million per year on average with a big portion of that dropping to the bottom line.
Morgan Stanley analyst Benjamin Swinburne said the deal “could equate to 4-5 cents (about 2 percent) in earnings per share upside for CBS and 1-2 cents (less than one percent) of earnings per share upside for TW in 2012.”
Lazard Capital Markets analyst Barton Crockett also highlighted “slight accretion potential (all else equal) next year for TW – circa 6 cents, or 2 percent” per share. “The money-losing CW may also retain a minority of the Netflix fee, helping reduce its losses, which would lift the conglomerates via equity” in the joint venture, he added.
“While this deal creates a new window, we think the content involved here fits the model and provides financial support for the CW that might not be available otherwise,” echoed Wells Fargo analyst Marci Ryvicker. She also estimated the deal’s value at around $1 billion. “Given that the CW is a 50:50 joint venture…the accounting is somewhat complex,” she added. “We believe that this deal cuts CW’s losses in half, and we estimate this deal could add about three to fives cents to earnings per share for CBS annually.”
Episodes of all scripted series airing on the CW this broadcast season will premiere for Netflix members in the fall of 2012, the companies said.
“Not only will we will be able to recruit new viewers for our shows through the powerful reach of Netflix, but it also makes The CW an even more attractive option to the creative community,” CW president Mark Pedowitz said about the arrangement.
“There is now a much more viable array of platforms and we don’t think about it in terms of analog and digital anymore,” ??Bruce Rosenblum, president, Warner Bros. Television Group and Office of the President, told the Hollywood Reporter.
The deal was in the works for several months, with Hulu and other online distributors also in the running for the CW’s content before Netflix sealed the deal. “We don’t believe there was a first-mover advantage,” Rosenblum said when asked about the timing of the agreement, which follows other content providers’ deals with online distributors. “We took our time to see how things would play out, and now there is more competition and better pricing.?”
Other executives at the conglomerates that co-own the CW also lauded the Netflix agreement as a positive for their companies. Said CBS Corp. president and CEO Leslie Moonves: “It is a model that opens a new door for The CW programming to expand its audience reach through the terrific Netflix service, and creates a brand-new window for CBS and Warner Bros. to be paid for the content we supply the network.”
“This proves once again the overriding importance of content in our business, while showing how emerging platforms such as Netflix are adding value to the traditional TV ecosystem,” added Barry Meyer, chairman & CEO, Warner Bros.
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