Will Netflix’s Licensing Surge Create an Insurmountable Lead Over Its Rivals? | Analysis

With the USA legal dramedy “Suits” shattering viewership records over the summer, Netflix said this week that it plans to lean even more aggressively into third-party licensing, a move that is giving the streamer a lead over rivals that will be hard to overcome.

Netflix’s ability to turn a middling or outright failed show — think “Lucifer” or “You” — into a streaming sensation demonstrates why it has created the hottest real estate in the industry.

In a streaming era where Netflix’s rivals have seen buzzy and acclaimed originals struggle to garner viewership, this could be a win-win situation, but no more so than for Netflix itself. Even if the viewership doesn’t explode on Netflix, rivals get paid for original shows that would otherwise be collecting dust on a first-party streaming platform. Netflix, meanwhile, can further promote itself as the one-stop-shopping destination for streaming.

Netflix can turn a flop into a hit

On Wednesday’s quarterly earnings call, Netflix co-CEO Ted Sarandos declared that the streamer was able to take “Suits,” which had played on cable and on other streaming services, “and pop it right into the center of the culture in a huge way, not just in the U.S., but all over the world.”

This was hardly the first time Netflix has flashed this ability. The Sony-produced karate dramedy “Cobra Kai” pulled solid viewership in its first two seasons YouTube Red. But after debuting on Netflix in August of 2020, it generated 1.7 billion minutes viewed on Netflix in its first two seasons.

The macabre stalker dramedy “You” nabbed an average of 650,000 viewers per episode in its first season on Lifetime. In its first month of availability on Netflix in 2018, Netflix said it was on track to earn views from 40 million global households.

“Lucifer,” about the devil hanging out in Los Angeles and solving crimes, was three-and-done at Fox. However, strong viewership on the streamer led to more new seasons exclusively for the platform. “Manifest” got a fourth season just for Netflix, with per-episode budgets increasing from $4 million to $5 million.

Netflix’s massive subscriber base gives them an advantage

Rivals may line up to offer their shows to Netflix confident that they’ll get huge viewership bumps. That’s because a show on Netflix is almost certain to earn far higher viewership than one airing on another platform.

Netflix said that its subscriber base had reached 247 million, up from 238 million last quarter. Disney+ had 146 million subscribers as of August. Meanwhile, Max had 96 million, Paramount+ had 61 million (after adding Showtime) and Peacock trailed with 20 million.

Alicia Reese, vice president for Equity Research, Media and Entertainment at Wedbush Securities, said that Warner Bros. Discovery, in particular, has decided to work with Netflix on third-party licensing.

“Warner Bros. Discovery has already licensed films like ‘Dune’ and shows like ‘Insecure’ to Netflix despite their prior exclusivity or close association with Max,” Reese told TheWrap. “WBD needs the cash, and Netflix has the subs to get much wider audiences for these shows.”

As Sarandos stated in the earnings call, shows like “Ballers” became Netflix hits and entered the top ten list on their original platforms for the first time, according to Nielsen.

Netflix becomes the only streamer you need

Netflix said in the earnings call that they were on track to spend $13 billion on content in 2023, and plan to spend $17 billion in 2024. Not all of that has to be spent on new or original Netflix shows and movies. Some of that can be applied to aggressive third-party licensing. This would further the notion that they have a little bit of everything.

That was the appeal of Netflix and the entire streaming revolution. Everything you might want to see would be at the touch of a button for a modest monthly fee. That was before every other studio got into the game and walled off their content. This forced consumers to subscribe to several services to get “everything.”

Consumers once paid $10 a month for Netflix Instant to watch old episodes of “Law and Order” and “Friends.” Now they have to sign up on Peacock for “Law and Order” and Max for “Friends.”

Netflix will still position itself as the home of buzzy originals like “Wednesday” and “Stranger Things.” But by doubling down on licensing, they can reposition themselves as the place for all of your favorite Netflix shows, along with a healthy helping of your favorite shows from every other network or streamer. It can again sell itself as the streamer with everything you’d ever want, everything you’d ever need, right in front of you. And if someone else’s show gets “rescued” by Netflix and then becomes associated with the streamer (just as “Star Wars” is now associated with Disney), all the better.

Ironically, in the case of multi-season shows like “Suits,” Netflix has the kind of long-form, bingeable comfort-food television that the streaming era has otherwise turned into an endangered species.

Studios can make money for streaming shows that didn’t click

Audiences might not just sample WBD shows when they drop on Netflix. They may sample the shows on their home platforms, especially if there are new seasons arriving after their Netflix launch. “Breaking Bad” and “Better Call Saul” got big linear viewership boosts from their respective Netflix windows.

It might be embarrassing for rival companies to lease their streaming shows to Netflix only to watch them explode on a rival platform. However, it still means revenue for them for already completed films and shows.

Streaming-specific content, including shows meant to remain exclusively on a first-party platform — such as Peacock’s acclaimed “Saved by the Bell” sequel show or Paramount+’s adaptation of “The Stand” — might reap similar benefits. Peacock’s “Girls5Eva” earned rave reviews and first-season buzz. It’s also almost certain to break out anew when its third season (alongside the first two seasons) debuts on Netflix. Ditto Paramount+’s “Star Trek: Prodigy.”

“This is a win-win for both companies, noted Reese. “I’d expect to see more licensing from studios with streaming services still in the red.”

Netflix saved money during the strikes while being prudent about how that cash got spent to retain subscribers. With 70% of the subscriber base now outside of America, as Sarandos said Wednesday, “Netflix can license catalog content, and continue to produce more global content that is efficiently used across its geographies.”

Analysts warn, however, that the Netflix third-party licensing advantage could be temporary. “The strategy is simply reinventing the TV syndication model,” said Jacqueline Corbelli, co-founder and CEO of BrightLine, a TV advertiser. She explained that as studios become less concerned with showing that their respective streaming platforms can become profit-magnets, they too will begin to aggressively license their shows to their rivals.

Netflix going all-in on turning older shows into Netflix hits may not be a game-changer. But its size and reach gives the platform an advantage in the race to the proverbial finish line.

The post Will Netflix’s Licensing Surge Create an Insurmountable Lead Over Its Rivals? | Analysis appeared first on TheWrap.