Wednesday, February 27, 2013

Media Companies -- Resist the Temptation to Grant Exclusivity!

Right now, it's a land-grab -- nay, all out war -- in the wonderful world of video.  The OTT guys v. themselves v. the pay TV guys v. themselves.  Netflix v. Amazon v. Hulu v. Apple v. Google v. HBO, just to name a few.

Case in point.  Two recent content licensing deals, both of which are EXCLUSIVE.

Netflix inked a mega-deal with Disney for exclusive rights to Disney classic animation films, as well as new Disney films (both live and animated), Pixar films, Marvel films and more.  That means that Netflix -- not Amazon or Hulu or other OTTs -- will have exclusive rights to distribute films online and mobile during their pay-TV "window" (i.e., 6-9 months after their theatrical release).  That also means no HBO Go during that window.

Not to be outdone, HBO struck right back and inked its own mega-deal with Universal Studios for exclusive rights to Universal Pictures and Focus Features' films during this same pay TV window, securing all relevant rights (including online and mobile) at least during that pay TV window (unclear when those rights open up again thereafter).

How did these exclusive deals get "done"?  After all, exclusivity is something no content provider wants to give up.  Rule #1 in dealmaking in content licensing deals is to keep all other options open when you strike a deal with one.  You want there to be a feeding frenzy for your content.  Create it once -- but exploit it as many times as you can.

Well, these mega-deals were done the old-fashioned way.  Netflix and HBO, in each respective case, ponied up big.  Hugely big.  Hundreds of Millions of dollars annually (and billions overall) big.  That's how big.  How can a media executive refuse such dineiro?  They see it.  Mouths water.  They must grab it.

Or, must they?  Should they?

Sure, it is easy to take the immediate cash -- especially when they come in boatloads.  It is harder, however, to be reflective.

But, reflect on this.

We are still in the early innings of multi-screen video distribution.  Yes, we already see voracious demand.  But, make no mistake, what we see today is only a small fraction of what we will see 2 years from now -- 5 years from now -- 10 years from now (which is the life of some of these mega-deals, including the HBO/Universal deal).  Even in a few years, the world of video (and video consumption) will be radically different.  We can't even really imagine it -- and, that's the case even for insiders in the multi-screen world who drive these forces of change (and many studio executives still don't appreciate these forces).

My central point is this -- the massive bucks of today inevitably will be seen as mere tidbits 5-10 years from now (remember, these are the lifespans of most mega-content licensing deals).  That means that studio execs today are likely making deals that sound great today, but will be dogs a few years from now (when the content licensees -- like Netflix and HBO -- will be smiling at being the tortoise and not the hare).

Why grant exclusivity when we have no idea what the digital media landscape will be like in 2, 3, let alone 5-10 years?  Why not step back from your Pavlovian response and instead milk the power of your content by demanding top dollar from the burgeoning number of video distributors in the multi-screen eco-system?  If your content is compelling -- which, it is in both cases above -- then I have little doubt that NON-exclusive licenses are the "right" answer.  Sure, each individual deal yields less -- and likely significantly less.

But, add them up across multiple licensees/distributors, and now you really got something -- especially if you keep the terms of those deals much shorter to really preserve all of your options.  Again, right now, no one knows what the world of video consumption will be like in just a few years.  If you lock yourself in for 5-10 years, you likely will kick yourself for leaving mega-bucks on the table at that time.

Maybe many studio execs just don't care -- and figure they won't be there at that time to scratch their heads and wonder why they struck those deals in the first place, when the REAL mega-bucks are in play.

My "two cents" ....