In order to deal with the devolution of windowing, or the changing patterns of media rights exploitation for audiovisual content, it is necessary to travel back in time to when television began. At the time, there was just one window for TV shows, and two windows for theatrical movies. Then, in the U.S., domestic syndication opened up a third window, and international sales in the mid-1960s developed a fourth window. Subsequently, cable and satellite TV channels and home video created two more windows (which ultimately became three with the addition of “premium” channels). It took two decades for the TV industry to go from one to six (still manageable) windows, plus ancillary (airlines, schools, military, etc.) rights.
The TV content sector remained relatively unchanged for another two decades with the aforementioned manageable rights. By then, the residual aspects of various content exploitation rights were well established, with the creative communities (actors, directors, screenwriters, etc.) enjoying hefty returns on reruns.
Then the floodgates opened up in the year 2000 with the advent of digital television and the streaming of audiovisual content with IPTV technology and over the Internet. In just more than a decade, the number of what was then called Intellectual Property, or IP rights, ballooned to more than 80, and the number of windows zoomed to 18. At that point, an entire industry sprang up in order to keep track of all of them: Digital Rights Management, or DRM.
It was complicated stuff. The VoD window alone consisted of nine rights, including Near Demand View, Catch up, and Single Use VoD.
And all of this developed against the wishes of the U.S. studios, whose Holy Grail was represented by their perennial goal (since 1993 when the Fin-Syn rules were abolished) of reaching the consumer directly and eliminating the middleman.
To make the TV rights process even more cumbersome, a well-established windowing order began to change, specifically with theatrical movies, which began being released on premium VoD platforms during the customary theatrical window, which until then, preceded all others.
Then, in 2016, Netflix entered in a big way, and the DRM took an unexpected turn as the streaming service, which was only in need of SVoD rights in order to have exclusivity, purchased the remaining 79 exploitation rights. This event also marked the start of the studios’ strategy of finally getting to their Holy Grail by reaching the consumer directly via streaming services.
“Nowadays,” the late Russ Kagan, a U.S. media consultant and TV veteran, used to say, “the rights are what the buyer decides they’ll be.” He meant that today’s buyers can pay for the first window and/or all windows.
This, however, isn’t something new. Indeed, Philip M. Napoli, a professor of Media at Duke University, wrote about “The Decline of Windowing,” as early as 2011.
Commented Hollywood media consultant and former studio executive Tony Friscia, “I am not sure how the windowing will occur. Some kind of back and forth: Platform, syndication, back to platform. I don’t know. I am not sure the studios know yet.”
He then added: However, “the ‘Ultimate’ will never be eliminated. Even if the number of windows is reduced or the sequencing of the windows is changed, all costs must still be accounted for based upon an Ultimate.”
Production costs won’t change or go away. With each studio creating its own streaming platform, there are ongoing bidding wars for top creative talent. This will make the Ultimate process a necessity to determine the true value of a film/TV show. Without an Ultimate prepared in advance it would be impossible to greenlight a project. No studio would commit to or approve of a multi-million project — with guarantees and/or pay-or-play contracts — without all the division heads signing off on the Ultimate.
But that’s not the complete story. By buying all-rights, Netflix and other streaming TV services essentially eliminated syndication and reruns, therefore cutting into the well-oiled residual systems.
Not that linear TV went out of its way to pay residuals. “Studios do not go out of their way to pay residuals. The unions have to chase them,” commented a Hollywood insider. Still, the broadcast model represented a good financial safety net for the creative community.
This system continued unchanged up until the networks began to broadcast fewer reruns. Then, in 2013, Netflix started streaming its own commissioned original productions with a business model called “cost-plus.” Under this new model, in lieu of residuals, the streaming services created a system of buyouts in the form of fixed payments for most artists, and generous upfront compensation for top creative talents. Outside the streaming choir is Apple, which agreed to pay residuals for its free-to-consumer platform.
The “cost-plus” model has two sides. On the one hand, there is no financial risk for the production company. And on the other, it doesn’t offer backend opportunities. This is because streaming services don’t have an asset-creation business model, but are in the business of selling subscriptions.
With the linear model, producers had to deficit-finance the shows and be subject to ratings to reach the right number of episodes in order to be able to cash in, but with the “cost-plus” model these concerns are eliminated. However, commented the Hollywood insider, “the backend in a network show is still worth more than a cost-plus deal.”
Plus, with 20 or more major competing streaming services, the potential subscription base will diminish for all, forcing them to eventually return to the middlemen in order to monetize their assets by selling various rights to show some profits.
Netflix has already re-licensed its original series Narcos (and other Spanish-language original content) to Univision, but that strategy mainly serves to drive added exposure because broadcast TV cannot show certain scenes, so viewers will have to go to Netflix to see them. Netflix is also experimenting with AVoD in an effort to generate extra revenues when its subscriber-base eventually levels off, or revenues become reduced. There’s also the fact that, like all other SVoDs, it runs on a credit card-based payment model, which suffers from expirations and cancellations.
Finally, Bryan Crocker, chief operating officer of Hollywood-based Multicom (and a former Netflix executive) said that, when a streaming service buys all rights to an existing series, “it is generally on the licensor (content owner/producer) to handle all residual payments.”
He also explained that streaming services have a habit of calling acquired series “Original Productions” even though they were produced for linear TV, because they’re “original” in certain territories. In these cases the producer has to buy up the residuals.
Crocker added, “If a streaming service buys all rights of an existing series for, let’s say, five years, the producer buys up the residuals for five years, and after the series goes back on the market, the residuals systems is re-activated.”
So VideoAge asked: Is it correct to say that nowadays a window is what the buyers decide it to be? And if a linear TV buyer decides to pay for the first window, would you sell it?
“For the most part,” he answered, “major studios are still adhering to the traditional content licensing windows for their feature films. The timing between theatrical release and Pay One TV license is more variable, but that window still exists in most cases and all of the Pay One broadcast rights are still being sold exclusively to premium cable and streaming networks for roughly the same amount of time as usual. Independent studios are doing more experimenting with windows by doing things like day-and-date theatrical releases along with streaming or pay-per-view releases on cable. “Streaming services, obviously, can do whatever they want with their internally produced content as far as theatrical or DVD releases timed against their streaming debut.”
However, Crocker acknowledged that a window today is in fact what the buyers decide it to be. “Yes, we would (and have) licensed our Pay One window on new release features to linear TV when the financials make sense (i.e., we think we wouldn’t be able to earn more over the same period by releasing the title across multiple non-exclusive channels/platforms than the linear buyer is offering for exclusive rights).”
(By Dom Serafini)
Audio Version (a DV Works service)