6 Questions that Address the HBO-Amazon Deal and What it Means for Netflix
By Josef Adalian for Vulture
It’s not TV. It’s not HBO. It’s HBO on Amazon! Yesterday morning, the pay-cable pioneer and the streaming giant announced a multiyear deal to bring many (but not all) of HBO’s older shows to the Amazon Prime Video subscription service. The agreement is obviously good news for Amazon subscribers and any other TV fans considering signing up, since it means access to more high-quality television programs at a relatively affordable annual price. But just how groundbreaking was yesterday’s news? Why did HBO finally agree to stream its shows on a platform it doesn’t own? And is this a death blow to Netflix?
1. How unprecedented is this deal?
One on level, this agreement is a first: HBO previously had never allowed its content to appear on an online-only, subscription video on demand service that wasn’t in some way linked to an HBO subscription.
And yet, for HBO, this deal doesn’t really represent much of a change in its existing business model. The network has been seeding its content outside of its own ecosystem for years via traditional, linear syndication: A&E snagged rights to The Sopranos nearly a decade ago, Bravo bought Six Feet Under, BET had The Wire, Comedy Central aired Entourage. While that old syndication model still exists, streaming services such as Amazon, Netflix and Hulu are quickly supplementing and even replacing cable network and local TV stations as buyers of content. CBS, for example, recently turned The Good Wife into a $2 million per episode asset by selling reruns of the show to Amazon, Hulu, the Hallmark Channel and local TV stations. HBO is just adjusting to this new reality by syndicating its shows to Amazon instead of (or in addition to) cable channels. (Worth noting: HBO competitor Showtime has been in the SVOD space for a while now, putting library shows such as Dexter, The Borgias, The United States of Tara and The L Word on Netflix as well as Amazon Prime.)
HBO and Amazon aren’t disclosing terms of their agreement, but it seems reasonable to assume Amazon will, over the several-year course of the deal, end up forking over at least a nine-digit sum — i.e., more than $100 million — for the streaming rights to much of HBO’s catalogue. (True Blood, which has never been syndicated anywhere before, is probably the most lucrative of all the titles headed to Amazon. A few years ago, the Los Angeles Times reported HBO was hoping to fetch $800,000 an episode for the gothic thriller; with about 80 episodes available once the show ends its run this summer, it alone is probably worth around $65 million.)
2. So why Amazon, and not Netflix or Hulu?
Neither company is talking officially, but according to an industry insider familiar with the HBO-Amazon deal, “The negotiations started and ended with Amazon.” HBO didn’t shop its shows to Hulu or Netflix, even though both services likely would’ve jumped at the chance to license content from the network. Our insider says HBO execs had a comfort level with Amazon, having previously worked to make HBO GO available on the Amazon Kindle and given all those DVD collections of HBO shows shipped via Amazon. Also, Netflix execs have stated their goal is to become HBO before HBO can become Netflix; there probably was no chance HBO was going to help Netflix meet its goal. A deal with Hulu, meanwhile, would’ve meant putting commercials on HBO shows. In and of itself, that’s no big deal, since ads run on HBO shows syndication to traditional TV networks. But Amazon’s streaming service probably offers consumers a better viewing experience, and HBO probably took that into account just a little bit.
3. Is this a big blow to Netflix?
Wall Street was freaking out a little bit yesterday, sending Netflix stock down as much as 5 percent Wednesday afternoon. But honestly, while the HBO deal is great news for Amazon, it’s hard to see how this is a disaster for Netflix. The service has been shifting from an all-you-can-eat model of serving up other networks’ content to a producer of its own content — ergo, House of Cards and Orange Is the New Black. As noted, Netflix has been upfront about copying HBO’s decades-old game plan of focusing on originals while maintaining a large, but not unlimited library, of acquired content. HBO doesn’t have nearly as many exclusive movie deals as it did 25 years ago, and Netflix has similarly cut back on the number of big studio movie titles it offers. Likewise, Netflix can’t afford to buy every bit of cool TV content out there if it wants to keep expanding into originals. There will surely be some consumers who now decide to subscribe to Amazon Prime because of the HBO deal, and some frugal Netflix subscribers may decide to ditch it for Amazon. But just as multiple premium networks — HBO, Showtime, Starz — have thrived for years, there’s no reason to think any one content deal is make-or-break.
4. Why do viewers have to wait three years for new seasons of newer HBO shows to arrive on Amazon?
Because HBO still wants you to subscribe to HBO. If you knew that you could watch the most recent season of Veep just a few months after it ran on HBO, you’d probably be a lot less likely to pay $12 a month or more for HBO. Broadcast and basic cable networks are fine with shorter windows for their shows because they’re ad-supported: The bulk of their money comes from ads. (They make lots of money from subscriber fees, too, but you don’t get to choose which networks to pay for; you just pay one big cable bill and subsidize a slew of networks you’ll never watch. It’s TV socialism, basically.) HBO long ago decided syndicating its shows after the fact didn’t hurt its main product, but it’s not about to do anything that threatens its main profit engine (your monthly subscription fee).
5. So why isn’t Game of Thrones headed to Amazon? And will True Detective and Silicon Valley end up there?
In the case of GoT, our industry source says HBO wasn’t quite ready to make a syndication deal for what’s become its second most-watched show ever. And with good reason: GoT is actually still growing its viewership, posting its biggest ratings ever a couple weeks ago. Word of mouth is still resulting in new coverts to the show, and HBO execs might be figuring it’s better to make those folks either buy DVDs or subscribe to HBO (and get HBO) in order to catch up on past seasons. Or maybe HBO is holding off for an even bigger SVOD deal just for Thrones, figuring that if Amazon sees good results from yesterday’s agreement, it will pay a crazy sum to add GoT to its mix. (Also possible: Netflix and HBO play nice, and winter comes to Netflix.) As for Silicon and True Detective, the current deal doesn’t include rights to those shows, most likely because both are too new for either HBO or Amazon to estimate their worth on the SVOD platform. Under HBO’s three-year rule, neither would debut on Amazon until 2017; by then, networks could be streaming shows directly into our brains.
6. Does this deal make it more or less likely HBO will finally let folks get HBO GO without a cable or satellite subscription?
Our industry sources say the deal won’t matter one way or the other. As noted before, today’s agreement is about syndicating past content, not giving consumers access to the full “HBO experience.” HBO has said it doesn’t want to piss off its very important cable partners by letting consumers bypass them. That could always change, or HBO could figure out a way to make sure Big Cable gets a piece of the HBO GO action anyway. But what happened today doesn’t represent any fundamental shift in HBO’s governing philosophy. If anything, HBO execs may be hoping that having its shows on Amazon will act as a sort of gateway drug, getting viewers hooked on the thrill of mainlining early seasons of, say, True Blood and thus convincing them to pony up for HBO proper so they can catch up on recent seasons more quickly (and check out other HBO content.) That’s something past syndication deals couldn’t offer: You could watch Sex and the City for “free” on TBS or, more recently, E! But those networks decided what episodes you watched and when, and they cut out all the naughty bits. Now, anyone with an Amazon Prime subscription can party it up, HBO-style, for the low, low price of $99 a year — and then use their Amazon free shipping to buy some HBO DVDs.