Wading Through the Stream: A closer look at the battle for intellectual property

January 27, 2020

4 min read

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What's going on here?

Internet streaming services such as Netflix, Amazon and Hulu are facing new competition from giants like Disney, Apple and HBO. However, not only are they launching their own streaming services, they are also taking back all rights to broadcast their own intellectual property (IP).

What does this mean?

After over a decade, new streaming services such as Disney+, Apple TV+ and HBO Max are finally embracing the fact that viewing habits have changed from watching traditional cable TV to streaming TV (for more information on the emergence of these platforms, see our article here). The market is still ripe, as 60% of consumers watch content online and the average customer will subscribe to between three and five streaming services. It also makes sense from a business perspective, as subscriptions for cable and satellite TV continue to decline rapidly. Indeed, AT&T lost over one million customers between July and September 2019. This is forcing traditional streaming services to deliver more original and higher-quality content in line with customers’ expectations, which could lead to a change in the type of deals and clients that form the basis of this industry. Get ready for an increasingly bitter battle in the age of the streaming wars…

What's the big picture effect?

The new streaming services are intent on protecting their franchise’s IP and preserving their unique brand to exploit their competitive edge over other content providers. Disney is an excellent example of this; it launched Disney+ in the US, Canada and Netherlands in November 2019 and aims to reach between 60 and 90m subscribers by 2024, though analysts say it could reach that by 2022. Disney has, arguably, the strongest level of franchise IP, owning Star Wars, Marvel, Disney Princesses, Pirates of the Caribbean and Pixar films. Following its $71bn acquisition of 20th Century Fox in March 2019, it now owns The Simpsons and Family Guy, plus more movie franchises like Home Alone and Die Hard. This gives it a key advantage as it produces new exclusive shows, like The Mandalorian, which tie into its many cinematic universes. It also lets it do more with less; Disney’s popularity, which gives it a guaranteed audience, means it doesn’t have to produce hundreds of new projects to acquire new subscribers, like Netflix does. Its CEO, Bob Iger, is forecasting 60 original projects per year in the long term – in contrast to 700+ by Netflix – with a focus on content quality rather than volume.

As holding on to IP becomes increasingly important, it is likely that licenses will either climb exponentially in cost or be revoked. Churning out new and original content will therefore become crucial for streaming platforms to compete effectively. Netflix, for example, licenses Friends from WarnerMedia (owned by AT&T), Grey’s Anatomy from Disney and The Office from NBC Universal. It also produces content whose IP is owned by others, such as its Marvel TV shows. Losing these licenses seems inevitable since all three companies have, or plan to launch, their own streaming service. This will put significant pressure on Netflix to retain subscribers, as in 2017 over 40% of its US subscribers almost exclusively watched licensed content. Similarly, Disney pulled over half of its TV box sets from Sky, including Scandal and Marvel shows, between April and October 2019. Other companies, such as WarnerMedia which owns Harry Potter, will remain on Sky for at least the next five years. However, when broadcast contracts near expiry, companies are likely to opt to retain rights to their TV and movie franchises for exclusive use in their own streaming services.

This new business focus on producing original content is still likely to drive a healthy number of deals in the media and entertainment sector. Firstly, companies may sign more deals with authors to dramatise their works. Amazon, in November 2017, signed a $250m deal with the Tolkien estate to produce a multi-series adaptation of The Lord of the Rings. In May 2017, Netflix announced its adaptation of The Witcher, a set of fantasy novels by Polish author Andrzej Sapkowski. 

Secondly, more companies may compete to bid for the rights to broadcast live sport, an area originally dominated by cable channels such as Sky and BT. Amazon Prime, for example, paid £90m in June 2018 to buy the 2019-2022 rights to show 20 Premier League matches each December. With it reporting a record number of Prime sign-ups on both days of its first ten matches, this will interest other players like Netflix and Apple for the next 2022-2025 rights cycle. 

Thirdly, streaming companies are still doing deals with cable networks and studios that haven’t yet launched their own streaming service. ViacomCBS, in November 2019, paid $200m to acquire Nickelodeon’s IP rights. WarnerMedia, in October 2019, announced a partnership with Sesame Workshop to show Sesame Street’s entire library of episodes, plus four new series and five new seasons. 

Finally, there may be a “second wave” of media acquisitions by telecoms conglomerates, as studios such as Paramount, Sony and Lionsgate are currently struggling to produce big hits and expand their market share.

Transactions in media and entertainment are not, therefore, likely to die down soon, but this may change in the long term. As the streaming war rages on, how will subscribers react when their favourite content is taken off one paid service and introduced into another? Everyone has a budget, and if companies don’t meet their subscriber targets, they may be forced to either slash costs or return to their old profit-making strategy of issuing licenses.

Report written by Arun Allen

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