Lionsgate's deal to distribute 'Mad Men' on Netflix after its run on AMC is more than just a syndication deal — It speaks to the growth of streaming video and the fact that Hollywood is starting to think outside its box.
Netflix is the new Cable
Netflix is replacing a broadcast or cable channel, which would normally syndicate 'Mad Men.' Lionsgate is getting a better deal from Netflix -- nearly $1 million an episode, compared to the roughly $250,000- $300,000 it was paid a few years ago for its "Weeds" syndication deal. It becomes an increasingly good deal for Netflix -- the more subscribers they add, the lower the per-subscriber content cost.
Netflix revenue from online-only subscribers is projected to grow from $172 million this year to $578 million in 2013 according to Convergence Consulting Group's report "The Battle For the Couch Potato."
The good news for Netflix. The company is expected to double the amount it's estimated to pay for programming to $1.1 billion (and this report was written before the Lionsgate deal). But on a per-subscriber basis, Netflix is only paying a fraction of the amount for content that cable companies pay. Last year Netflix paid about $34 per subscriber for content, while cable and satellite TV providers paid more than ten times that. The percentage gap isn't as huge-- this year Netflix will pay 39 percent versus the 42 percent cable companies pay.
All those new Netflix streaming-only subscribers will eat into the cable business, according to the report, which projects that by year-end an estimated 2 million U.S. households will have "cut the cord" with their cable companies. That's higher than the 1.6 million projected a year ago.
Lionsgate is Thinking outside Hollywood's Box