Netflix Grows Streaming Video; Lionsgate Innovates

Pete Campbell from "Mad Men".
Source: AMC
Pete Campbell from "Mad Men".

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

Meanwhile this speaks to Lionsgate's willingness to think beyond the traditional rules by which studios play. Why not treat Netflix streaming as a syndication vehicle?

This follows another innovative move from one of the few publicly traded pure-play studios. Lionsgate partnered with Groupon to offer discounted tickets to 'Lincoln Lawyer,' in March, the first deal of its kind. This had a notable positive impact on the film's ability to hold on-- its box office gross fell just 18.6 percent between the first and second weekend at the box office, an unusually small drop.

It's been a good few weeks for Lionsgate. Just last week it extended its deal with hit filmmaker Tyler Perry. The contract includes both theatrical release as well as home video. And as we've seen with this 'Mad Men' deal, these days content seems to reap most of its returns after its initial run.

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