Top Sitcoms Out Of Netflix’s Reach…For Now

Subscription video-on-demand service provider Netflix is reshaping the television business with a gigantic bump in its budget to acquire TV shows and movies, to $1 billion this year from $350 million last year.

Just a couple of weeks ago at the NATPE conference, Netflix programming chief Ted Sarandos underscored the company’s aspirations when he pointed out that the one-time DVD rental company was the biggest TV program buyer at the show.

“We’re a buyer, a big buyer. I think we’re the biggest buyer here,” he said in a discussion of Netflix’s programming strategy, which includes rolling out five original TV shows like Lilyhammer, which debuted its entire first season on Monday.

But while Netflix may be throwing around a lot of dollars, it isn’t competing with TV stations and basic cable networks for A-list, off-net sitcoms like Warner Bros.’ Two and a Half Men and The Big Bang Theory — at least not yet.

“The bulk of our offerings is full seasons of shows like Mad Men, Breaking Bad and 24 — serialized dramas that don’t get an audience in syndication,” says Steve Swasey, vice president of communications at Netflix. “You can watch them all at once. You can indulge in these shows.”

That style of all-at-once viewing makes Netflix more of an alternative to the fading DVD market than it does to TV stations, according to Chuck Larsen, president of consulting firm October Moon Television.

“TV stations don’t program that way,” he says. “These are two different access points, so I don’t see it as being competitive.”

Netflix also doesn’t have enough cash to jump into top-tier off-network programming.

While its budget to acquire TV shows and movies is growing nearly threefold from last year, to $1 billion, according to media analyst Keith Nissen at the NPD Entertainment Group, it’s not enough to pay for the primo programming that broadcasters want most.

Warner Bros. sold Big Bang to TV stations and TBS last year for about $2 million an episode or roughly $200 million for 100 episodes. It expects to generate another $2 million per episode in barter ad sales.

Netflix has no advertising. To match broadcasting and cable, Netflix would have to pay $400 million in license fees or fully 40% of its total programming budget.

On top of that, sitcoms can live on in syndication for years over multiple cycles with barter ad sales generated the whole time. In 2010, Warner Bros. sold Two and a Half Men in its second cycle through 2021.

“I don’t think you’ll see blue-chip programming produced for broadcast TV or the cable networks becoming available exclusively or initially on these services,” says Bill Carroll, VP of programming at Katz Television Group.

If Netflix can’t afford blue-chip shows now, other SVOD suppliers certainly can’t.

Netflix is the biggest SVOD service with 21 million streaming subscribers, according to NPD. Hulu Plus is No. 2 with about 2 million subscribers. Amazon Prime has 3 million subscribers, but less than half of them use the service for streaming video. Prime is a multipronged service that also includes access to online books and free shipping on orders.

“Most people are getting Amazon Prime for the free shipping,” says NPD’s Nissen. “Only about 40% use it for streaming.”

For now, in terms of off-net sitcoms, Netflix and the other SVOD services are snapping up low-profile programs, modestly rated shows with a devoted fan base.

In December, for instance, Sony sold the NBC sitcom Community to Hulu Plus. The show has not yet been sold to TV stations or a cable network.

Similarly, Netflix is reviving the short-lived and canceled Fox sitcom Arrested Development with new episodes set to debut in 2013.

Netflix’s TV programming model of a handful of original programs with a few dramas and some niche comedies sounds an awful lot like HBO’s.

“At the same time that the SVOD vendors are becoming more like HBO, you have HBO, Showtime and Starz all moving toward their online counterparts,” Nissen says. “They’re producing more original content and providing it on demand.”

The premium channels are exactly what Netflix believe it is competing with. Netflix CEO Reed Hastings and CFO David Wells said as much in their fourth quarter letter to shareholders. “As we’ve often said, we see the biggest long-term threat as TV Everywhere, and in particular, HBO GO, the leading implementation of TV Everywhere to date,” they wrote.