Once upon a time in Hollywood, the largest film library ever amassed in the world belonged to none other than Netflix. More than 100,000 DVD titles offered by the streamer equaled an unmatched cinematic treasure trove back in 2010. That luminous library has been slashed by more than 85% to some 15,000 titles today, with typical members having access to just 4,000 films today.
That shift shows that the strategic role and value of film libraries and the licensing of movie rights through second and third cycles and beyond, has been caught up in the seismic shifts afoot across the industry. Key tenets that dictated longer term ancillary values have vanished, while free-to-air TV has taken the biggest hit, especially in North America.
Even Amazon’s recent purchase of MGM’s 4,000-strong film library plus 17,000 TV hours for $8.45 billion failed to excite media commentators, given the market’s current obsession with brand-new content, rather than what’s gone before.
“With all the new high-quality content being created, audiences are watching older films less,” says Highland Film Group’s Todd Olsson. “Libraries still have value of course, but it’s not the same second- and third-run strength when compared to pre-streamer times. More movies now are having their first run and then smaller subsequent life cycles. For smaller movies, they really have to pop or they languish.”
Netflix’s drastically culled offering is instructive when trying to understand the changing role of libraries and licensing values today. A cursory check on Netflix’s own site in January lists films dating from the 1940s-1990s, and the inventory shows slim pickings:
• 1940s: Zero
• 1950s: 5
• 1960s: 8
• 1970s: 19
• 1980s: 48
• 1990s: 116
That’s just 200 or so titles over 60 years for its 222 million members to find, leaving some 3,800 or fewer movie titles streaming from the turn of the century today.
And yet, according to analyst Streaming Observer, the number of streamed movie titles on Netflix has also shrunk by around 40%. There is an irony that the huge spike in subscribers over a decade has been inversely matched by less depth of choice. But the shift also underlines audience viewing habits switching to other formats, such as drama and documentary series. And as Netflix co-CEO Ted Sarandos candidly notes, “We never spent one minute trying to save the DVD business.”
Before digging deeper, “library” as a moniker requires careful definition or assumptions that can be misleading. There’s a marked difference between an IP-owned and well-controlled and managed library such as MGM (with locomotives such as James Bond and “Rocky,”) and international sales companies, for example, representing producer-owned indie titles to sell first cycle licensing to third parties. The five studios (and some notable mini-majors including the 17,000 film-strong Lionsgate) have historically built rights and their exploitation through both library sales activity but also content exploitation through prequels, sequels, remakes, spinoffs and formats.
Indeed, IP sales and exploitation has played a key part of the 360-degree studio business model for decades, enabling the majors to build up deep content vaults. Warner Bros. harbors around 7,000 films, Sony 3,500, Paramount 1,200 “owned” titles and nearly 3,000 acquisitions, while Universal is feeding Peacock with some 20,000 of hours of programming. Disney, now armed with Fox’s back catalog including the “Star Wars” films, is supporting Disney Plus with nearly 1,400 titles from the back catalog. Much has been made of Disney Plus’ relatively smaller depth of library when compared to streaming market leader Netflix, but its strategy has been praised as placing quality before quantity. As former HBO topper Richard Plepler succinctly put it: “More is not good. Only good is good.”
To understand why less is now apparently more, a former senior streaming executive who wished not to be named says: “In the early days, Netflix was about plenty of library acquisition activity. More content meant more potential eyeballs. But they looked at the data in the mid-2010s and worked out that most of that content was not performing or engaging members. Fresh content, and not just movies, was driving new potential subscribers, and they were unlikely to sign up to due to decade-plus older fare. Netflix drastically reduced library content and focused on new, and sure enough, everyone from streamers to broadcasters stepped up to compete.”
Yet the current pervasive thinking is more sophisticated than just “out with the old, in with the new.” Netflix remains a savvy buyer, picking up strategic territorial rights when a deal makes sense. A case in point is a recent deal where it acquired rights to 80 movies from the Italian pubcaster RAI for €2.7 million ($3 million), and will be adding those titles to its library by the end of 2023. And not all library offerings are equal around the world: in certain territories, such as Japan and the Czech Republic, Netflix subscribers are offered extensive value when it comes to the depth and range of its local library fare. Likewise, the U.K. market has the most comprehensive Netflix TV series offerings in the world.
“The biggest shift has been the total collapse of the window system, where control of the customer’s access and price point via a drawn-out exploitation chain is now dead. We effectively have one window, with some minor variations around theatrical day and dates,” says Peter Klass of GHJ advisers.
Others concur. “The pandemic has speeded up changes in our business model that were inevitable. Exhibitors dictated what the model looked like but that’s crumbled like the walls of Jericho as the windows crashed,” says Cornerstone Films co-CEO Alison Thompson.
But despite the turbulence, “there’s serious competition in the SVOD market and their TV counterparts, and smart indie distributors are playing the market. Those sitting on decent libraries during the pandemic have done extremely well from lucrative packages,” Thompson adds, and she’s not alone in her praise for individual territorial distribs and their ability to pivot.
“Smart buyers are making quick deals with SVODs, and are learning how to drive values up. They have been flipping from theatrical to SVOD but also direct when it makes sense,” says Highland’s Olsson.
The challenge producers face is understanding how to properly gauge and maximize their pitch, package and production’s true market value. After threshing through sites that promise licensing value indicators per hour or title and comparing such alleged “pricing” with the reality check offered by a range of sellers and distributors, the brutal fact is that vast numbers of independent films circulating in development, production and post-delivery are suffering from the acute shift from analog dollars to digital dimes.
“You can no longer say with ease what a film is worth, either in the ‘exceptional’ categories — including award contenders and A-list driven titles — or the no-name low-budget fare that, in terms of territory by territory value, is a fraction of what we need to see to get financed,” says Arclight’s Brian Beckmann. “The exceptions mean that streamers throw large numbers at these kinds of films to take them off the market. It can mean astronomical numbers for premium titles: $1 million to $2 million for key indie territories, and those numbers can go up very fast for [world] rights: $10 million can suddenly become $15 million for top titles, but they are few and far between.”
Pareto’s power law, indicating that 80% of a market is controlled by just 20% of the players, looks more like 90%-10% today. And that narrowing of power is tightening further thanks to a predominantly online business model that appears locked. Will this change again? “Well, some things are never coming back,” says Beckmann. Windows, multiple bites from the same apple, high DVD margins and control over the customer’s access to content, are all gone. “Will there be a new round of revenues created by a new medium? We don’t know, but it’s unlikely for years.”
That said, according to industry players, the current market has significant growth potential via the advertising video-on-demand (AVOD) sector, where depth of content is inconsistent but has all the appearance of an emerging monster in need of more feeding. Not all can match Peacock’s 20,000 hours or YouTube’s vast carousel of free film content, but the appetite from incumbents and new arrivals is growing, with services including Paramount Plus “really starting to motor because they need more content and don’t have Wall Street cash to splash around on originals like some of their competitors,” says Klass.
Players are starting to adapt to the new reality. “Of course, VOD doesn’t replace DVD, but it’s beginning to step into that space, in particular in the U.S., where it’s so robust if you consider the likes of Hulu,” says Bankside’s Stephen Kelliher. “We’re not at the end of players still to enter the market so it will continue to grow for now. It’s clear that while younger people can’t stand ads, AVOD is free, and libraries will have a key role to play in its growth. There’s no meaningful upfront payments but revenue sharing deals will be the exploitation model.”
Others concur: “AVOD is definitely the future for libraries, but the international revenue streams are so small that they often cannot cover the cost of materials, especially dubbing, making it really difficult to break even,” says SC Films’ Simon Crowe.
The eternal conundrum facing producers, explains Crowe, is that they are focused on the extremely demanding job of creating and delivering content. As a result, they don’t talk to platforms on a regular basis, unlike producer reps, sellers and buyers, who speak to them often daily throughout the entire year and have direct relationships with all the streamers and their key decision makers.
“Producers keen on long term value need to trust those people working on their film. Long-term value is about your partners being there 10-15 years from now, checking statements and delving into reports on behalf of your film,” says Crowe.
Other potential yet sometimes untapped producer revenue streams require smart deal making. Even when content is bought out by a streamer, producers should negotiate a share of what Blighty entertainment lawyer Alan Moss calls “off-service” revenues: “What this means is that you benefit when a streamer licenses a film or TV show to a further third party. It’s a fair ask as the producer should be rewarded for ‘off-service’ exploitation.”
Meanwhile further flung territories are experiencing some of the more positive effects of the current disruption. Warner Bros. Australia in association with Aquarius Films recently worked with Binge, a new local streaming channel that has grown out of pay TV operator Foxtel, which is inexorably moving toward the streaming model. Romantic drama series “Love Me” aired as Binge’s first original commission at Christmas, fronted by Hugo Weaving and produced by Warner Bros. in association with Aquarius Films’ Angie Fielder and Polly Staniford. “The territory-by-territory approach gives us more opportunities to make money, and Hugo Weaving clearly gives the IP a boost. Cable will take a while to disappear [in Australia] given its hold on the older demographic but Binge is getting behind some great content and are the home of HBO. They’ve got great taste and their marketing is fantastic,” says Fielder.
Library values have dropped overall during the past decade, but the resilience of the business — as demonstrated by leading sellers and buyers and their ability to adapt to a new playing field, augurs well. They’ll need to be fit and fast, Thompson says.
“We’re facing a five-year-long war between global players and multi-territory operators — with studios and streamers slugging it out. It’s going to be a very com-petitive market but sooner or later people will wake up realizing they are paying $100 a month plus for services they are not using nearly enough.”
Angus Finney’s new book, “The International Film Business: A Market Guide Beyond Hollywood” (third edition), will be published in March.