Netflix is expected to pay $600,000 an episode for Gossip Girl, above, but… (Giovanni Rufino, THE CW )
Netflix has just made the CW network's future very secure.
The subscription video company has struck a four-year agreement to stream reruns from the CW network, including such popular shows as "Gossip Girl" and "The Vampire Diaries."
For CW's parent companies, CBS Corp. and Time Warner Inc.'s Warner Bros., the deal will put the partnership in the black, CBS Chief Executive Leslie Moonves said.
"It essentially makes the CW a profitable enterprise," Moonves said in an interview Thursday. That means CBS and Warner Bros. will make money off the shows they produce for CW, even if the network itself does not recover its programming costs with advertising revenue. Warner Bros. Television Group President Bruce Rosenblum echoed Moonves' sentiment, saying the joint venture "just became more valuable."
Although terms of the deal were not disclosed, Wells Fargo Securities analyst Marci Ryvicker said Netflix could ultimately pay close to $1 billion by the time it expires. But the final amount could end up being far less as it depends on how well CW's programming performs.
Netflix is buying rights to repeats of current and future series, and the longer the shows stay on the air and the higher their ratings, the more Netflix will pay. If a show flops, Netflix won't owe nearly as much.
For example, Netflix is paying in the neighborhood of $600,000 an episode for "Gossip Girl," an established show, but will initially pay much less for newer or lower-rated CW programs, people familiar with the pact said. The window between when a new episode of a show appears on the CW and is made available on Netflix could be as long as a year.
Launched in 2006 as a result of a merger between the struggling UPN and WB networks, CW relies primarily on serialized hourlong dramas that appeal to teens and young adults, such as "The Vampire Diaries." Its shows have a loyal following, but serialized programs don't typically generate strong rerun revenue of situation comedies like "Two and a Half Men" and procedural dramas such as "NCIS," which is key to producers recouping their investments.
"Serialized dramas do not have the same value" in reruns, Moonves acknowledged.
But fans of such series do flock to services such as Netflix, where they can watch multiple episodes on their own schedule and in the order they choose.
Netflix has exclusive online subscription rights to all episodes of current CW shows. But CBS and Warner Bros. can still sell reruns to other outlets, including local television stations and cable networks.
The CW agreement accelerates a trend that has seen Netflix transform from a service focused primarily on movies to a home for television repeats, which represent more than 60% of the video streamed by its users.
At the same time, Netflix has been losing movie rights. Pay TV channel Starz recently said it would not renew a partnership to provide movies from Sony Pictures and Walt Disney Pictures that expires in February. At the time, Netflix said it would use the money it expected to spend on Starz movies for other content. CW appears to be a key part of that replacement strategy, along with a recent deal for two or three movies a year from DreamWorks Animation.