Netflix had to make its potentially game-changing new deal to pay Comcast for improved service over its broadband lines because “there were some choke points around peak usage times,” the streaming service’s CFO David Wells said today at the Morgan Stanley Technology, Media and Telecom Conference. That should ease now that the agreement — which eliminates intermediaries handling Netflix traffic to Comcast — will “shore up the long-term subscriber experience.” Some investors are concerned that the arrangement might become costly. But Wells says not to worry: the additional outlays won’t change its forecast for fatter profit margins in its U.S. streaming business this year. The amount Netflix will pay Comcast “was incremental, but not to the point where we’re changing that.” Nor is he concerned that other broadband providers will now insist on large payments to improve Netflix transmissions. Others “could” ask for a similar deal, and the company is “somewhat caught in the middle” because it wants to ensure “a long-term subscriber experience” that will require more bandwidth as it offers more HD and, soon, 4K transmissions. Still, “not all ISPs are created equal,” Wells says, and “we’re not going to be interested in doing anything that will meaningfully change the economics.”
In this week’s podcast, Deadline Executive Editor David Lieberman and host David Bloom look at the many implications of Netflix’s big, big deal with Comcast to ensure better video quality of its shows streamed by their mutual customers. The deal could affect the Comcast-Time Warner Cable merger, net neutrality issues, the business of online video and much more, and likely will serve as a template for other content-quality deals to come. They also take a peek at a multimillion-dollar production-incentive package that persuaded Disney to shoot a Netflix-only Marvel series in New York City and preview another interesting Disney online-content venture, this one involving live streaming online of this weekend’s Oscar telecast on ABC.
In this week’s audio podcast, Deadline International Editor Nancy Tartaglione and host David Bloom look at the possibility that frenemies John Malone and Rupert Murdoch will combine and snap up the UK’s Channel 5, even as a booming ITV opts out; and Amazon’s new combination platter of Prime services that are challenging Netflix more aggressively in Britain, including through a partnership with the BBC to revive the cancelled period drama Ripper Street. They also preview those other big awards this weekend, France’s Cesars, and take their weekly look at the international box office, as both Frozen and The Hobbit 2: The Desolation Of Smaug continue to rack up huge cumulative grosses.
Disney To Film Marvel Series For Netflix In New York As Part Of Multimillion-Dollar Incentive Package
New York was “our first choice” to film four NYC-based Marvel “Defenders” series and a miniseries planned for Netflix beginning in 2015, Disney CEO Bob Iger said today during a press event in NY announcing the deal. But the Empire State’s taxpayers had to help seal the deal for what officials say is the biggest film or TV production commitment ever for New York: The state provided the entertainment giant with undisclosed breaks and incentives estimated at $4M for the project that’s projected to create 3,000 jobs including 400 full time ones in the Big Apple. They’ll work on 52 one-hour live action episodes and a miniseries built around Marvel characters Daredevil, Jessica Jones, Iron Fist, and Luke Cage in what Disney calls “the gritty world of heroes and villains of Hell’s Kitchen, New York.” Taxpayers had to sweeten the terms for Disney because there was “a lot of competition from different cities” to land the production, Iger says. Gov. Andrew Cuomo says the commitment is “exciting,” and a win for his efforts to broaden the economic base which heavily depends on financial institutions. The economic downturn in 2008 “was a wake-up call for the state of New York…you have to diversify,” he said at announcement with Iger. The Disney chief says that no decision has been made with Netflix about whether the series’ episodes will be released all at once or individually.
Here’s the release from Disney and New York state:
EXCLUSIVE: The Documentary Short subject Oscar nominee Lady in Number 6: How Music Saved My Life about the late Alice Herz Sommer, who died Sunday in a London hospital at the age of 110, has just been acquired by Netflix. …
What goes up must — keep going up? That’s what investors seem to think about Netflix, even after it unveiled a “mutually beneficial interconnection agreement” with Comcast widely believed to include payments to guarantee that its broadband customers receive “a high-quality Netflix video experience for years to come”. Share prices for the market’s biggest gainer in 2013, with stock values +312%, are up another 21.4% so far in 2014 — and touched yet another new high today at $449.69. The price retreated a little to close at $447, +3.4% on the day. Investors believe that Netflix used its leverage to influence Comcast’s $42.5B deal to buy Time Warner Cable to negotiate payments that will be low enough to keep profits growing and high enough to help it dominate rivals. “Few others can match [Netflix's] spend without incurring massive losses,” Janney Capital Markets’ Tony Wible says. Barclays Capital’s Kannan Venkateshwar also sees the deal as a positive for Netflix, even though this is “the first time in the cable industry’s history a content provider will pay for direct access to the [broadband] pipe.”
Studios’ failed effort in 2012 to promote the Stop Online Piracy Act (or SOPA) made it clear: Big Media companies had better not mess with Silicon Valley. Too many people love the Internet, and they’ll crush anyone deemed to be a threat to the medium by its biggest service providers including Google, Apple, Facebook, Yahoo, and Netflix. That’s why Comcast needs to make peace with tech companies as the cable giant promotes its planned $42.5B acquisition of Time Warner Cable — and suggests that the new interconnection deal with Netflix is the first of many agreements with tech world Goliaths. If they’re unhappy, then they may embolden Washington regulators reviewing the TWC acquisition to demand a long list of concessions –and under extreme circumstances could even block the deal.
While terms with Netflix weren’t disclosed, the agreement will ensure that Comcast’s broadband customers receive, as the companies put it, “a high-quality Netflix video experience for years to come.” Bernstein Research’s Carlos Kirjner says this morning that he’d be “surprised” if the Comcast-Netflix agreement “was not conditional on a tacit (if not explicit) agreement by Netflix not to lobby regulators” to demand detailed promises to protect Internet access. Others, including Stifel analyst Benjamin Mogil, are waiting to hear about additional terms with Netflix, including a promise to add the service to Comcast’s set top box so subscribers don’t have to switch to a different input when they want to watch the streaming service on their TV sets.
UPDATE: Netflix Agrees To Pay Comcast For Broadband Access; Public Knowledge Calls For FCC, DOJ Action
UPDATE, 2:53 PM: DC-based public interest group Public Knowledge raised its concerns over the Netflix-Comcast deal in a statement Sunday. Said John Bergmayer, Senior Staff Attorney at Public Knowledge:
“No one on the outside knows what is happening in this market.
Season 3 of Netflix’s House Of Cards is holding off on beginning production until mid-June pending the outcome of two separate bills in the Maryland Legislature that would ensure another season of lucrative state tax breaks for the political drama, which just launched its Season 2 on the streaming service last week. The Emmy-nominated series set in Washington, D.C., was officially renewed for a third season earlier this month. Series producer Media Rights Capital, which planned to start shooting Season 3 in early spring, received more than $11 million in Maryland tax credits for Season 1 and Season 2′s incentives could reach $15 million, the Wall Street Journal reported today. We hear that MRC is seeking a tax credit for Season 3 in line with Season 2′s $15 million, which as of now is impossible as Maryland’s current cap is $7.5 million. The two bills, which are languishing in committee, would raise the ceiling to $11 million or $18.5 million. Deadline has confirmed that MRC has sent a letter to several politicians, including Gov. Martin O’Malley, regarding the bills. The letter (read it in full below) pulls no punches in saying that the incentives must be approved if the production were to stay in the state. “In the event sufficient incentives do not become available, we will have to break down our stage, sets and offices and set up in another state,” said the letter, signed by Charlie Goldstein, MRC’s SVP Television Production. The issue has been stirring a heated debate in the Maryland Legislature. “Is it possible that they would just leave after we gave them $31 million?” Del. C. William Frick, D-Montgomery, said during a contentious hearing last week, according to WSJ.