NBCUniversal got the attention of Hollywood and TV viewers everywhere last week, announcing a five-year deal to take The Office back from Netflix and put it on its own streaming service starting in…
The value of the pact is estimated at $100 million per year, according to those familiar with the terms. So, what exactly is NBCU buying with all of that cash? Not subscribers, technically, given that the company plans to give the streaming service away initially to pay-TV subscribers of Comcast and Sky. The main answer appears to be the opportunity to reinforce its decades-old, still-lucrative advertising business.
“It comes down to core competency,” one digital executive who has business dealings with a wide range of programmers told me. “Media companies have been used to doing certain things extremely well for decades. Now, they have to develop a whole different set of muscles. Algorithms, customer retention. So many things they’re not used to doing. That will likely be a big test.”
Reinforcing previous studies, Hub Research issued a report Wednesday that found 53% of current Netflix subscribers would keep it if it introduced ads but charged $2 less per month. If the company shaved $3 off, 60% would keep it. Ads would prompt 12% to drop the service even with lower prices. The stakes are not small. Traditional TV advertising is still a $70 billion annual business, so every cent that migrates to digital is now seen as desirable by the traditional content purveyors.
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