Most of the headlines regarding the new license between Netflix and CBS focuses on Netflix. But suppose you are a programming company with copyrighted works in the vault, inventoried, if you will. What is the value of that inventory? If things stay the same, not much, unless somehow clips can be licensed, scripts can be reused, series can be syndicated. (Of course, it’s in the vault presumably because syndication has run its course.) It has taken new technologies to open up new distribution means, and innovation to attract capital enough to exploit those distribution means, before the IP can assume its value.
The wireless technologies that enable streaming video (that they really suck up bandwidth will force rapid development of still newer distribution technologies) have spawned innovative distribution models. And success in that space has spawned competitors. More competitors allows for the creation of a type of auction mentality, with Netflix, Amazon, Hulu Plus and others bidding on content.
What was once inventoried IP now has a significant revenue stream. How significant? Netflix is paying big, with external factors (e.g., making the barrier to entry significantly large) creating a less-than-free market from which we could assess real value. For example, the L.A. Times suggestedroyalties could reach a $1B in five years as a result of the Netflix – Epix agreement signed last year. Though we haven't seen this contract, a look at similar licenses in the ktMine database offered by BVR shows the agreements are wrtten to yield around 8% (median) on gross sales, or 9%-15% on net sales.
It’s fun to look at this through the lens of the content supplier. It wouldn’t surprise us to learn the Universals or Disneys of the world are investing significantly in helping along distribution technologies (e.g., mobile), as these technologies have content-related IP value tethered to them.
Book publishers call it the “long tail,” generating a revenue stream for years from older titles. We might see subtle, nostalgia-based, publicity campaigns now extolling the acting or writing on Frasier or Cheers (Cheers, arguably, has already reached iconic status). Party promoting through social media would not be surprising: for example, an apropos theme might be a draft beer party commemorating when Norm lost his job and slowly sipped suds while telling his friends and the nation as seen on Cheers, with the feature being streamed from Netflix to the wide-screen TV. Perhaps CBS might help in the promotion. Whatever ideas they come up with, it’s clear the long tail of these content providers offers up significant value, and valuation analysts have still another example of the potential of a portfolio of copyrighted works.