The Big Picture Behind Sony’s Netflix and Disney Deals
Netflix has nabbed an exclusive first-pay-window licensing deal with Sony Pictures
By Saul Gunn
Two weeks ago, news broke that Netflix had successfully brokered an exclusive first-pay-window licensing deal with Sony.
Before the dust had time to settle on this industry-shaking announcement, Disney stole back the headlines, declaring that they too had bargained their own content licensing deal with in-demand Sony.
The Netflix deal, expected to be worth north of $1billion, secures for Netflix first-pay-window rights over Sony films after their respective theatrical runs. This ‘window’ will last 18 months for every film Sony releases in cinemas from 2022, and the deal is expected to span five years.
Disney’s deal covers the same slate of Sony releases from 2022 through 2026, and obtains the right to broadcast them on Disney’s array of platforms (including ABC, Disney Channels, Freeform, National Geographic, Hulu, and, of course, Disney+) after their stay on Netflix expires, known as a Post-Pay 1 TV window.
The most anticipated titles that are stealing the headlines in these rapid press updates include: Moribus, Uncharted, Where the Crawdads Sing, and Bullet Train, in addition to expected sequels from existing franchises such as: Venom, Spider-Man, Jumanji, and Bad Boys.
The acquisition of Spider-Man films seems to have been noted by every media pundit as the most important part of the Disney deal since this means that Disney can further its aim to unite all content from the Marvel Cinematic Universe in one place, an aim that seems fundamental to Disney’s strategy to grow its number of subscribers.
The full list of films we can expect to see can be found here.
Additionally, both Netflix and Disney will gain the opportunity to license its pick of titles from Sony’s impressive and vast existing library, although it is unclear as to who will be given priority. Seemingly guaranteed, however, is that Disney will pursue gaining the rights to previous Spider-Man titles to ensure its fulfilling of the aim detailed above, whilst Netflix will gain right of first refusal for any direct-to-streaming titles that Sony is contemplating.
What is striking beyond the big numbers and flashy titles in these deals is that it highlights Sony’s unusual decision to abstain from throwing their hat in the ring and launching their own streaming service, which has been the path taken by nearly every other major studio. Disney has launched Disney +, Warner has created HBO Max, ViacomCBS now have Paramount+ ...the list goes on.
Instead, these deals indicate that Sony have decided to assume a business strategy that some industry commentators are dubbing as the ‘arms dealer’ approach in the ongoing streaming wars. That is to say, auctioning off their content to the highest bidding streaming service (or services) battling for subscribers.
Output deals such as these have long been a central part of economic strategy for film studios, but have become increasingly complicated with the advent and growing prominence of streaming services. Before the likes of Netflix, Disney+, or Amazon Prime took over our attention, studios would strike output deals that would strategically release their films in stages, via a process called ‘windowing’. In this process, consumers could first see a film in cinemas, then, after an elongated window of time, on DVD (remember those?), and then onto TV, and so forth. The process aimed to create an aura of scarcity so that consumers would front the cash at each window to see the studios’ films.
The very opposite is the business model of streaming services, who aim to maximise the availability of content to justify subscription premiums. The result is that studio heads today have to be much more inventive in engineering business strategies that will best serve their interests.
Exemplified by these deals, however, Sony have proved to be cunning enough to create a modernised version of windowing that bridges the gap between the seemingly-opposing business models. Effectively, Sony are retaining the benefits brought by a theatrical release of their titles, whilst treating streaming as a new, prioritised, window within a traditional model, one that is especially lucrative due to its extended nature over several streaming platforms (the two deals combined are expected to make Sony around $3 billion in movie licensing).
At a time where major studios are signalling their altered thinking and diminishing value that they place on the once-deemed imperative theatrical window in favour of streaming, Sony have figured out a way to cash in on the streaming gold rush from the sidelines. (Warner are releasing their entire 2021 catalogue of films in theatres and on HBO Max on the same day-and-date, whilst Universal are debuting their new releases on premium VOD services just 17 days after their theatrical runs.)
Of course, these shortened theatrical runs and, in some cases bypassing of them altogether, is somewhat symptomatic of the ongoing pandemic. Nevertheless it illustrates the huge degree by which the business strategies of studios are adapting in the face of streaming. Sony’s deals with Netflix and Disney are at the very heart of this revolutionising of traditional models and they provide sufficient insight into how we may see the major studios act in the coming years.
Sony, Netflix and Disney have all actually adopted different strategies in this new, transformed landscape.
Sony are keeping it simple. They need only concern themselves with one thing: getting the biggest and most economically lucrative deal possible for their content. In the hyper-competitive context of streaming wars, where services are desperately scrambling for subscribers, it’s not a bad strategy, as giants such as Netflix and Disney+ seem happy to splash the cash to maintain their leading positions.
This strategy is also far safer for Sony, with the buyers assuming all of the risk. Netflix and Disney+ don’t know how Sony’s films will perform on their platforms or whether they will translate into more subscribers, whereas Sony get paid no matter what.
This highlights the big decision that Netflix, Disney, and all other competing services are faced with: which content purchases serve their aims most optimally?
To put it simply, any streaming service’s aims are to gain subscribers and convince existing customers not to cancel subscriptions. Working out how exactly any said purchase of content may affect these goals, as well as considering whether the money could be better spent investing in original content, makes for a pretty tough equation.
Weighing on Netflix’s mind in orchestrating their deal would have been the rumours that NBCUniversal is considering pulling its films from Netflix and putting them instead onto its service, Peacock. Added to this is the imminent threat of all Fox films to exclusively move to the likes of Hulu and Disney+.
Disney, likewise, would have been eager to check any potential gains made by Netflix as a result of their Sony deal.
These decisions, however, are far more crucial for Netflix, whose streaming focused model dictates that, unlike other major studios in the streaming game, they don’t readily enjoy the buttressing finances of box office receipts that the theatrical window can still potentially bring.
The strategy that we are most likely to see adopted by the major studios before the pendulum swings overwhelmingly to either side is a hybrid model like Disney or Paramount are currently operating, whereby they still exhibit their films in cinemas, albeit possibly for shorter periods of time, before placing their films exclusively on their own streaming platforms. It also keeps the option open to transfer fully to streaming, or ‘arms dealer,’ at a later date if they see fit.
I suspect that most of the big players will continue with this hybrid model, especially for their bigger titles. Netflix, too, may be enticed to trial some of their big features in cinemas. Indeed, they have done so in the past with films such as Uncut Gems being exhibited in cinemas before appearing on streaming. And let’s not forget Netflix bought Hollywood’s historic Egyptian Theatre for an undisclosed price in May 2020.
As for slightly smaller studios struggling to keep up with the likes of Netflix, Disney+, or Amazon Prime, many of these could begin to look to the arms dealer model as an attractive option as the bigger players grow too large to compete with and the rationality of continuing to operate a streaming platform becomes to appear more futile.
Accompanying these momentous underlying trends that the Sony-Netflix and Sony-Disney deals have revealed is somewhat of a significant side note that has been largely lost in all of the surrounding noise, and concerns the value Hollywood has begun to increasingly place on gaming IP.
Highlighted by industry expert and former Head of Strategy at Amazon Studios, Matthew Ball, is that Sony-owned PlayStation is ‘probably the most successful creator of new global IP over the last twenty years’, and that amongst already mentioned Uncharted, a plethora of other highly anticipated films based on PlayStation games will likely find themselves on Netflix as part of the Sony-Netflix deal.
Ball’s speculation was tweeted before Disney crashed Netflix’s party and signed their own deal, but it is suspected that these highly-sought-after titles based on gaming IP would move on to Disney’s channels and streaming services after their window on Netflix expires.
In a separate article, Ball hypothesises that for a number of reasons Hollywood are invested in gaming IP as they set out plans for future projects. These reasons notably include the likes of big box office successes such as Rampage and Detective Pikachu, as well as Netflix’s own The Witcher (based on a book series but largely popularised due to the video game) becoming 'its biggest ever original series release.’
The inference to draw from this as regards Sony’s respective deals with Netflix and Disney is that it promises both companies unprecedented access to such gaming IP. Indeed, Sony’s extensive repertoire of gaming IP could have been a factor sparking each party’s interest in Sony in the first place, or at least helped to justify the large price-tags attached to the deals. If so, these deals could be an early sign of the nascent shift Hollywood is undertaking toward adopting gaming IP more centrally into their content creation, commissioning, and overall strategy.
No matter what happens, what is clear about these deals is that there’s a lot more to them than meets the eye. They both lie at the heart of an industry that is revolutionising on multiple fronts at a rate almost too quick to keep up. But press the pause button and bring a microscope to the ink, and they may just provide a unique insight into what we can expect from the big studios and streaming services in the years to come.