Showtime Short-Circuits Re-negotiations With Netflix, Excludes Early Seasons From Streaming

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Showtime’s new decision to re-negotiate its deal with Netflix, excluding streaming rights to early seasons of current hit shows “Dexter” and “Californication,” is a clear attempt by the company to circle its wagons against Netflix’s newfound strength.

The move effectively short-circuits Showtime’s existing efforts to work with Netflix as a key promotional partner. By giving Netflix streaming rights to older episodes, the goal has been to expose a portion of its subscribers to Showtime programs, which would in turn help drive new Showtime subscriptions. (Note: coincidentally, I happened to have just watched the entire first season of Dexter on Netflix, though I haven’t chosen to subscribe to Showtime. More on that in a subsequent post).

With its decision, Showtime has doubled down on its relationship with its pay-TV partners. Maybe I’m missing something important, but from my perspective, the new decision seems grossly out of step with current market realities and it will only lead Showtime toward an even more uncertain future. 

Showtime, like HBO and other premium networks, is now in a radically different competitive landscape, driven by unprecedented technology innovation and fast-changing consumer expectations. As I detailed at length in “Could HBO be the Next BLOCKBUSTER?” earlier this week, Showtime is also 100% reliant on pay-TV distributors to bring its flagship product to market at a time when Netflix, and others, are demonstrating the power of having a direct-to-consumer model.

Further, like HBO, Showtime can only be accessed after a pay-TV subscriber has first signed up for a $60/month (or more) package of basic channels. This basic channel “buy-through” is pricing many people out of subscribing to premium channels like Showtime and HBO. As the recession slogs on for many, leading to a reduction in all discretionary spending, and robust services like Netflix are offered to entertainment-oriented consumers for a fraction of the price of just the basic channel lineup, the bar for deciding to subscribe to Showtime is getting ever higher.

Showtime has invested heavily in original TV series recently, emulating HBO’s strategy. Of all their shows, I have only seen one season of “Dexter” so I’m not in a position to judge the others’ quality, but many have been well-received, which has surely helped Showtime build its value. The problem is that no matter how good these shows are, if consumers are not exposed to them in an extremely accessible manner, only a tiny fraction of Showtime’s potential audience will ever be tapped.

That’s why the Netflix streaming deal that Showtime just overturned, and others like it, are actually crucial to Showtime’s long-term success. Now more than ever, Showtime’s key success factor isn’t just coming up with new hit shows, it’s making itself relevant in a very noisy environment.

Being relevant to consumers in the Internet era isn’t about big billboards in Times centre or glossy ads in New Yorker magazine, to cite a couple places I’ve recently seen Showtime ads. It’s about getting potential target users to try its product (i.e. the shows) as easily as possible, and then figuring out how to leverage their interest to drive new forms of monetization. This line of thinking echoes advice that author Seth Godin phrases “Turning strangers into friends, and friends into customers” in his classic book “Permission Marketing.” The idea is to first get prospects engaged and then experiment with what types of monetization work best.

Showtime executives may have found that their deal to expose Netflix subscribers to their shows didn’t result in a meaningful lift in new subscribers. Fair enough; with my “Dexter” experience, I’m now one of those people that watched a Showtime series but hasn’t chosen to subscribe. But rather than responding by shutting off the streaming spigot, that just means Showtime needs to be more creative in how it addresses me and other new viewers. In my particular case, as I’m now getting to the mid-point season 2 of Dexter, I’m painfully aware that the finite quantity of streaming episodes left is dwindling. But now I’m hooked! These days I’m beginning to wonder “how am I going to readily access seasons 3-5?” Yes, they’re available on DVD, but with the convenience of streaming, DVD just won’t cut it anymore.

So now I’m highly receptive to new offers directly from Showtime, which would leverage data that it should be demanding from Netflix and other online distributors as part of any new deal. Maybe offer me a streaming pass for $15 to watch season 3 on any device? Or a bundle for $40 for the all three upcoming seasons? Or something that includes director’s cuts or sneak peeks as a value-add?

Meanwhile, I’ve lately been telling everyone I know what a fabulous show “Dexter” is (and note that 6 months ago I’d barely even heard of it!). How about giving me a link to share with these folks (and my Facebook and Twitter friends) that allows them to watch the first episode for free (they don’t even need to be a Netflix subscriber!), as long as say, they enter their email address? And maybe Showtime gives me some kind of reward for every new person who watches, like some exclusive content or entry to a sweepstakes? You get the idea – the list is long and varied.

The point is that Showtime, and others, have to think creatively about how to make new “friends,” as Godin puts it, and then how to turn them into newfound revenue. This is a far more promising path than an all-in bet that traditional distribution – even with enhancements like TV Everywhere – is the ultimate answer. Netflix will survive the loss of “Dexter” and “Californication” streaming just fine; they have enough streaming content now available – and more coming all the time – that one or two series being dropped won’t matter much.

Showtime, on the other hand, has just a handful of big-draw shows to drive its business. Rather than tucking them away behind high walls, Showtime needs to make them even more accessible, and then figure out how to monetise them effectively. Anything short of this is a road to near-certain long-term irrelevance.

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