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Netflix Seeks to Adjust Content Licenses So Popular Shows Can Be on Ad-Supported Tier

Joshua Thiede

With the development of its ad-supported video-on-demand (AVOD) service still in progress, Netflix has reportedly reached out to its content partners to renegotiate agreements in order to allow ads to be shown in and around their programming. Without renegotiation, the streaming service may be very limited in how it implements advertising into its licensed content.

While it may seem like the streamer would have no issues using its own original content as ad space, Netflix will still need to contend with the likes of Sony, Warner Bros., and Universal in order to maximize its ad revenue as some of the platforms most-watched shows — such as “NCIS” and “Breaking Bad” — will need additional permission as distributors are going to want value for their content.

According to a recent MoffetNathanson report, Netflix stands to benefit to the tune of $1.2 billion by 2025, and distributors are going to want a piece of that action. Its studio partners may request anywhere from 15% to 30% premiums on top of their current contracts to allow the streamer to feature their content on an AVOD tier. These numbers fall in line with the 20% additional fees Netflix was required to pay after allowing subscribers to download content.

Netflix faces several problems during renegotiations, especially around licensing for individual shows or entire libraries of content. Since talent associated with some programming assumed their work would not be used in conjunction with advertising, this could place some of the studios’ own contracts into question. In contrast, some of Netflix’s current library is shared with platforms that offer the same content in an AVOD service already.

In some situations, that could make the negotiations easier as those types of contracts already had precident. However, some contracts between studios and streamers could include AVOD exclusivity, meaning that Netflix might not be able to put those programs on the ad-supported tier.

The move to AVOD promises to be a profitable one for Netflix, just as with other streamers looking to make the same move. Even so, without concrete contracts, the service may find much of its highly valuable, licensed content is locked behind a paywall that advertising just can’t break through.

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