Netflix: How does streaming licensing cost work? Is it per play per user? What is the approximate range of per play cost in dollars?
Let us say, I watched The episode 3 of "Lost" ten times, would the license cost be 50 cents (assuming 5 cents per play)
2 Answers
Netflix generally licenses content for a fixed fee and a defined time period. Source: Top Investor Questions.
I don't know specifics on how much each title costs to license. I've heard it varies a lot based on the country, the title, its age (pay-window), and the specific title. (I don't work in content licensing and have never seen the exact numbers and the few I've heard are confidential)
However, we can do a quick calculation to estimate the average cost based on public information.
Tech Crunch reported that Reid Hastings said Netflix subscribers streamed 5 Billion Hours Of Content In 2013 Q3. For simplicity, let's assume the streaming rate stays constant through the year for a total of 20 billion hours a year. In reality, this varies seasonally and grows as Netflix acquires more subscribers.
Tech Crunch also reported that Netflix Spends $2B Per Year On Content. Their figure is a little different than what is published in the quarterly results, but that is expected since content licensing is subject to complex accounting rules like any other business expenditure. I'm not an accountant so I won't pretend to understand it (plus, I've never seen the exact numbers). So let's take TC's number at face value for simplicity.
If my arithmetic is correct, then that puts it at about $2B / 20B hours = $0.10/hour (US Dollars). This doesn't include the cost to deliver bits to over the internet and other operational costs.
A typical 40 minute episode of TV is about $0.07 and a 2 hour movie is about $0.20.
Keep in mind that individual titles will have different costs. A blockbuster, high profile movie like The Hunger Games (which was licensed much earlier than normal with exclusive rights) will cost a lot more than a lesser known movie like Iron Sky. However, The Hunger Games is likely to get a lot more plays so its average cost per play may not be as high as its price tag may imply.
I don't know specifics on how much each title costs to license. I've heard it varies a lot based on the country, the title, its age (pay-window), and the specific title. (I don't work in content licensing and have never seen the exact numbers and the few I've heard are confidential)
However, we can do a quick calculation to estimate the average cost based on public information.
Tech Crunch reported that Reid Hastings said Netflix subscribers streamed 5 Billion Hours Of Content In 2013 Q3. For simplicity, let's assume the streaming rate stays constant through the year for a total of 20 billion hours a year. In reality, this varies seasonally and grows as Netflix acquires more subscribers.
Tech Crunch also reported that Netflix Spends $2B Per Year On Content. Their figure is a little different than what is published in the quarterly results, but that is expected since content licensing is subject to complex accounting rules like any other business expenditure. I'm not an accountant so I won't pretend to understand it (plus, I've never seen the exact numbers). So let's take TC's number at face value for simplicity.
If my arithmetic is correct, then that puts it at about $2B / 20B hours = $0.10/hour (US Dollars). This doesn't include the cost to deliver bits to over the internet and other operational costs.
A typical 40 minute episode of TV is about $0.07 and a 2 hour movie is about $0.20.
Keep in mind that individual titles will have different costs. A blockbuster, high profile movie like The Hunger Games (which was licensed much earlier than normal with exclusive rights) will cost a lot more than a lesser known movie like Iron Sky. However, The Hunger Games is likely to get a lot more plays so its average cost per play may not be as high as its price tag may imply.
Most likely the different content owners structure their deals differently. Variables in play might include;
- Number of views
- Geographic market
- Duration of agreement
- License to resell, or straight purchase
- Clauses for reversion
- Revenue share of commercial insertion (if any)
- Discount for demographic data sharing
- Co-branding or cross market advertising on different platforms
- Package deal for a number of media properties
- What the negotiators had for breakfast that day.
