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Hollywood Getting Over Fear of Digital, But Netflix Warns of 'Pay Window' Piracy Risk

Posted by: , 13:38 AEST, Mon September 17, 2012

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Hollywood is warming up to the Internet and digital media, with lucrative licensing deals heating up competition among streaming providers. But Netflix warns that their confusing release window policies could encourage piracy
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The competition among the digital streaming providers is generating a mini-boom for Hollywood, as they slowly comes to terms with the declining health of DVDs, and the need to do business differently in the Internet era.

The surging number of subscribers to services such as Netflix, Amazon Instant Prime and soon, Verizon and Redbox's new streaming venture, has shown the way forward for Hollywood, and the industry's ability to negotiate better licensing deals is allowing them to do more than just negate DVD's losses.

Paramount, MGM and Lions Gate owned Epix recently re-negotiated their exclusivity deal with Netflix, a deal which will net the company an extra $80 million a year in licensing fees. By licencing content to more companies, and helping to create competition in the marketplace, companies like Epix aim to not repeat the same mistakes the publishing music industry made in their move to digital.

By being over-reliant on a single distribution network, Apple's iTunes, the music industry helped to create the virtual monopoly on digital music sales that is iTunes, and allowed Apple to dictate terms when it came to licensing costs. The publishing industry is suffering the same fate with the Amazon Kindle's unassailable market lead.

And Epix's latest deal is prove that competition can be good for all involved. "We are all reinventing ourselves and going after different competition in different ways," says Mark Greenberg, chief executive officer of Epix.

While losing exclusivity and the rising cost of licensing, set to increase to $2 billion from $800 million in 2012, would all seem to be damaging to Netflix, the company is hoping to mitigate the risk of the changing marketplace by producing their own exclusive content. Netflix is set to debut five exclusive TV shows for its streaming subscribers next year, including the eagerly awaited return of "Arrested Development". 

But what actually worries Netflix, according chief content officer Ted Sarandos, is one of the last vestiges of the way Hollywood used to be able to do business - release windows. Referencing one of Epix's recent mega-hits, "The Hunger Games", Sarandos says the various geographical and platform based release delays will lead to the piracy risk being increased.

For the subscription licensing of "The Hunger Games", Sarandos noted that US streaming providers actually get access to the movie almost 6 month after the first regions gets access to it. In Latin America, "The Hunger Games" is available for Netflix subscribers there in August, but it will be three month later for Canadian subscribers to get access to the same film, and US viewers would have to wait another 90 days after that.

"The U.S. will actually have the slowest access to 'The Hunger Games' in a subscription model online, which I think is incredibly dangerous for distributors in terms of having this global platform, and global knowledge of when things are available, and regionalized availability dates," Sarandos warned. "I think it will only encourage piracy in a way that is going to only grow."

And release windows can also occur in between different platforms, with disc, downloads, VOD, subscription VOD and pay TV all getting different release windows. "I do think the gap of time between DVD, VOD and pay TV is getting increasingly frustrating for consumers," Sarandos says.

Sarandos also notes the interesting viewing habits of subscribers in his interview with Variety. Binge-viewing is still a popular way to enjoy content on Netflix, where users often watch older seasons of TV shows in a continuous fashion, either in preparation of a new upcoming season, or to re-enjoy episodes they've undoubtedly seen before. Sarandos cites one extreme example in which viewers binge-watched older seasons of the hit show "Breaking Bad" in anticipation of a new season - an amazing feat which saw 50,000 subscribers watch the 13 one-hour long episodes of season 4 of "Breaking Bad" in a single 24 hour period!


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