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Stratégie d’intégration verticale de Netflix: j’ai touché en plein dans le mille | Droit de l’entertainment

Quelle est la position de Netflix, en ce qui concerne l’expansion de son business model, de son contenu et de ses canaux de distribution, dans le monde entier? Vers ou se dirige-t-il, dans l’écosystème de distribution du contenu actuel? 

Intégration verticale de Netflix1. Etat des lieux de Netflix en 2018

Le 15 mai 2015, durant l’évènement « Conversation avec Ted Sarandos » au Festival du Film de Cannes, j’ai demandé au directeur des programmes de Netflix, pourquoi ne pas acquérir des studios de cinéma de type « major », afin d’avoir plus de pouvoir et d’influence, tout en négociant la réduction, ou même le retrait, de la chronologie des médias, afin de diffuser du contenu audiovisuel dans le domaine public partout dans le monde. Certainement, par le biais de l’intégration verticale, Netflix serait à même de convaincre avec succès les gouvernements et propriétaires de salles de cinéma nationaux, de par le monde, qu’adopter sa stratégie de diffusion « day-and-date » est une solution gagnant-gagnant pour tous?

Ted Sarandos était visiblement ennuyé par ma question à l’époque, l’écartant entièrement en répondant, en gros, qu’acquérir des studios indépendants ou « major » ne fonctionnerait pas car Netflix n’aurait pas accès à leurs catalogues d’anciennes parutions dans tous les cas; alors même que c’était là où se trouvait les sources de revenus substantielles. Je suis restée perplexe face à l’étroitesse d’esprit de Sarandos, dans sa réponse à mes questions, mais pensais qu’il m’avait parlé d’un ton sec parce que je l’avais mis sur la sellette en face d’une audience de plus de 300 personnes, au festival du film le plus prestigieux de la planète!

Trois ans plus tard, et ma meilleure stratégie envisagée pour Netflix, afin de renforcer sa présence globale, non seulement en ligne, mais aussi  dans la sphère commerciale « physique », est en train de devenir une réalité. J’ai touché en plein dans le mille: Netflix a annoncé hier qu’ils sont en discussions avancées pour acquérir les studios EuropaCorp de Luc Besson.

C’est la seule voie du progrès, pour Netflix, étant donné qu’il a presque atteint la saturation en ce qui concerne la distribution de son contenu sur son site web et ses applications en ligne, globalement. En effet, les membres de Netflix souscrivant un plan uniquement concernant le streaming, peuvent regarder les programmes TV et les films instantanément dans plus de 190 pays (Netflix est uniquement non disponible en China, à ce jour, ainsi qu’en Crimée, Corée du Nord et Syrie, du fait des restrictions du gouvernement américain imposées aux sociétés américaines là-bas). De plus, dans les marchés clés tels que les USA, le Mexique, le Brésil et l’Argentine, Netflix avait un taux de pénétration d’au moins 72% durant le second trimestre de 2017.

Alors que de plus en plus de consommateurs souscrivent aux abonnements de streaming de Netflix de par le monde, avec un nombre total de 117,58 millions de souscripteurs globalement durant le quatrième trimestre de 2017la durée moyenne de souscription à Netflix est 43 mois par foyers américains bénéficiant de la wifi. Ainsi, Netflix bénéficie d’une base d’abonnés loyaux et payant rigoureusement leurs abonnements, qui croit à un taux annuel de 18%. Les coûts fixes, ainsi que les coûts opérationnels et les frais généraux, sont relativement bas pour Netflix, étant donné qu’il compte approximativement 5.400 employés (en comparaison, Microsoft en a 124.000 alors qu’Apple en a 123.000) et puisqu’il n’a pas besoin de biens immobiliers luxueux ou d’autres types d’actifs tangibles dans le cadre de sa stratégie commerciale gagnante. En attendant, les revenus de Netflix en 2017 étaient de USD11.69 milliards – croissant plus de dix fois entre 2005 et 2016 – et le revenu net de Netflix en 2017 était un confortable USD559 millions.

En bref, Netflix nage dans le cash, ayant maintenant mis en place avec succès sa stratégie de scaling-up dans l’espace en ligne, partout dans le monde. Tous ces revenus disponibles doivent être réinvestis dans le business, les co-fondateurs Reed Hastings et Marc Randolph n’étant pas le type de personnes à s’esclaver pour les actionnaires de Netflix en gaspillant avec des distributions de dividendes annuelles. En fait, Netflix n’a jamais payé de dividendes à ses actionnaires dans les 10 dernières années!

2. Premières étapes de la stratégie d’intégration verticale de Netflix: le saut dans la création de contenu et la production

Durant les 5 dernières années, Netflix, fondé en 1997, In the last 5 years, 1997 founded Netflix, which started out as a postal DVD rental company, successfully implemented the first steps to its vertical integration strategy, no matter what Sarandos has to say on the subject.

The real decision-maker, here, is co-founder, chairman and CEO Reed Hastings, who has fully grasped that Netflix must own every product or service of its supply chain, to make real money. In this context, vertical integration entails owning distribution as well as content. Hence, the leap into content creation and production for Netflix, as licensing existing content was merely enough to beef up its budding catalogue and render it attractive to a wider and ever more culturally-diversified customer base growing exponentially around the world.

Making beaucoup bucks comes from owning 100% of the content, without any licensing royalties to pay back to rightowners. Such fully-owned content can even be licensed back, opening up new revenue streams such as content licensing or even a branded channel with traditional distributors, for Netflix. Films can be easily snatched up at film markets in Sundance, Berlin, Cannes and the American Film Market in Santa-Monica all year round, and Netflix’s deep pockets let it pick the very best of the crop on offer from sales agents and distributors avid to ingratiate themselves with streaming video on-demand services (« SVoD services« ). Film and show projects and productions are also brokered directly between the talent and Netflix, the most notable examples of that being Netflix’s production and commission of the House of Cards, Orange is the new Black, The Crown, Making a Murderer, and Stranger Things. In 2018, Netflix Originals’ busy-bee content pipeline is made up of 80 films that the company has either acquired or commissioned, which sounds positively outlandish compared to the 12 films released by Disney, and 20 released by Warner Bros, in 2018.

Owning the content also solves the headache posed by the theatrical distribution model which, according to Ted Sarandos, “is pretty antiquated for the on-demand audiences we are looking to serve”. Netflix, he said, is not looking to kill windowing but rather to “restore choice and options” for viewers by moving to day-and-date releases. Indeed, Netflix has brokered many recent theatrical deals – it plans to release the sequel to Ang Lee’s Crouching Tiger, Hidden Dragon day-and-date online and in Inmax theatres. This (overdue) move into day-and-date release positively enrages theatre owners and exhibitors, especially further to the snafu triggered by Netflix managing to get two of its original films, Okja and The Meyerowitz Stories, chosen to compete in the official selection of the 2017 Cannes film festival.

3. Next step of Netflix vertical integration strategy: film studios’ acquisitions

Netflix’s vertical integration and expansion strategy does not stop here, though, because it still has so much disposable income to invest and, hey, why not acquiring more content, stakeholders, market share and clout in the films’ and shows’ sectors, if you can, right? SVoDs like Netflix have declared an open war on the fragmented audiovisual content industry which has prospered for decades, grazing on horizontally segmented industry models. Netflix is at the forefront of structuring end-to-end vertical SVoD services, going direct to consumers and ruthlessly bypassing theatres, broadcasters, networks, cable operators and even television manufacturers. This digital revolution transforms television and filmed entertainment, especially traditional broadcast TV, and is fostered by the big and fast-growing inroads of internet and over-the-top (« OTT« ) video platforms such as Netflix, Amazon and Google’s YouTube.

Shaken at its core, a wave of consolidation is subsequently coming to the entertainment content delivery industry, with Netflix ready to snatch up any shaky yet prestigious film studio that comes along, such as Luc Besson’s EuropaCorp studio. Not only does the studio Besson co-founded in 1999 has a rich and high quality original content library and back catalogue (comprising Lucy, Taken, Le Grand Bleu, Valerian and the City of a Thousand Planets, among others), but striking an exclusive direction and production deal with seminal and highly creative Besson would reinforce the prestige of Netflix, while making the platform even more appealing to European, and Asian audiences, in particular.

I predict that, should the right opportunity comes along, Netflix will repeat this vertical expansion master stroke and acquire more major and/or independent studios.

It is true that vertical expansion has boundaries, in particular due to the anti-competitive risks that it entails, and that the issue of vertical integration in the entertainment business has been the main focus of policy makers since the 1920s. For example, in the United States v Paramount Pictures Inc. case, the US Supreme court ordered on 3 May 1948 that the five vertically integrated major studios, MGM, Warner Bros, 20th Century Fox, Paramount Pictures and RKO, which not only produced and distributed films but also operated their own movie theatres, sell all their theatre chains. However, today, many media conglomerates already own television broadcasters (either over-the-air or on cable), the production companies that produce content for their networks, and also own the services that distribute their content to viewers (such as television and internet service providers). Bell Canada, Comcast, Sky plc and Roger Communications are vertically integrated in such a manner – operating media subsidiaries and providing « triple play » services on television, internet and phone services in some markets. Additionally, Bell and Rogers own wireless providers, Bell Mobility and Rogers Wireless, while Comcast is partnered with Verizon Wireless. Similarly, Sony has media holdings through its Sony Pictures division, including film and television content, as well as television channels, but is also a manufacturer of consumer electronics that can be used to consume content from itself and others, including televisions, phones and PlayStation video game consoles.

In this context, it is quite difficult imagining Netflix slapped with any anti-competition lawsuits or investigations, because it goes on a buying spree of film studios, even one of the « Big Six » majors.

4. Master stroke of Netflix vertical integration plan: broadcasting networks and theatre chains

The next stage of the vertical integration and expansion strategy of Netflix, in addition to buying, producing and commissioning its own content, and in addition to acquiring film studios, is to delve into distributing its own content in the « real » world (i.e. offline sphere), either on other media distribution channels such as a broadcasting network, or in movie theatres.

I predict that, in 10 years, if TV is still a medium used by consumers, Netflix will have its own TV channels and broadcasting networks. In the future, if people still attend movie theatres from time to time, to watch special effects films there in particular, Netflix will also invest in buying back fledging exhibitors’ chains, causing direct competition to China’s Dalian Wanda-owned cinema group which is currently on a buying spree of theatre chains across Europe and the US.

This « online to offline strategy » is currently being implemented with brio by originally pure player Amazon, which is currently buying brick and mortar retail spaces all other the world, in order to continue its competitive assaults on traditional grocery stores and malls, increase its market share and get closer to its clients’ base worldwide. Amazon is at a way more mature growth point than Netflix, of course, but provides excellent footprint of the future roadmap that Netflix is undoubtedly going to implement.

5. No space for Apple in Netflix vertical integration strategy

Some commentators in the entertainment and finance industries pretend that Apple will buy Netflix but this is an oversight.

Firstly, Netflix has zilch incentive to accept an acquisition offer, even from a tech behemoth like Apple, because it is in such a strong strategical and financing position, and will be in that sweet spot for many more years to come in spite of its lesser-known SVoD competitors, such as Amazon Prime, Hulu and Vudu, tagging along.

Secondly, and thanks to such solid said vertical integration strategy and financials, Netflix’s valuation is simply too high, now. It is trading at all-time highs, with a USD94bn market cap.

Thirdly, co-founder Reed Hastings, who still very much keeps a tight rein on Netflix as its chairman and CEO and enjoys the ride, is unlikely to sell his business at a meagre premium of 6% or so (USD100bn).

Finally, Apple’s specialty and strength lie in its hardware and products, not so much in its software and services (apart, perhaps, from Apple’s video editing software, Final Cut Pro): the integration of Netflix into Apple will reinforce the latter’s positioning as a serious software and online applications’ provider, but will do absolutely nothing for the former’s vertical integration strategy, which now charges ahead towards film studios’ acquisitions, broadcasting networks’ acquisitions and theatre chains’ acquisitions.

 

 

Annabelle Gauberti is the founding partner of Crefovi, our London and Paris law firm specialised in advising the creative industries in general, in particular on their personal data and cybersecurity requirements. She is a solicitor of England & Wales, as well as an “avocat” with the Paris bar.

Annabelle is also the president of the International association of lawyers for the creative industries (ialci).

 

Crefovi
Tel: +44 20 3318 9603

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