Streaming Sets Off Legal Battles Over TV Rights

Access to content, channels, platforms and rights are the most valuable currencies of the digital age, replacing the physical geography and tangible assets of the industrial era.

The challenge, as the following article explains, is that as with any innovative system, there are disagreements over how to optimize value for all participants. It will take time to figure out who is correct. The battles over ownership and performance will be waged with audience data and legal strategies rather than harder edged weapons. At least for the time being. JL

Shalini Ramachandran reports in the Wall Street Journal:

Networks want to let viewers catch their shows by offering all episodes during the current season, or even past seasons, via their streaming apps and cable on-demand services. In some cases they make renewal of shows contingent on getting those rights.The hope is that “stacking” episodes, could help build audiences, boosting ratings and ad dollars. Studios and talent benefit when reruns of TV shows are sold for the highest possible amount, and fear the networks are jeopardizing that.
When premium cable network Showtime in July started offering past seasons of “Homeland” through its channel on Hulu’s streaming service, the creators and producers of the hit counterterrorism drama sounded the alarm.
Executive producers Alex Gansa and Howard Gordon and studio 20th Century Fox feared the arrangement would eat into their profits, people familiar with their thinking said. They don’t get a cut of the money Showtime makes from subscriptions to its Hulu channel. But they do have a financial stake when old episodes of shows are sold to streaming providers such as Netflix Inc., NFLX -0.28 % which might not bid as much if the show were already so exposed.
Showtime believes “Homeland” will attract eager buyers for prior seasons regardless, and the Hulu arrangement isn’t jeopardizing the show’s value, a person close to Showtime said. But the other side feels differently. “This doesn’t work for us; this show will never be profitable with this model,” said a person close to Messrs. Gansa and Gordon. “We dug in.”
The continuing dispute over “Homeland” is one of many scuffles breaking out in Hollywood as television’s various stakeholders—the studios that finance shows, the networks that air them and the talent that produces and stars in them—try to protect their interests in the emerging on-demand TV economy.
Networks such as USA, TNT, CBS, CBS.A 0.91 % FX and Showtime increasingly want to let viewers catch up on their shows by offering all episodes that have aired during the current season, or even past seasons, via their streaming apps and cable on-demand services. They are often asking for full current seasons when they license shows for first-run airings, paying some two-thirds of the cost of production. In some cases they make renewal of shows contingent on getting those rights, as Time Warner Inc. TWX 0.39 % ’s TNT did when it green-lighted a second season of crime drama “Legends.”
The hope is that the new approach, known as “stacking” episodes, could help build audiences, boosting ratings and ad dollars in an increasingly fragmented and competitive TV landscape.
However, studios and talent benefit when reruns of TV shows, such as “Grey’s Anatomy,” are sold for the highest possible amount, and there are fears the networks are jeopardizing that pot of gold.
While producers receive per-episode salaries on shows, the potential for big TV riches lies in those “syndication” deals.
Netflix has told studios it will discount fees for streaming reruns by about 30% if TV networks make full seasons available on-demand, Hollywood executives say.

 “You have, on one hand, one party saying it will have no effect” on the show’s value, “and the other saying it’s Armageddon,” said talent agency WME’s head of television Rick Rosen, referring to the practice of “stacking” past episodes of shows.
Such tensions between talent and networks have been around for decades, but are taking a new form in the streaming era. The conflicts get thornier when the network and studio behind a show are owned by the same media conglomerate.
Some producers worry those companies will favor their own apps over selling past episodes to a third party, which might result in slimmer profits for talent.
“They are negotiating against themselves and that may not always be in the best interest of some of the profit participants,” said Justin Falvey, a TV producer who is co-president of Amblin/DreamWorks Television.
Talent and agents say they are concerned about getting shortchanged in deals involving Hulu, which is co-owned by Walt Disney Co., 21st Century Fox FOX 0.40 % and Comcast Corp.
Hulu gets access to full current seasons of its owners’ broadcast shows produced by their in-house studios, with some limited exceptions, say people familiar with the deals. (21st Century Fox and Wall Street Journal-owner News Corp NWSA 0.94 % were part of the same company until mid-2013.)
Hulu pays no specific license fees for those current seasons, but its owners can choose to direct their share of monthly subscription and ad revenue to help pay for the cost of shows—so “profit participants” such as producers benefit.
Fox doesn’t share any revenue from Hulu with profit participants, a model it believes is fair because it takes the same approach when making current-season episodes available on-demand through pay-TV providers, a person familiar with its thinking said. Disney divvies up some of its Hulu subscription revenue but doesn’t share ad revenue, people familiar with its dealings said. It is unclear how Comcast handles it.
Hulu’s media owners believe Hulu is a boon to show producers because it helps build audiences and spends aggressively to acquire library content.
But there are doubters. A few years ago, powerful producer Shonda Rhimes successfully urged ABC to stop offering all current-season episodes of “Scandal” on Hulu to maximize revenue from Netflix. Her hit drama “How to Get Away With Murder,” recently licensed to Netflix, also only offers a few recent episodes on Hulu and cable on-demand.
Some executive producers behind ABC’s “Lost” are questioning an old Disney deal that allowed Hulu to stream entire past seasons, said one of their lawyers, John Berlinski of Kasowitz, Benson, Torres & Friedman. The producers’ concerns, according to Mr. Berlinski, include: Were they fairly paid for content on Hulu, and did Netflix then pay less for old seasons?
“When equity owners such as Disney and Fox enrich themselves at the expense of profit participants, that’s a problem,” Mr. Berlinski said.
A Disney spokesman said Disney built “significant value” for “Lost” profit participants “by striking syndication deals and numerous licensing deals with multiple cable networks and streaming outlets over the years.”
Some close to Mark Gordon Co. question whether the production company is being adequately compensated for full current seasons of FBI drama “Quantico” and medical series “Grey’s Anatomy” appearing on Hulu, though they note a new show such as “Quantico” might benefit from additional exposure.
In a statement, the company said it values its ABC relationship and “has never raised any questions or concerns about Hulu or stacking.”