‘Friends’ In Need

Who needs “Friends” more, Netflix of AT&T’s WarnerMedia? 

That was the question put by this week’s headline-grabbing deal in which Netflix agreed to pay $100 million to keep streaming rights to the venerable sitcom for another year. After that, Netflix may still get access to Rachel and the gang but the series is also likely to become available on AT&T’s planned direct-to-consumer streaming service as well.

“Friends” is obviously a valuable series to Netflix, or it would not have paid so handsomely for non-exclusive rights. But calculating that price would have been a fairly straight forward process for Netflix. It knows how many of its subscribers watch the series and how often, and it can calculate its value for attracting new subscribers. For AT&T and WarnerMedia, not so much.

AT&T plans to launch its direct-to-consumer service at the end of 2019 and plans to populate it largely with its own programming, at least in the early years. While Warner has a vast library of content, going back decades, from its many film and television production studios, it doesn’t calculate the value of the movies and TV series in that library the same way Netflix would. 

Like Netflix, AT&T is in the business of selling subscriptions: to wireless service, broadband, landline phone service, and more recently pay-TV through its acquisition of DirecTV. WarnerMedia, however, is built around selling content, in discreet units, for limited times. It has to reckon not just how much a piece of content is worth, but where it worth the most, as AT&T CEO Randall Stephenson acknowledged this week

Is “Friends” worth more in broad distribution through platforms like Netflix, or being kept out of circulation to be used as an exclusive to drive subscriptions to the new streaming service? 

And “Friends” is a fairly easy case. The series is more than 20 years old and, presumably, its costs have long-since been recouped, apart from residuals. So in a sense, AT&T and Warner are playing with house money. 

AT&T also spent $104 billion to acquire Time Warner, including assumption of debt, and now has more than $180 billion in debt on its balance sheet. It can’t really afford to leave a cash cow like “Friends” in the barn without fully milking it. 

But not every series is going to command the sort of premium “Friends” can pull in for a non-exclusive deal. AT&T is going to have to make a tricky calculation for every piece of content WarnerMedia owns, and for every new production it finances: Is this movie or series worth more in distribution, or driving subscriptions? 

That could make for some difficult investment decisions, to say nothing of negotiations with potential investors, creators and other rights owners in a new piece of content. 

Over time, as AT&T collects more direct consumer viewing data, that calculation could get easier, or at least more reliable. But there’s a long way to go between now and then.