Ever since Netflix began producing its own series, traditional network TV executives have driven themselves to distraction over its refusal to disclose viewership numbers, or to cooperate with outside measurement companies like Nieslen. Steeped as they are in the world of ratings and advertising CPMs, TV executives have never quite groked that Netflix reckons the value of content differently.
Their obsession has sometimes led to odd spectacles, such as NBC research president Alan Wurtzel’s recent big reveal of purported Netflix “ratings” derived by the network-backed ratings system Symphony, which passively measures Netflix viewing using audio recognition technology, 
and which Wurtzel seemed to think proved something, although what that was was not entirely clear.
Netflix does not monetize content, as traditional media companies do. It monetizes viewers. How many people watch a particular episode of a particular series within a certain time window, therefore, really isn’t relevant to its value to Netflix. What matters is whether the people who are watching the series continue to do so, and whether that continued viewing enables Netflix’s recommendation engine to surface other series they’ll go on to view. People who continue to watch a series will, presumably, continue to pay their monthly subscription fee.
As discussed here before, Netflix’s different calculus puts a premium on producing and acquiring a broad range of programming, rather than on trying to pick shows that will have a broad appeal and therefore generate high ratings. That, in turn, is attracting a growing roster of A-list talent to Netflix, Amazon and other subscription services, drawn by the opportunity to break out of the creative constraints of ratings-driven television.
That talent drain is at the heart of the networks’ real beef with Netflix, and it’s what executives like FX Networks CEO John Landgraf are really talking about when they complain complain the industry is producing too many shows. The problem is not a surfeit of content, as Landgraf latter admitted, it’s the scarcity of talent, and the traditional networks increasingly find themselves competing at a disadvantage for the best.
A similar shift in the calculus of value may now be starting to creep into feature films as well. As others have reported, Netflix and Amazon emerged as the biggest buyers at this year’s Sundance Film Festival. Amazon, which had never been a buyer at Sundance before, snapped up rights to six films this year, capped by it $10 million pick up of Kenneth Lonergan’s Manchester by the Sea, the second biggest deal at the festival. Netflix, which had previously made only one acquisition at Sundance, also scooped up a half dozen this year, including a $7 million bid for Paul Rudd’s The Fundamental’s of Caring. Netflix also reportedly bid $20 million for the award winner The Birth of a Nation, which was eventually acquired by Fox Searchlight.
Hulu now too, wants to get in on the act, expressing interest in acquiring movies screened at Sundance but not yet picked up.
Apart from their aggressiveness, Netflix and Amazon also brought a very different calculus to their dealmaking than traditional Sundance buyers by pegging their valuations of films to the streaming rights rather than to the theatrical rights — Hollywood’s traditional yardstick of value.
Netflix, in fact, bought only SVOD rights, leaving it to the producers to sell theatrical rights separately. Amazon picked up theatrical rights in its deals and plans to bring in partners to co-release them, but as of now only two have theatrical distributors.
Any subsequent deals for theatrical rights, however, are now likely to involve working backwards from the prices paid for the streaming rights, reversing the usual pattern. Except in the case of movies going straight to video or TV, theatrical rights are usually sold first and the price serves as a benchmark for the film’s value in later windows.
In the case of films produced in-house by a studio with it’s own theatrical distribution arm, revenue projections for the home entertainment and streaming windows are generally derived from assumptions about it’s theatrical performance, and budgets are set accordingly.
As with episodic programming, however, Netflix and Amazon likely reckon the value of streaming rights differently from traditional acquisition executives. A movie does not need to turn a profit in its own right for the streaming services, whether in the streaming window or any other. Rather, it’s value lies in whether its availability on the service has a positive impact on subscribers’ willingness to continue subscribing.
That dynamic is likely to have the same sort of disruptive effect in the market for movie rights as Netflix and Amazon have had on the TV business. How many people end up seeing the movies they acquire in a theater, or buying the DVD, has little bearing on their value to Netflix or Amazon. But the aggressive spending for naked streaming rights could have significant bearing on their value in those other windows.
Whether that will cause independent filmmakers to gravitate to Netflix and Amazon as talent has done in the TV industry remains to be seen. But the new valuation benchmarks Netflix and Amazon are laying down are likely to spill over even onto films they don’t buy.