How Netflix Is Shaking Up Hollywood

Netflix is shaking up Hollywood, spurring media companies to experiment with new ways of doing business and changing the economics of producing some types of programming. TV and film studios once saw Netflix simply as a way to make some extra money licensing older shows and movies. Now, they view the streaming site as a potential financier, a launch pad for original shows and an aggressive buyer of some programming that is less valuable in the TV world.

In the process, Netflix, along with other digital-video rivals, has become a significant driver of media-industry profit growth. Big media companies generated about $1.6 billion of revenue last year from licensing their content to such services. Though that represents just 1% of their aggregate revenue, it accounts for a large percentage of operating-income growth, according to Bernstein Research. But there are tensions, too. Netflix has gotten more demanding on exclusivity in the face of growing competition from Amazon and other outlets, and more finicky about what it will carry. In the past year it has begun dropping shows it says weren't performing well on its site and seeking to cherry-pick studio's catalogs for specific shows and episodes, some studio executives say. Analysts say that could make it harder for media companies to sustain growth in digital licensing revenues in coming years.