This we know: The kids TV landscape is no longer what it used to be pre-Netflix, YouTube, Amazon and Hulu. Netflix, in particular, now boasts more than 65 million subscribers worldwide, and its global content spend will approach a colossal US$5 billion in 2016. In short, the rapid shift in kids and family viewing habits from more traditional appointment television to SVOD platforms and time-shifted viewing is having an impact on all areas of kids programming from development, funding and production, to marketing, distribution and acquisitions.

Distributors, in particular, now have the complicated job of determining how to parcel out original and third-party content amongst a growing number of emerging local digital kids platforms, the major global SVOD companies, and traditional broadcasters with catch-up services. The issue? All parties are clamoring to control as many rights as they can, including the most alluring of them all—the exclusive first window.

The most recent reflection of how much the arrival of SVOD has changed the industry occurred on August 13 when HBO entered into a five-year agreement with Sesame Workshop to bring the next five seasons of the iconic Sesame Street to the subscription cable giant and its multiplex channels. The landmark deal will see HBO debut the new 46th season of Sesame Street this fall, nine months ahead of longtime broadcaster PBS KIDS and its member stations.

While the exclusive, first-run aspect of the partnership has drawn criticism in the US consumer press for limiting access to the series to families who can afford HBO, the deal has been lauded within the children’s TV business. Put simply, without HBO’s financial help, Sesame Street may have ceased production. The Workshop will now be able to continue offering the series to PBS viewers for free and will produce nearly twice as much new content with season episode totals increasing from 18 to 35.

In a company statement, Sesame Workshop CEO Jeffrey Dunn said that the deal represents a great merging of public and private funding models, wherein HBO will
provide the show with critical funding that can then be applied to the programming and educational outreach of the 45-year-old nonprofit.

The deal also sheds light on the rising value of high-quality kids content to SVOD companies that don’t have massive libraries of children’s shows, like Netflix or Amazon.

In a recent Kidscreen online exclusive, HBO president of programming Michael Lombardo said, “We have been discussing the children’s area more and more recently, especially in light of our expansion into streaming platforms with HBO GO and HBO NOW.

“Children’s programming plays very well on those types of services. So, when Jeffrey Dunn began talking to us about Sesame Street, it didn’t take us very long to realize that it was a perfect fit.”
As to whether or not HBO will increase its investment in kids content, Lombardo contends that the network will be very selective if it chooses to pursue children’s programming and is in no hurry to grow a large library.

However, recent reports examining churn rates for SVOD services may explain why it could be in HBO’s best interest to keep up with the Netflixes and the Amazons of the world when it comes to kids content. According to the OTT Video Market Tracker from US research firm Parks Associates, cancellation rates are very high for OTTs compared to cable networks. Approximately 4% of US broadband homes have discontinued their Netflix subscription in the last year, accounting for almost 9% of the SVOD’s subscriber base. And Hulu’s 7% churn rate for its Hulu Plus service over the past year represents a whopping 50% of its subscriber base.

Hasbro’s My Little Pony is one of the most popular shows on Netflix’s algorithm

The data suggests adult viewers have an easy time cancelling or switching their services after binge-watching their favorite shows. Taking into account subscribers who are parents of young children, it makes sense that SVOD services would want to increase the long-term loyalty of this group by offering easily accessible, quality kids shows.

In David Kleeman’s recent Kidscreen blog “Children are the future of SVOD,” the SVP of global trends for UK-based digital agency Dubit submits that children’s programming is the glue that keeps families subscribed to an SVOD service in between new seasons of flagship shows for adults. Interestingly, Dubit Trending’s second wave of its quarterly tracking survey found that 20% of US families in VOD households responding on behalf of two- to four-year-old children have changed video service providers in the past 12 months—higher than parents of any other age group (five to seven, eight to 10, 11 to 15). The survey also found that convenience and access to favorite series in their entirety were the most appealing features of OTT video for parents of kids of all ages.

With opportunities for OTT services to offer either more, or the right balance of quality preschool shows with the rest of their kids and family lineups, producers and distributors are turning the heat up on their SVOD business.

The Jim Henson Company, for example, has as a long history of successful worldwide digital distribution growth. It produced Hulu’s first original kids show Doozers. Jim Henson Family TV was one of YouTube’s first paid channels.Its preschool toon Word Party, meanwhile, will launch as a Netflix Original series in 2016, and new series Lily the Unicorn marks the studio’s second pilot for Amazon Studios.

EVP of global distribution Richard Goldsmith says the digital platforms that have emerged have had a dramatic impact on what The Jim Henson Company produces and how it distributes content. “Not only are they clients for our TV content as second windows, but they also have increased our reach, and therefore brand awareness, which allows us to merchandise our properties,” Goldsmith says.

But it’s not all smooth sailing. The biggest day-to-day challenge, he notes, is negotiating fair rights and windows. “Virtually every client we work with in the TV, DVD or VOD business wants to control as many rights as they can and limit what we do with those rights,” he notes. “So every single deal becomes a long negotiation about what is equitable both from a monetary and a rights and windowing standpoint,” he says. “The other main issue we face is discoverability of our series amongst all of the existing and new platforms.”

“How quickly will the measurement mechanisms catch up to prove that all of the things we’re doing outside of linear are working?”

– Caroline Beaton, Viacom

To boost brand awareness, Henson has employed a number of different tactics. In its deal with Hulu and US home entertainment partner NCircle for the recent Doozers DVD launch, the company offered a promotion whereby DVD buyers could receive a free month of Hulu. The Jim Henson Family TV YouTube channel is also used, according to Goldsmith, as a means to distribute limited content with branding from Henson’s other partner platforms. “We do this both globally and locally,” he says.

Speaking of global, in addition to regular negotiation and discoverability issues, distributors now have to contend with the expansion and influence of Netflix, which is currently in more than 50 countries and increasingly looking to secure exclusive global rights for the series it commissions and acquires. But local SVOD services are also proliferating. So when does it make sense for a distributor to sign a global deal with Netflix versus parceling content out to local partners?

Due diligence is the approach taken by Hasbro Studios SVP of global distribution and development Finn Arnesen. “You have to go into these types of negotiations knowing what you want,” he contends. “If an SVOD platform wants a global deal, then you as the producer and distributor have to find out what global really means because there are certain platforms that aren’t truly global yet. If you do want global reach, then you have to look at either TV networks or other platforms that really do have global impressions. You need to look at your markets regionally and find out where you’re strong and where you need to be stronger.”

For Goldsmith, it’s a matter of looking at what you have to offer first. “When we have shows where worldwide rights are available, we generally pitch those series to traditional TV networks (first windows) and SVOD platforms (second windows) that are both global,” he says. “One of the main differences between the two scenarios is when you do a deal with one of the global SVOD platforms, it’s not likely to have the largest viewership in every given country in the world. If we lead with TV, it at least gives us the ability to have a first window on a very large platform that we can handpick in every market around the world.” Although there can be benefits to working with one global SVOD platform, he notes. “You benefit from all of their marketing and promotional support versus having to coordinate with myriad partners.”

Josh Scherba, SVP of distribution at DHX Media, agrees that Netflix’s more global approach is having an impact on deal negotiations. But he sees strong parallels between SVOD deal-making today and traditional broadcast deals carried out with the global kidsnets. “There will absolutely be opportunities to do SVOD deals on a local basis, territory by territory,” he says. “There are a great number of emerging SVOD partners, whether it’s Sky pushing into SVOD in the UK, Canal+ in France, DLA in Latin America or a service in Spain we’ve worked with called Wuaki TV—they will all be competing on some level with the US-based SVOD giants.” For his own deals, Scherba decides DHX’s direction based on the IP in question. “One of our main objectives is to determine the best platform for the IP in terms of exposure and connecting with the audience we’re trying to reach. Then we weigh the economic realities of producing children’s TV and look to get the best financial deal that we can.”

“Everybody would love to sign a nice global acquisition with one of the global studios because it makes great sense to get your product out quickly in one deal, but the reality now is there are more small players who need content,” contends Dominic Gardiner, CEO of London-based boutique operation Jetpack Distribution. “However, looking at digital and VOD, the amount of money that is available in some markets is quite small, even with low-cost digital delivery. The market is growing, which is great, but the money is not quite there yet outside of services like Netflix and Amazon.” Additionally, SVOD is only part of the plan when it comes to series with consumer products aspirations. “SVOD can’t carry the brand on its own,” he says. “Windowing needs to be reflective of the audience’s needs, and what people are prepared to pay for, as well as ensuring that any ancillary revenues are properly supported. The model hasn’t really changed—there has just been a shift in terms of who vies for first position on a new IP.”

The fact that Netflix has become the first window for several series, not to mention 300 hours of original programming from DreamWorks Animation, however, indicates just how much the traditional broadcast business has been disrupted by the rise of SVOD services. In the US, cable companies shed 658,450 subscribers in the second quarter of 2015—their worst-ever quarterly drop in subscribers, according to global tech analyst IHS. And fears around the health of the TV biz resulted in big stock-price slides in August for Disney, Viacom, DreamWorks Animation and Time Warner. But despite the uncertainty and falling US ratings for kids-specific nets, new reports reveal that linear kids TV is actually much better off than many analysts previously believed.

According to Nielsen’s new study Kids Audience Behavior Across Platforms, traditional TV is still the favored platform of media consumption for preschoolers through teens, and children’s programming remains the most popular TV genre for all kids ages two to 17. Similarly, new research from PwC’s US Consumer Intelligence’s Media-savvy kids, teens want engaging stories on multiple devices found that 79% of kids who watch TV are choosing network TV shows, kids eight to 18 engage most in viewing live network television and kids learn about new programming primarily through commercials. For Viacom’s SVP of international program sales Caroline Beaton, linear TV is definitely not a thing of the past, but it is changing.

Viacom has opted for local SVOD partners in the Nordics. TV2 Norway and TV4 Sweden now send kids TV series straight to streaming.

Beaton points to an international study commissioned by VIMN earlier this year entitled TV Redefined. Among its survey respondents ages six to 34, the report found that 71% of viewers go to TV first to discover programs; the ability to access content in multiple ways leads to higher engagement with television only if the content is compelling to viewers; and there is no dominant non-linear content source.

“The research supports that you can’t really separate linear from digital in terms of platforms or strategies. You have to become platform-agnostic,” says Beaton. “For us, it has been a natural evolution. We started like everyone else by licensing simulcast or catch-up rights on the back of what was essentially a broadcast deal. And now it is not seen as something you can split out. SVOD is a key component of any negotiation we do, even if the deal is driven by a linear platform.”

For the company’s deals with both global and local platforms, Beaton says Viacom creates windowing strategies based on what the viewer wants the most. For example, its exclusive, long-term deal with Swedish VOD platform Viaplay for 1,400 episodes of Nick series came about, in part, because kids tend to be early adopters of mobile technology in the Nordic region, and its TV landscape is changing.

“There are various broadcasters around the world that no longer have linear slots for kids content. These include TV2 Norway and TV4 Sweden that are launching their kids content straight to their SVOD platforms,” says Beaton. “They don’t see this as a radical change, but I don’t think the whole world is suddenly going to go straight to SVOD with no linear. It goes back to using the platform-agnostic approach.”

For Sam Tewungwa, BBC Worldwide’s commercial director of TV and VOD sales, there is no one-size-fits-all solution when it comes to forging a global versus local deal. There are tradeoffs around control, flexibility and efficiency.

“If you want, for instance, to build a CP business off the back of your licensing activity, you’re going to want more control over how your show is windowed, scheduled and marketed in individual territories,” Tewungwa says. “On the other hand, if you’re not trying to build a big CP business, it may make sense to do one global deal rather than multiple local deals and give up some of the control, if the financial numbers make sense.”

When asked about the issue of pubcasters wanting more full series to put up all at once on their own VOD services for catch-up viewing, Beaton says the concern is more about what the market will bear. “Regardless of whether you have non-exclusive windowing or one party with exclusive rights, what you don’t want is saturation of a brand or a show to the point where it has no value,” she says. “No matter how much preschoolers will watch the same episode, you don’t want your programming in heavy rotation across free services, because viewers will lose interest.”

Goldsmith says he understands the need for broadcasters to preserve their audience and have a robust offering, but distributors should be mindful of their additional digital rights when negotiating catch-up rights with broadcasters. “We need to limit how much is available to be seen for free, as it significantly affects our transactional business,” he says.

Looking to the future, Beaton suggests that data will play a much bigger role in how distribution deals play out. “How quickly will the measurement mechanisms catch up to prove that all of the things we’re doing outside of linear are working, and how quickly will the rest of the world catch up? Will all our consumer products partners think that non-linear is as important as linear?” she muses. “This disparity is interesting and directly correlates to ad revenues, but we expect to see many new ad sale models and ways to generate revenue down the road.”

For all the ins and outs of windowing and the contentious nature of program rights, CAKE Entertainment MD and CCO Ed Galton believes, “We’re in a good era at the moment.” He notes that well over 50% of CAKE’s business is now in digital distribution and that Netflix is its biggest client. “But we’re selling our content farther and wider than we ever have before. It’s not just a free-TV, pay-TV, home entertainment deal anymore. As far as exclusivity, I’m not sure that every SVOD platform in the kids space has the need for exclusive content because kids consume content on all types of different platforms and it doesn’t matter whether it sits on one or many—it’s still going to get watched.”