Tellynomics 50: Netflix and TF1 - the first hint of a transformational change? (Pt.1)

Two weeks ago, in Cannes, Netflix and TF1 announced a distribution agreement by which TF1 – in respect of both linear channels (all five) and on-demand shows (30,000 hours of catch-up and archive from the TF1+ streamer) – will be offered within the Netflix service in France, staring in 2026. This is either a quirky one-off in France, or a major transformational moment for the whole TV industry worldwide, or something in between.

What the deal is, and what it isn’t

When initially grappling with the announcement, my first question was who sells the advertising? There was initial confusion on this point, with some touting this idea as genius on Netflix’s part because it would be a further boost to the Netflix ad revenue ambitions. But it seems that it is TF1 that will sell the ads, using its TF1 Publicité system, backed up by audience measured by Médiamétrie, the industry standard.

This makes sense, with TF1 retaining control of its core revenue model and the direct links with its key advertiser base. It also debunks the idea that this is “just a content supply deal”. In a content supply deal, Netflix pays a flat fee to the content provider and takes all the ad revenue it can generate for itself, but that’s not what’s happening here. The economics and motivations are different.

On the matter of ad revenue, two or three questions remain for me:

• First, is Netflix taking a share of the TF1 ad revenue, as its reward for providing this monetisation opportunity? More on this below
• Second, how will the TF1 advertising imperative align with the Netflix ad-supported and ad-free tiers? My guess is that this is straightforward for the ad-supported tier but is more tricky for the TF1 content when presented in the ad-free tier. In this latter context, the ads could be disabled for the on-demand shows, but retained for the live channel streams (because there is no easy way to take them out and keep to the live clock time – what would you replace them with?)
• Third, the answer above poses a supplemental question: if the TF1 ads are removed from on-demand shows in the ad-free tier, what’s in it for TF1? Surely if people are paying a premium to watch TF1 without ads, TF1 needs to benefit. This leads me to wonder if TF1 will be paid a share of the price difference between ad-supported and ad-free Netflix tiers (€13.49 versus €5.99) for the ad-free customers?

Who is paying whom for carriage?

Putting the ad revenue issues to one side, the next question for me is the wider issue of whether one party is paying the other for carriage. Payment in either direction is a possibility and the best way into the issue is to ask who benefits, how much, and whether it might be something they would pay to secure.

TF1 wants visibility

It does not seem that TF1 is acting out of desperation. They remain a strong player with linear reach of 58m individuals and 35m TF1+ users. Meanwhile there are c10m Netflix homes in France, so perhaps 25m viewers, using an average of 2-3 individuals per subscriber. Some of these Netflix viewers will drop in to Netflix to watch a specific show and then come out again, and these are no great worry for TF1.

The ones to worry about are the more serious Netflix devotees, those for whom the daily viewing experience starts and possibly finishes within the Netflix environment, with the viewer rarely leaving, finishing one show and moving on to another. For these viewers, TF1 does not get a look-in. I suspect that TF1 worries that the number of such homes is growing. If so, there is value to TF1 in being placed inside the Netflix environment, to restore visibility in these Netflix devotee homes, improving TF1's chance of enjoying some drive-by viewing.

To be clear, this is not about gaining access to homes in which TF1 would otherwise not have been available. TF1, linear and streaming, is predominantly a free service (there is also a paid-for ad-free version of TF1+), so is likely to be available in all the Netflix devotee homes, probably on all the same devices and smart TVs. This is about visibility and the finer points of how viewers navigate their way within and between services in the digital world and what they see on their journeys.

As in the UK, France has rules to try to ensure the “due prominence” of public service broadcasters (PSBs), in the digital era, but perhaps TF1 does not trust that these will offer sufficient protection. In which case, perhaps it is better to take matters into your own hands and set out your stall within one of the main attractions. Certainly, in respect of the Netflix devotees, due prominence is of little help to TF1, because if the home is already in the habit of starting and remaining in the Netflix environment, they won’t really see the TF1 tile, however prominent it may be on some front screen. The only place to be noticed is inside Netflix. Then at least they have a chance of a TF1 show being selected as the next show to watch.

There is a catch, however. The move might lead some other people, who would otherwise have habitually remained within a TF1 environment for extended periods, to relocate to the Netflix environment for their TF1 viewing. This means that when they have finished a TF1 show, they have far more immediate choice of what to watch next, so their TF1 viewing might decline.

Given this trade-off, what might we infer about TF1’s decision to take the plunge? I think it means they know they are fighting a losing battle. There are too few people who are inclined to sit within a TF1 environment, cycling from TF1 show to TF1 show (which means there is little left for TF1 to lose here) and too many people who sit within a Netflix environment and might never see a TF1 show.

It all comes down to placement

One last observation on value to TF1. As good as the theory of value to TF1 might be, in practice it will depend on the details of the placement and prominence that they are, in fact, afforded by Netflix. I’m sure TF1 have done their best to secure contractual commitments in this regard, but there are so many variables that it is impossible to be precise, to be sure of the experience in the real world.

This suggests that TF1 should be wary about paying a fixed fee for this carriage and should lean towards a structure linked to results. If there is a payment from TF1 to Netflix for carriage, it would make sense that this was based on a share of TF1 ad revenue generated. This would align incentives. TF1 would pay more if they enjoy more viewing and more ad revenue, which is a function of where Netflix puts the TF1 content. Indeed, if Netflix is taking a non-trivial share of ad revenue, they have a non-trivial motivation to see viewing accrue to TF1 content.

Netflix wants enhanced dwell time in the garden

The benefit is not all one-way, however, and Netflix also sees strategic value from this arrangement. Netflix is doing well in France, but 10m subscribers is some way short of the level of penetration it enjoys in the US and the UK. This deal could help.

Notwithstanding the rise of the streamers, TF1 retains a strong portfolio of major content draws including sport rights (including extensive coverage of men’s and women’s national football and rugby teams, and select F1 rights) plus a range of long-running continuing drama and daily soaps, alongside major entertainment and reality shows and tentpole dramas. This content has established awareness among French TV viewers and is must-watch for many people. Much of this high-profile content is live, or at least content that demands to be seen live, or near-live, to make sure you are up to date with everyone else. This means that Netflix users will currently leave Netflix to watch TF1 at the appointed time. Once they are out, and have seen the must-watch show, they might be distracted by something else in the TF1 environment, or by something else entirely, before returning to the Netflix environment.

By bringing TF1 inside the Netflix environment, when Netflix customers inevitably look to engage with this must-see content, they don’t need to leave. This means that when the appointment-to-view event is over, the viewers drop out back into the Netflix environment and are more likely to select a Netflix show next. There is less distraction, they are less like to head off somewhere else entirely.

This leads to enhanced dwell time for Netflix, which helps with Netflix ad revenue. The major benefit, however, is that more time spent in the Netflix world leads to a greater sense of value from Netflix, greater willingness to pay, reduced likelihood of churn, and so on.

Netflix would pay for some of that, in principle at least.

The balance of benefit – who pays whom?

Putting all of that in the mix, I return to the original question: who pays whom for this carriage?

The fact is we can’t be sure which of these effects dominates. Even if we had a firm view of which is the greater benefit, negotiating strength and guile can affect how this plays out in a commercial discussion. Money could be flowing from TF1 to Netflix, or from Netflix to TF1, or they could have agreed that it was a wash and no money changes hands, or it might even be that money flows both ways.

Note that there is precedent for this sort of uncertainty. As an example, thirty years ago, there was a protracted commercial and legal battle between MTV, the music video TV channel, and the music labels. The labels thought they should be paid by MTV, because without their videos MTV would not have a business, no channel carriage fees, no advertising revenue. But MTV thought the labels should pay them, because exposure on MTV, just like exposure on the radio. created awareness and fandom, which the artists and labels could monetise in other ways (sales of recorded music, tickets for live performance, etc). I’m not sure the sides ever agreed before the whole debate faded into irrelevance.

Note also that the last of the suggestions above, that money could flow both ways, is not as silly as it first sounds, because the structure of the flows would be different. The TF1 value to Netflix is fixed, a function of the known big shows and events that TF1 brings each year, so could be reflected in a fixed annual payment. It’s then up to Netflix to turn this into value.

But the value of Netflix carriage to TF1 is more variable, a function of the prominence afforded the TF1 shows day to day. This is perhaps better reflected in a variable revenue flow, performance based, a function of the prominence delivered. This means that it might make sense for both financial flows to be in place, with the net effect not pre-determined.

Room for more in the big tent?

Next question, if this works for TF1, will there be others within France?

As an initial observation, the TF1 arrangement with Netflix is bad news for all others in France who remain outside the tent. If it works as planned, more French TV viewers will stay for longer within the Netflix environment, so there will be less passing trade elsewhere, so viewing to other services will suffer.

This might mean that other broadcasters will be interested to join TF1 in the Netflix tent, but it’s not clear that Netflix will want them. Only those with genuinely distinctive content would be of interest to Netflix. They need to bring content that will draw people in to the Netflix environment and contribute to them not leaving as often. Middle of the road content is of no interest – if it is not a big draw, it just becomes part of the wider soup of content, soaking up some viewing share for no strategic benefit. Do other free broadcasters in France boast the same degree of draw content as TF1, or is there too much soup? I would not claim to be an expert so I will defer to others, but I could imagine that TF1 stands alone.

Even if others do boast significant must-see-live content, and Netflix is interested, TF1 would prefer they that they are not invited to join the club and might even have secured agreement to ensure this will not happen.

The reason is that for TF1, it is positively preferred that some are left on the outside of this new arrangement. To take an extreme example, if everyone joined TF1 inside the Netflix tent, everyone would be in the same boat and the benefits secured by TF1 would cancel out. Viewing share is largely a zero-sum game and TF1 prefers some to be left out so that they suffer, and their losses can be TF1 gains. This does not mean that TF1 will necessarily be the only one – the optimal balance might involve more than TF1 working to draw and retain the crowd – but there do need to be some excluded for this to work.

In this context it is interesting that France Television has since announced its own streamer carriage deal in France, with Amazon Prime. Perhaps FT sees the benefits in principle, just like TF1, but thinks Amazon Prime is the better partner? Or perhaps they were rejected by Netflix and TF1 and may have had to make do with the second-best option.

Did anyone ask the regulators?

All of which poses a further question for the French scenario: are we sure that Netflix (and TF1) are allowed to discriminate like this and establish for themselves an exclusive in-crowd that exploits others? Might there come a point when carriage within Netflix is seen as essential for fair competition among PSBs, or even PSB survival, and so must be available to all? If this question comes to be asked, the market power of either Netflix or TF1 could be the hook that leads to intervention.

Granted, I would be surprised if Netflix is fretting about these sorts of issues at this stage. But history suggests that these issues come with the territory in Europe if you set yourself up as a vertically integrated distributor.