In deal coverage, the devil is in the details

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Last year, the Washington Redskins stunned their fans and the rest of the National Football League when they signed quarterback Donovan McNabb to a new deal at a time when he and the team were struggling. Headlines blared on sports pages across the nation that McNabb had signed a five-year, $78.5-million contract extension with $40 million guaranteed and would retire a Redskin.

Of course, within a few days it became clear that those figures, while not bogus, were highly unlikely to ever be paid out. In the end, McNabb pocketed a couple of million dollars and is now on a different team.

Big money grabs big headlines, but be careful to check the fine print. On Thursday, CBS Corp. and Time Warner Inc.’s Warner Bros. announced a deal to sell programming from its co-owned CW Network to Netflix. The news release had been out for only a few minutes when the whispers started that the deal was worth close to $1 billion. Within the hour, Wall Street analysts were touting that figure as well.

While CBS, Warner Bros. and Netflix declined to comment on the terms of the agreement, two of those three parties weren’t going out of their way to downplay the billion-dollar figure. The New York Times even wrote that ‘the Warner Brothers Television Group of Time Warner and the CBS Corporation announced a $1 billion deal’ with Netflix.

CBS and Warner Bros. could indeed end up getting in the neighborhood of $1 billion for their programming, but like McNabb’s contract extension with the Redskins, a lot has to go right for them for that to happen.

Netflix is basically buying the rerun rights to CW shows such as ‘Gossip Girl’ and ‘The Vampire Diaries.’ One reason why CBS and Warner Bros. were motivated to enter the agreement was because serialized dramas, which are what the CW specializes in, typically do not sell well in the rerun market.

The agreement will definitely pump lots of money -- hundreds of millions of dollars perhaps -- into the wallets of CW owners CBS and Warner Bros. However, how much cash won’t be known for years. That’s because this is not a one-price-fits-all deal. Some shows, such as ‘Gossip Girl,’ will go for a lot, perhaps mid-six figures per episode. Other shows that are less popular won’t be sold for anywhere near that. How many episodes a show is on for will also determine how much Netflix pays.

None of this is meant to imply that this agreement is not very significant for CW and its parent companies. CBS CEO Leslie Moonves said the money Netflix will be spending on CW products will make the venture profitable and is a big deal.

The problem is that the media and analysts are doing a disservice to readers and shareholders by implying that Netflix wrote a billion-dollar check to CBS and Warner Bros. and not at least noting there are a lot of intangibles in these deals and it will be years before the final value can be determined. The Times noted the billion-dollar figure being touted but added that the final worth of the contract ‘could end up being far less.’

It’s not as sexy, but it is more accurate.

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-- Joe Flint