November 5, 2019

Original Content Arms Race: A Second Look

TDG has been actively reporting on the original content arms race amongst Netflix, Hulu, and Amazon Prime Video (the ‘Big-3’) for several years, and our research has highlighted the increased role it is playing for both customer acquisition and retention. With major services such as Apple TV+, Disney+, and HBO Max hitting the DTC market, competitive dynamics will rapidly evolve. These new entrants will have a major impact on internet-based entertainment, in general, and on the importance of original programming, in particular.

What Impact Will the New Services Have?
While Big-3 SVOD will undoubtedly feel the sting of these new competitors—Amazon less so than Netflix and Hulu—the bigger impact will be upon traditional linear TV. High-quality streaming options are now ubiquitous and increasingly viewed as legitimate replacements for mainstream MVPD services. Thus, we are rapidly reaching a tipping-point, the pace quickened by (1) the availability of robust, inexpensive options, and (2) the steepening pace at which viewers are moving from legacy linear to internet-based on-demand streaming.

These new arrivals will also spur Big-3 SVOD to unprecedented levels of content spending, especially for originals. Ballooning budgets are required in order to stand out in this crowding space, and to replace the licensed content that is being clawed back from studios-turned-SVOD-providers. The Big-3 have proven that in order to attract and retain subscribers, big, bold, eye-catching shows with mass market appeal are needed, such as Game of Thrones or Stranger Things. Streaming providers are now willing to spend as much as $15 million per episode, far more than the cost of an average hit TV show. When marketing expenditures are added to the mix, some new streaming shows exceed a $150-million price tag, which is what the major studios spend on their summer blockbuster movies.

Once untenable budgets are now rationalized by robust international growth, and will continue since content produced on an epic scale is what generally appeals to foreign territories.

Spending on Originals Will Continue to Increase
In 2018, Netflix spent an astounding $12 billion on content. Even more significant was the fact that, for the first time in its history, it spent more on originals than licensed content. In pursuit of its objective to reach a 50/50 split between licensed and original spending, the company invested roughly $7 billion on originals in 2018, 58% of its total budget. The company’s emphasis on original programming will only grow. According to Chief Content Officer Ted Sarandos, Netflix now allocates 85% of its new spending on originals.

The role of original programming at Amazon will also continue to grow in importance and, according to industry insiders, the majority of its content expenditures will be allocated to originals over the next five years.

According to TDG’s new forecasts, the Big-3 will spend more than $24 billion on content in 2019, up 50% since 2017. During this same time, spending on originals will have jumped even more dramatically, up from $3.8 billion to $13 billion (+242%). If you include spending on originals by soon-to-be-launched SVOD services from Disney, Apple, and Warner Media, that year-end 2019 number jumps to roughly $22 billion.

Conclusion
The potent wave of new DTC streaming services now entering the market have escalated the stakes in the streaming wars and pushed content expenditures to staggering heights. While no one disputes the value of high-profile licensed content, original content continues to gain in importance and will account for an ever-larger share of spending as a way for the services to stand out from the growing competition.

For more in-depth coverage of this space, see Brad’s latest full-length Report: Big-3 SVOD Content Arms Race, Second Edition: 2019-2024 Analysis & Forecasts Report.

 

Brad is a Senior Advisor for TDG and is a highly accomplished digital marketer and advisor for leading entertainment and technology focused organizations. Prior to TDG, Brad served as the marketing lead for Motor Trend OnDemand, the premier OTT destination for gearheads and was the VP of marketing at Hallmark Labs for the launch of their family-friendly SVOD service. He currently lives in Los Angeles, CA.

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