July 16, 2019

Streaming Budgets Rival Hollywood Blockbusters

The Wall Street Journal reported this past week that, as major new streaming services from Disney, WarnerMedia, and Apple are set to enter the streaming space, per-show antes are on the rise, and now cost as much for a season as big-budget Hollywood movies. While the SVOD content arms race is not breaking news, increased competition is pushing budgets to epic levels that just a few years ago seemed implausible.

So how does this story evolve?

Will OTT Content Spending Continue to Balloon?
Yes, at least for the short term. These new services know that in order to attract subscribers, eye-catching shows are needed and, thanks to robust international growth, previously unworkable production costs are now viable. Creating epic franchises such as HBO’s Game of Thrones are required in order to stand out from the growing pool of deep-pocketed competitors.

As the movie studios have shown, tentpole franchises such as the Fast & Furious and comic book adaptions are what sell tickets in foreign territories. “Big, expensive Marvel movies cross borders in a way that parlor dramas do not,” said Michael Lombardo, a veteran television executive who was president of programming at HBO.

With this global audience in mind, streaming providers are spending as much as $15 million per episode, far more than the costs of an average hit TV show. When marketing expenditures are added to the mix, some new shows are exceeding a $150-million price tag, which is what the major studios spend on their summer blockbuster movies.

Disney is reportedly spending close to $15 million per episode for its Star Wars spinoff, The Mandalorian. As we previously reported, Amazon is moving forward on the highly ambitious Lord of the Rings adaptation, which reportedly cost the company $250 million merely for the rights, with production costs estimated to reach $500 million. Other outsized productions underway includes Apple’s fantasy series See with Aquaman star Jason Momoa, Showtime’s videogame adaptation of Halo, and Warner Bros. Dune.

As to the Implications…
While it is a great time to be a consumer in search of a binge-worthy show, the abundance of content comes at a cost that will ultimately be passed on to consumers in the form of higher fees. With high-value content also being pulled back from the existing SVOD aggregators such as Netflix to air on these new DTC services, consumers will have to subscribe to more services to keep watching their favorite shows. This forces all competitors to make increasingly risky investments, as there is no guarantee that bigger budgets lead to bigger ratings. For example, the Baz Lurhmann-directed The Get Down lasted only one season on Netflix and cost $7.5 million an episode, which at that time was the service’s costliest.

Conclusion
Increased competition and international growth will continue to push greater investments in tentpole franchises. While consumers will enjoy unprecedented access to a broader range of high-quality entertainment, they will eventually be forced to pay more for it. This, in turn, raises the likelihood that advertising finds its way into Netflix and HBO, and, ultimately, pending ad-free services like Disney+.

 

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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