Kate Bulkley, Media Analyst.

Netflix’s cash changes everything

By Kate Bulkley

Broadcast News

Share |

For Broadcast January 31, 2018

From content spend to OTT services, broadcasters are playing catch-up, says Kate Bulkley

In 1977, the BBC aired the drama Spend, Spend, Spend, about football pools winner Viv Nicholson’s huge, ill-fated spending spree.

If that same title was used for another show today, it could easily star the world’s major TV and video companies, all of which are writing cheques for new content like there is no tomorrow. Everywhere you turn, budgets are soaring.

Last week, Netflix’s previously announced move to up its 2017 content spend by $2bn (£1.4bn) to a stunning $8bn (£5.7bn) this year was supported by seemingly unstoppable subscriber growth – up 8.3 million in the third quarter of 2017 to nearly 120 million globally.

This is not a spending “plateau”, said Netflix chief executive Reed Hastings; spend on both acquired and original content will go up again in both 2019 and 2020. There will be a focus on making “big titles bigger”, he added.

And who can blame Netflix when, despite a 10% price increase, it broke its own fourth-quarter net subscriber growth forecasts? The stock jumped 9% to break the $100bn (£71bn) market capitalisation level.

The TV and film model is changing and the legacy media is having to play catch-up. Enter Disney’s planned purchase of (the majority of ) 21st Century Fox, which could also have big implications for Sky.

In its recent results, Sky is taking up the Netflix gauntlet, with plans to increase content spend to £7bn this year, with a four-part drama on the life of Catherine the Great starring Helen Mirren, plus Sky Original Films, a push into movie making. (Sound familiar?)

Sky is increasing its range of over-the-internet options. More streaming options will “open up headroom” for growth in existing markets, it says, including the UK, Italy and Germany. Of course, Disney is moving into OTT streaming in a big way, which could also help Sky if it becomes part of the Mouse House.

And it’s not just Sky – UKTV and Virgin Media are also planning to spend more on original content.

”What is clear is that Netflix is spending lots of money on creating content and getting better at tapping into, and producing for, local markets”

Good news, then, for producers. Content makers are starting to take more consideration of to whom they sell and why.

The size of the cheque is still important, but as anyone who has made a Netflix show knows, the downside of selling all windows to the streamer is that your title may not get the marketing and distribution oxygen it needs to become a global hit.

So, is Netflix worried about the Disney-Fox tie-up, or big broadcasters moving into OTT, direct-to-consumer services? Hastings said that as “the leader in streaming”, he is interested to see how others implement their own initiatives.

“We have a path ahead as the leader in streaming and everyone else is trying to find one,” he said. “But we’ll learn from each other and total streaming services will grow.”

CBS, for example, is taking what Hastings describes as a “middle road” with its AllAccess streaming service – retaining some exclusive content while licensing its new Star Trek: Discovery franchise on Netflix internationally.

Netflix’s next inroad will be onto set-top boxes and as part of an IPTV or pay-TV operator’s bundle. It already has this with Virgin Media in the UK, though not with Sky.

Another question is the impact on national storytelling, long the modus operandi of TV broadcasters who see catering for a local market as the key differentiator.

In this new global market, do the economics of national storytelling become more difficult? I would say so. The solution is not clear, but even Sky has called to level out the playing field.

What is clear is that Netflix is spending lots of money on creating content and getting better at tapping into, and producing for, local markets.

Even with a $39m (£28m) write down for “unreleased content” due to a “societal re-set around sexual harassment” (the sexual assault accusations against House Of Cards’ Kevin Spacey), Netflix is unquestionably a force to be reckoned with. Get used to it.

Columns Menu