June 4, 2014
by Samantha Bookman
How much are online video providers spending on original content this year? While Netflix (NASDAQ: NFLX) has always been pretty open about the amount of money it’s dedicating to its original series, others like Amazon (NASDAQ: AMZN) and Hulu are not so forthcoming.
Sussing out how much money OTT providers are dedicating just to original series is a task that industry analysts spend a fair amount of time on. But in most cases they can only estimate dollar figures, and often only a rough guess at the total amount a given provider is spending for all its content acquisition.
“We can maybe identify $500 million to $750 million of content deals per year of the companies we do cover. But (it’s) impossible to know as it is a snapshot,” Michael Nathanson of MoffettNathanson Research told FierceOnlineVideo.
With that in mind, here’s a stab at the dollar amounts for content acquisition–both existing, non-exclusive content and original, exclusive content–of three top online video companies: Amazon, Hulu and Netflix. We also take a look at how content spending has grown at these providers in the last three years.
|(Image source: Netflix)|
Among all three providers, Netflix is the easiest to track when it comes to spending on original, exclusive content. The SVOD provider routinely breaks down the numbers in its quarterly earnings reports. And, while it is far and away the biggest spender on original content, it still takes a conservative tack. Netflix CEO Reed Hastings told investors that the provider will keep spending on its original series below 10 percent of its total content acquisition budget.
That’s still a hefty sum–about $400 million, based on Netflix’s stated content budget for 2014 of between $3 billion and $4 billion. But some of its properties, most notably House of Cards with its reported $100 million production cost, eat up a big chunk of that set-aside amount.
|Screenshot: Amazon’s upcoming originals.|
Amazon is getting the most attention from industry watchers, considering its position as Netflix’s closest online competitor. And its original content spending may be on par with–and perhaps well over–that of Netflix. In 2013, the SVOD and transactional VOD provider said it would spend about $1 billion producing several original series.
Two of its original series, Alpha House and Betas, debuted late last year. Its first original kids’ series, Tumble Leaf, debuted May 23. Two more childrens’ series,Creative Galaxy and Annedroids, will launch over the summer, and six more of its original series pilots were greenlit for full seasons.
Splitting Amazon’s billion-dollar pledge between last year and this means the provider may be spending at least $500 million on original content this year–$100 million more than Netflix’s planned original content budget. But that’s just a guess. BTIG analyst Rich Greenfield told FierceOnlineVideo that Amazon’s original content spending may be much higher. “We believe (it’s) around $1 billion currently,” he said in an email.
“Amazon is likely spending more than $500 mm and, like Netflix, is growing increasingly focused on both exclusive syndicated programming and original programming,” Greenfield wrote in a January 2013 research note.
That amount will likely continue to increase.
A look at Amazon’s most recent 10K report to the Securities and Exchange Commission shows the retail giant spent $1.383 billion for “technology and content,” a segment that includes its Prime Instant Video content acquisition. It also forecast that it will spend $1.991 billion in 2014 on technology and content. Again, the amount of that figure that is dedicated to content acquisition alone isn’t known with certainty. But it’s notable that its spending in this area has jumped more than $600 million.
With more pilots greenlit for production by its Amazon Studios unit, look for the original content race to continue between these two OTT behemoths.
|Estimated total content spending for Netflix and Amazon, 2012-2014. Netflix budgeted upwards of $4 billion this year, though its original content spending will only be about $400 million. Amazon’s estimated content spend is at least $1 billion, though the cost of its original content is unknown. (Compiled from multiple sources.)|
With the red-hot race between Netflix and Amazon, it’s easy to overlook the amount that Hulu is spending to bring its original content to the fray. Hulu’s subscriber base is much smaller, with about 6 million paying subs and an average of 30 million unique viewers per month.
|Screenshot: Hulu Originals|
But, after a plan to sell the company faltered, Hulu drastically increased its original content budget this year: At its upfront presentation in May, new Hulu CEO Mike Hopkins said the OTT service would triple its investment in original content.
With its triple-sized bet on original content, the OTT provider’s budget is jumping as well. It has more cash to make the move, thanks to a $750 million investment last year from major owners including Fox, Disney and NBCUniversal.
It doesn’t seem like much compared to the billion-dollar budgets of the big SVOD services, but Hulu is apparently banking on slow and steady audience acquisition from viewers looking for content beyond its library of licensed series.
“Hulu’s originals are aimed at a sweet spot of 1 million to 3 million viewers, akin to popular cable skeins…” Variety’s Todd Spangler wrote in a 2013 article. “That’s a big enough audience for a show to not be ‘some crazy obscure thing’ but not so large the content must try to reach mainstream viewers.”
“Hulu content falls into three main chunks … last night’s TV from broadcast networks, a back catalog of library and international content, and originals, with the latter comprising only about 5 percent of Hulu viewing,” CNET’s Joan Solsman wrote last fall.
Hulu plans to add six more original series to its lineup this year, adding to the nine it already debuted since late 2011.
The provider is also making some key moves on the personnel front, hiring Craig Erwich, a seasoned television content executive, in March to lead its content efforts. It also hired away Jenny Wall from Netflix in May, placing her as SVP of marketing. With her experience at HBO and Netflix–where she boosted the brand image for series like Orange Is The New Black and Arrested Development–Hulu signaled it’s serious about competing for eyeballs in the OTT space.
How will these numbers actually play out? Hang on until midyear, when more analyst reports become available. Last year, research firm Needham Insights released its 2013 Future of TV report in mid-July. Other research reports were released mid-year. So, more data about content spending will become available as providers release their second-quarter earnings results over the next several weeks, and analyst firms finalize their best estimates on these three providers.