According to Reuters, Netflix CEO Reed Hastings (NFLX) said companies like Disney (DIS) and Apple (AAPL) will boost already rising production costs. The SVOD (subscription video-on-demand) streaming market is filling up with new players entering the space in November 2019 and April 2020. And, big names in the media and entertainment industry plan to monetize large pools of content through streaming.
Reed Hastings said, “Someday ‘The Crown’ will look like a bargain.” “The Crown” is one of Netflix’s most expensive original content. Also, the show spans 60 episodes over six seasons. Its third season will begin on November 17. The company spent $125 million on producing “The Crown.”
Netflix CEO sees a significant increase in content cost
Seeing the success of “The Crown,” Reed Hastings said that Netflix will increase its investment in British television production next year. It spent ~$500 million in the UK this year. In July, Broadband TV News said Netflix will create a production hub at Shepperton Studios to produce more content in the UK. Its first original production at Shepperton will be “The Old Guard.”
Netflix spent over $12 billion on content in 2018. However, the company plans to spend $15 billion in 2019 and $17.8 billion in 2020 on content. The content cost includes money spent to purchase, license, and create content.
Netflix CEO finds new content to pursue
Disney (DIS), Comcast’s (CMCSA) NBCUniversal, and AT&T’s (T) Warner Media once streamed their content on Hulu (HULU) and Netflix. Soon, the former three media companies will have their own streaming platforms. Netflix lost streaming rights for NBC Universal’s “The Office” and Warner Media’s “Friends.” These programs will now appear on their developer’s streaming services Peacock and HBO Max.
Netflix CEO noted that an increasing number of streaming services will see rival platforms compete for best content and talent. For instance, Netflix bought the streaming rights for an old popular series “Seinfield” but lost the bid for “Fleabag” to Amazon (AMZN).
Not only are streaming platforms looking to get streaming rights of popular shows, but they are also looking to poach content creators. Last year, Netflix agreed to pay as much as $300 million to poach Ryan Murphy, the creator of “American Horror Story.”
Netflix CEO to stick with his binge-able content strategy
In this content war, Netflix CEO stated that the firm will stick to its original strategy of streaming binge-able content. The company will continue to focus on original content. This means that Netflix may not show content services like live sports. Further, in an interview with Variety, Netflix CEO said that Netflix would not buy production companies. He said, “We’re not in the acquisition business.”
Unlike Netflix, Disney, Comcast, and AT&T have bought some large production companies in the last few years. In March, Disney bought a majority of 21st Century Fox’s (FOX) entertainment operations for $71.3 billion. Disney now owns Fox’s film production and TV businesses, Hulu, and Star India. In September 2018, Comcast bought Disney’s and Fox’s stake in European pay-TV service “Sky” for $38.8 billion. In February 2017, AT&T bought Time Warner for $85 billion, bringing Warner Brothers, HBO, and Turner under its portfolio.
As the streaming war begins, Netflix is strengthening its ground. It is increasing investment in original content and securing streaming rights for popular content. Also, the company is poaching creators of popular content. However, it is not going overboard and acquiring production companies or diversifying its content services to live sports. But, we will see how well Netflix holds the sail in this storm of competition.
Investors are cautious about Netflix. The stock fell 5.5% on September 20 after Netflix CEO acknowledged the competitive pressure coming in November. The stock has been trading below its 50 and 200-day moving average since July 18. On July 18, the stock fell 10% on weak second-quarter earnings. However, Wall Street analysts find this fall as an opportunity to buy.
According to Hollywood Reporter, Bernstein analyst Todd Juenger believes that Netflix stock could fall by 20% to $230 in the short term. This is because investors fear that rising competition will cost Netflix market share. He believes that increasing competition will not shake Netflix’s subscriber base. This is because of its binge-able content. And, once the fear of competition subsides, Netflix stock may rise by 50% to $450 in the next 12 months.