Hollywood Studios to Make $6.8B from SVOD Players Like Netflix, Hulu

/ Oct 24, 2014

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Hollywood can’t ignore digital distribution. Want more proof?

The top SVOD companies — Netflix, Amazon (for its Prime Instant Video service), and Hulu — are expected to spend $6.8 billion on content in 2015, up from $5.2 billion this year, according to projections from David Bank of Wall Street research firm RBC Capital Markets. What’s more, double-digit growth is expected for “years to come,” said Bank, who believes aggressive international expansion of companies like Netflix equals more lucrative deals for content owners.

When broken down by company, Netflix is unsurprisingly expected to be the biggest spender, with an estimated spend of $3.3 billion in 2015, followed by Amazon with $1.7 billion and Hulu with $1.5 billion. Netflix will continue to lead the way in content spend, with $3.4 billion in 2016 and $3.9 billion 2017, according to Bank. Roughly 10% of that spend goes to original content, which to-date has been produced by studio partners like Media Rights Capital (“House of Cards”), Gaumont (“Hemlock Grove,” “Narcos”), and Lionsgate (“Orange Is the New Black”).

“Netflix will have exclusive content from some of the most high-profile talent in Hollywood and tends to have limited ‘bombs,’” said Bank in the report. “There also tends to be a great deal of positive buzz around these shows.”

To be fair, while digital beat broadcast syndication spending this year, according to Bank, it’s still dwarfed by cable, which will spend $18.4 billion for syndicated content in 2015. But remember, less than a decade ago, there was no digital revenue for content owners, and it’s more likely that the streaming market grows faster than cable in the coming decade.

Overall, the studios are expected to make $29.5 billion from syndication next year.

Who will be the biggest beneficiaries? According to Bank, CBS Studios, Warner Bros. Television, Lionsgate, and Sony Pictures Television are the prime candidates.

Part of this is because of lucrative syndication deals already signed by these companies. For instance, Netflix is paying Lionsgate $2.5 million an episode to have exclusive rights to “Orange Is the New Black” and Hulu is paying $1.5 million an episode for CBS’ “Elementary.”

Then there’s Warner Bros.’ “Gotham,” which Netflix exclusively licensed for $1.75 million an episode before the pilot even aired on Fox.

“In contrast to the traditional syndication models, some first-run shows are being sold into SVOD windows before they have even premiered in their first-run windows,” said Bank. “Some shows will be sold into SVOD somewhere between 20-40 episodes at substantial per-episode prices (‘The Blacklist’ was sold to Netflix at $2 million/episode during season 2).”

These numbers will probably go even higher as more players enter the streaming market, according to Bank, because this will force the SVOD companies to bid higher for the rights to exclusive content. Yahoo’s deal for “Community” could portend things to come, he said.

And while Netflix, Amazon, and Hulu are increasingly investing in original content to offset some of these licensing costs, that’s not likely to have a material effect on Hollywood studios. For one, many of these studios are already producing the programming that’s acquired as originals by the streaming companies.

But even then, while “much has been made of the potential for original programming to lower demand for acquired off-network programming, we think such concerns are overstated,” said Bank. “The average linear cable channel or SVOD platform alike has to program 24 hours per day of viewer demand. This demand cannot be satisfied by a slate of six or so original shows.”

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