Streaming Wars: Are you still watching?

 
Q2 2021 Edition

15th July 2021

Key takeaways

  • The SVOD big players are changing the role of art and power dynamics in the content arms race
  • Content is king, both new and existing, as SVODs continue to outspend each other in the battle for our attention
  • Each additional billion spent by one platform, accelerates the race to spend more

‘The next medium, whatever it is— will include television as its content, not as its environment, and will transform television into an art form.’

- Marshall McLuhan, 1967 -


Media theorist Marshall McLuhan made the above prediction in 1967, cut to 2021 where Subscription Video On Demand platforms (SVODs) have become the internet’s content suppliers, with each spending billions in the war for our attention.

We have to ask, is original content creation the new artform? And if so, is the sky the limit for original programming spend?

Netflix is the OG of the SVODs - in early 2008, the company (which previously simply rented DVDs) gave access to its streaming library, allowing subscribers unlimited use, at no extra cost, to its entire suite of content. This changed the game of television forever. Its impact was felt by every single company that owned media content, creating almost an entirely new sub-industry in the process. Suddenly we were able to watch TV shows when we wanted and, more importantly, watch as many episodes as we wanted to at one time.

In this access-on-demand world we live in today, we’re offered a plethora of choice, from an ever increasing range of SVODs. The amount being spent on content production is greater than it has ever been, with Netflix alone predicted to spend over $17bn on content this year, in an attempt to protect its market share from ever increasing competition. The content arms race is here to stay. Netflix (and others to a lesser extent) is hugely reliant on content creators (rarely creating in-house content) which has perhaps inadvertently revealed a new less conspicuous form of art. The key to the SVODs’ growth has been their commissioning of original content. ‘Original’ content is the key word here.

Finding the value in the streaming world of today

We ask, what makes art so valuable? Claude Monet, for example only ever produced c2,000 art pieces, with millions of tourists visiting Paris to catch a glimpse of the Frenchman’s handywork. Whilst Picasso’s masterpieces have continued to skyrocket in price as they become increasingly rare, now fetching over $100m. Another interesting artistic comparison is the Pop Art era, with its rejection against the status quo, and the elitism of contemporary French and Italian art. This style became known as art ‘for the masses’. And there is a similar shift in power taking place in the streaming wars today. The viewer’s overwhelming choice has turned the power dynamic on its head. Previously this dynamic was linear, one (the broadcaster) to many (the audience), and if you missed a show you would have to wait till the re-run.

Original content is key to grabbing market share

In today’s world we choose what we want to watch and when we want to watch it. Content is well and truly king. Original content is designed to appeal 'to the masses', with SVODs willing to pay whatever it takes to obtain the best content, content creators have become the artists of today. When Netflix first acquired the rights to Disney movies in 2008, it paid just $30 million; when it renewed that deal in 2012 it cost a whopping $300 million. When Disney moved to launch its own streaming service in 2019, CEO Bob Iger invested $2.6 billion just acquiring the technology for Disney+, with billions more spent on original content creation. In the streaming wars, there’s a land-grab for old and existing content, which has driven the price of these assets. Just like with Picasso’s masterpieces, as scarcity increases so does the price people are willing to pay. All of these SVODs are spending billions, because they believe original programming holds the key to their overall success. And each additional billion spent by one platform, accelerates the races to spend even more.

Exclusivity is once again becoming the name of the game.

Disney is making content increasingly exclusive on its Disney+ streaming platform, Netflix is winning awards left right and centre for its multibillion library of original programming, other studios like Warner Bros. and ViacomCBS Inc.’s Paramount are withholding rights to their content to carry exclusively on their own streaming services, and not to mention Amazon’s recent $8.45bn acquisition of MGM. The streaming wars are heating up, and the price tags for original content are leaving Picasso paintings for dust. We continue to see this segment of the market ripe for long-term growth.


ANNUAL CONTENT SPEND PER SVOD

Source: Data from Statista, CNBC, The Guardian, MarketWatch, NY Times, TechnoBuffalo, Forbes, Hollywood Reporter, Observer, Business of Apps, The Verge, WSJ

ART'S HEDGE AGAINST INFLATION

Fine art is universally known for retaining its value and as a useful hedge against the ‘spectre’ of inflation (certainly rather topical). Holding a Picasso is highly unlikely to diminish in value say, 50 years from now. The same might be said for the best original content like ‘Game of Thrones’, ‘Friends’ or ‘The Crown’. In 2018 Netflix paid $100m for the rights to ‘Friends’ (a show it costs Time Warner $0 to maintain).

Applying some simple math and assuming a modest 3% inflation rate, ‘Friends’ could end this decade commanding a whopping $138m. This is a cigarette packet calculation which assumes zero growth demand from Netflix’s global subscriber increase; simply the intrinsic value of an artistic asset with long standing appeal (just like a Picasso).

When medical drama ‘E.R.’ began in 1994, it only cost NBC $2-$3m per episode. By 1998, NBC paid Warner Bros (the show’s producers) $13m per episode to air the show for three years — $286m per 22-episode season, or $858m, total. Adjusted for inflation, that $858m deal in 1998 would be worth $1.35bn in today’s money (with a cost per episode of $22.8m making it the second most expensive TV show ever).

Maintaining the value of ‘E.R.’ costs NBC absolutely nothing. Much like owning a piece of fine art sitting handsomely in the Louvre, these assets should continue to appreciate.

References to specific companies should not be construed as a recommendation to buy or sell shares or other financial instruments issued by those companies, and neither should they be assumed profitable.

Inflation calculations via www.inflationtool.com as at 13th June 2021 1


"MAJOR DISTURBANCES AND UNUSUAL OCCURANCES" ON US GRID
2000 to 2021

“Right now we are seeing Amazon, Apple, among other tech giants, go after these assets: content is king.”

Daniel Ives, Wedbush Securities


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