Commentary

Is Original Programming Worth Billions Of Dollars?

I see the news tout the volume of spending by companies like Netflix, HBO, Hulu and Amazon for original programming, but is there ROI against these massive spends?  Will companies ever recoup these costs?

In the case of a company like HBO, I think I see the value.  HBO’s subscriber base on cable appears static to me.  When you pay for cable you typically get a package that might include HBO or Showtime, depending on what’s being offered at that time.  Many people choose HBO as part of the bundle, and therefore HBO gets its money.  

The mobile app and online subscription offered by HBO Now creates an extended network of users: people like me, who don’t have HBO at home as part of their cable provider but want to watch their original shows. That online subscriber list probably increases over time, with some churn as people register to pay and then shut it off intermittently as their shows are available.  

I only pay for HBO when “Game of Thrones” is broadcasting its first run, then I turn the network off when the show is out of season.  I’m not the standard though, since many people just leave HBO on.  Regardless, I see original programming as the draw that gets an extended network of paying subscribers.  There’s a clear upside -- and when you factor in international audiences, it makes sense.

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What about Netflix or Amazon?  Does it make sense for them?  

Netflix’s original draw was the library of content it provide access to, and lots of people subscribed solely for that.  

Netflix is reportedly spending as much as $16 billion on original programming, but how will it ever make that money back?  Its market cap is currently around $84 billion, but that’s based on a multiple of revenue.  Does spending that money provide a measurable, correlative increase in its subscriber base?  Does it provide a significant retention benefit that is noticeably stronger than if it didn’t have that volume of original programming?  

What about Amazon?  Does its spend have a measurable impact on its TV property, or is its Prime audience strong enough to maintain that subscriber base on its own?

And where does that leave companies like Hulu and Apple?  In the case of Apple, spending for original programming appears more modest, around $1 billion, but that’s logical since the company is trying to increase its subscriber base.  

In the case of Hulu, differentiation is based on the access to programming it gets from its core network partners. The costs for original programming can effectively be passed along to them.  

I may not be a high-paid exec in these media companies, but I am a businessperson and I am curious as to the business case that warrants these spends.  The only answer I can come up with is that these original programs are seen as valuable beyond the subscriber base.  

We know that a highly successful piece of content has the opportunity to strike a chord in the popular zeitgeist and create ongoing revenue opportunity beyond pure broadcast.  There’s merchandising and physical unit sales like DVDs and Blu-Ray.  There are product tie-ins and sponsorships that go beyond simple 30- and 60-second spots.  

I would assume there is a business case beyond simply defending ones’ subscriber base, especially in a world where this is not necessarily an either/or decision for the consumer.  Consumers are going to pay for more than one TV platform, especially as they continue to cut the cord and migrate from traditional cable relationships.  

Maybe that’s the answer right there.  It’s not about what happens in the next two to three years, but what happens over the next 10.  Consolidation + cord cutting creates a substantially different landscape from what we see now.  

Maybe these execs are brilliant?

I guess time will tell.

5 comments about "Is Original Programming Worth Billions Of Dollars?".
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  1. brad berger from aim high tips, November 22, 2017 at 12:43 p.m.

    Originality and one of a kind that can satisfy audiences of billions of people and can last forever is worth $ Billions - I am waiting for a buyer www.aimhightips.com world's best wisdom.

  2. Joe Shain from Allscope Direct, November 22, 2017 at 1:25 p.m.

    I do think that the brilliance of the executives has already been established.
    Their ability to disrupt the worldwide distribution of entertainment product is Nobel Prize worthy.
    Jim Cramers recent analysis is that he can make a strong case that Netflix is undervalued.
    Your viewpoint above seems to be primarily domestically focused..while the future of both Amazon and Netflix will play out on a worldwide platform.

  3. nerd rage from Nerdrage Inc., November 22, 2017 at 3:20 p.m.

    Original programming is what gives streaming services their unique advantage: being the one and only place to get Show X, with the guarantee that Show X will not abruptly depart for another service.

    What's really valuable is big-name brands, which is why Amazon spent a quarter of a billion on the rights to Lord of the Rings. That kind of awareness drives subscriptions. But Amazon better be in control of LotR or lose the thing that is driving their business to a competitor.

    This is just a transitional period anyway. Entertainment creation and distribution is breaking apart and re-forming into a new shape, which will end up being a handful of gigantic global streaming services. The audience will continue to be siphoned off from cable and broadcast, to the point where they won't be able to fund the pricey drama and comedy that streaming services might license. Instead, pricey drama and comedy will be made directly for this or that service, on an exclusive basis.

  4. Michael Harris from visualambrosia.com, November 22, 2017 at 11:51 p.m.

    Streaming brands, benefit via offering videos that become adopted as "classic", content viewers choose to watch over and over. 


     



    The profitability of every streaming content brand is, I speculate, proportional to the streaming brand’s catalog of classic programs; such a catalog keeps subscribers renewing their subscriptions.  


     


    Owning a catalog of  video classics viewers watch, again and again, that's what’s worth billions.


     


    In photography speak, these are the “money shots”.


     


    Creating “money shot” programs is the challenge justifying the billions.


     


    Parenthetically, self serving, I posit  this confident assertion:  My startup animation studio creates "money shots", instantly classic programs.  All viewers, worldwide, will choose to watch, over and over, when released, our original style of 4K ambient art animation videos. They are "classics" to be  enjoyed for a generation.  


     


     


    Michael Harris

  5. Craig Mcdaniel from Sweepstakes Today LLC, November 24, 2017 at 2:36 p.m.

    I think there is another clue. I use one of the cable companies for my service. If you go through all the channels they offer, there are maybe 10 or more that offer old TV commercials and old movies. Nothing is original programming. Apparently there is a fairly high demand for the old shows and I tend to think that TV programming is based on the long term as you say.

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