• by Wayne Friedman , June 16, 2021

While NBCUniversal spent more on non-sports, entertainment production content in 2020 than any major TV-film company -- $22.5 billion in 2020 -- Walt Disney and Amazon are seeing significant rising gains in spending, according to a new report by Bernstein Research.

The report from Todd Juenger, media analyst for Bernstein Research, says that after NBCU, the proposed Warner Bros.' Discovery company was next at $14.5 billion in 2020. Disney was in third place at $13.2 billion, followed by Netflix at $12.5 billion, ViacomCBS at $11.5 billion and Amazon at $11.5 billion.

Only two big media companies are spending more year-over-year: Disney spent around $11 billion in 2019; Amazon around $8 billion. At the same time, NBCU and Warner Bros. Discovery went in the other direction, spending more in 2019 than 2020 -- $23.5 billion and $16 billion, respectively.

Juenger says companies' growing efforts around streaming are pushing production budgets ever higher.

At the same time, he says, many legacy companies need to keep their traditional lines of distribution -- broadcast and TV networks -- intact to fund future streaming investments.

“Linear programming obligations matter,” he writes. “Companies still must program the networks, 24/7. They can, and should, apportion less to linear. But this will drive lower advertising and distribution revenue.”

He says moving one dollar of content spend to streaming from linear TV loses $0.25 of revenue in the process. And that means a need to actually increased net investment by 25%.

Investors are trying to determine future value in these companies -- and that means determining how much they spend on entertainment content they can own.

Juenger says that while sports TV content is important, it is licensed content for media companies. “Typically, high-quality original scripted content has a longer shelf-life and therefore a higher cash/amortization ratio, whereas unscripted, documentary, reality shows, live sports have a lower ratio.”

That key ratio is “the relationship between cash cost and amortized expense... we do not know exactly what the ratio is for every company, it is generally between 1-2 times on average.” That is the number he used to determine his estimates.