• by Wayne Friedman , Staff Writer, October 11, 2024

How does one get the most from the program production costs when it comes to streaming? Look to Netflix, which continues to dial this in.

Benjamin Swinburne, media analyst for Morgan Stanley, notes that over a five-year period -- 2019 through 2024 -- Netflix revenues have grown on average 14% per year, while its content spending has climbed just around 3% on average. 

That’s pretty good financial math. Although Netflix spends roughly $17 billion a year on content, amortizing that content is working well in terms of putting Netflix in an even better position when it looks at its competition. 

In addition, legacy-media companies are to an extent throwing up their hands -- looking for revenues and profits from the things it produces rather than putting that movie and TV content on their streaming platforms. 

They are open to licensing more content to Netflix -- realizing it can offer up a better “frenemy” situation. 

“Netflix is not only making more from each dollar it invests in its own content, its ability to license again from those media company studios is helping it further optimize returns,” writes Swinburne. “The ratio of self-produced versus licensed content amortization has been exactly 50/50 for the past seven quarters.” 

While all this is going on, Netflix’s budding advertising-revenue business is expected to grow to $4 billion in four years from $1 billion this year, according to Swinburne.

As strange as it sounds, these advertising results are probably good news for legacy TV network-based media companies. 

Netflix doesn’t have a long-standing advertising operation.

Legacy media believe their push for more programmatic/automated media buying across not just streaming but linear TV as well gives them a bit of a leg up. Just a bit.

If anything, Amazon Prime Video probably represents a tough competitor -- given its robust advertising/ecommerce business operation. 

According to reports, Amazon had $1.8 billion in upfront bookings for Prime Video recently, and executives there hint that it could expand further in offering more ad inventory on the streamer. 

Presumably, this $1.8 billion does not even include shorter quarter-by-quarter scatter ad-inventory deals that could conceivably add a couple of hundred million dollars to the pot.

This is all to say that legacy TV networks have their work cut out for them as they attempt to keep improving on both revenue fronts -- content sales and media dollars.