The Emerging Video Content Bubble

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The 20,000 Foot View: Subscription Video On Demand (SVOD) services like Netflix, Amazon and Hulu have spurred a scripted drama renaissance and, in doing, so have trigged a content licensing arms race. Traditional TV networks have had to increase their spending to compete with these new streaming TV networks. New entrants such as Facebook and Snapchat are skewing the market further in favour of demand over supply. The poaching of legendary showrunner Shonda Rhimes by Netflix in August 2017 underlines how the tectonic plates of TV content spending are shifting. However, even Netflix has had to acquire debt to keep up. This is no ‘new normal’, but is instead a market being driven by companies using commissioning strategy for user acquisition. The resulting pressure upon content companies, as they battle for market supremacy in the attention economy, is creating a content bubble, and, eventually, all bubbles burst.

Key Findings

• The largest        TV networks spent        billion on content in 2016 – a        increase on their spend in 2012
• NBC, CBS and ABC’s parent companies spent        billon on TV content in 2016
• The three largest US-based SVOD services (Netflix, Amazon and Hulu) will spend        billion in 2017–        more than the big three US TV networks
• Netflix currently has        billion of outstanding bonds – equivalent to        of 2016 revenues
• Net revenues for the top        TV networks are up        from 2012 to 2016
• Content costs are increasing twice as fast as revenue growth
• The ROI for TV content has decreased by        in the last five years
• Netflix slashed its hourly cost of programming by        between 2014 and 2017
       TV network revenues are up        year-on-year, but content costs are up       
• Inflating content revenues will distort TV networks financially, and reduce their capacity to survive in a post-bubble content environment
       subscription platforms are best positioned to survive a post-content bubble

Companies and brands mentioned in this report: A+E Networks, AMC Networks, Amazon, Apple, BBC,  Disney-ABC Television Group, Canal+ Group, CBS, Comcast, Discovery Communications, Facebook, HBO, Hulu, Instagram, ITV Plc, Lionsgate, Mediaset, NBC,  NBCUniversal, Nippon TV, Rogers Communications, R.T.I S.p.A, Scripps Networks, Shaw Communications, Shondaland, Sky Plc, Snap Inc, The Walt Disney Company, Time Warner Inc, Televisia, Turner Networks, Walt Disney Media Networks, Viacom, Viacom Media Networks, Vivendi, YouTube