As Netflix Inc., Hulu LLC, Amazon.com Inc. and other well-funded streaming players enter the original content space, competition for top production talent between new and traditional video providers escalates, driving content costs up.
The trend seemed to have begun in 2011, when in March Netflix announced a partnership with acclaimed director David Fincher, who helped create iconic films like "Fight Club," "The Curious Case of Benjamin Button" and "The Social Network." Fincher has won many awards through his career, and his project with Netflix — "House of Cards," starring another massive name Kevin Spacey — would win him many more and become the first digital-only series to win the industry's most prestigious honors, including an Emmy for directing for Fincher himself.
Netflix has hired many more talented names since then, most recently bringing in producer and screenwriter Shonda Rhimes as part of a multiyear deal to produce new shows and series. Rhimes was behind award-winning series like "Grey's Anatomy," "Scandal" and "How to Get Away with Murder."
Just days before Netflix announced its deal with Rhimes, Amazon said it reached a deal with creator of "The Walking Dead" Robert Kirkman to develop original content exclusively for Amazon Prime Video. Earlier in the year, Hulu brought in AMC Networks Inc. executive Joel Stillerman to be its first chief content officer reporting directly to Hulu CEO Mike Hopkins. Stillerman was behind iconic shows like "Breaking Bad" and "Mad Men" that made AMC (US) a powerhouse in original drama series.
Ratcheting up a competitive slate of directors, producers and actors is by no means cheap. Netflix CFO David Wells said during a second-quarter earnings webcast that content spending will grow "for the foreseeable future." Kagan, a media research group within the TMT offering of S&P Global Market Intelligence, projected that Netflix will spend $8.22 billion on content in 2018.
Amazon has also been tracking significant growth in expenses, though it is less clear about the source. The company said that its third-quarter operating income will compress inside a range of negative $400 million and positive $300 million, down from $575 million in the third quarter of 2016. CFO Brian Olsavsky attributed the decrease in part to the company's increase in video spending.
Did you enjoy this analysis? Click here to set alerts for future media Data Dispatches.