A research note from S&P Global Market Intelligence‘s Kagan division has observed that a “rough” year for productions and swelling competition in the streaming space has necessitated an increased programme budget for Netflix leading to the company amortising about $13.60 billion in total costs, including $5.21 billion positioned for originals.
Kagan defines an original as a production that was ordered by Netflix, including co-productions, but does not comprise acquisitions that are sometimes marketed by Netflix as originals.
One of the leading drivers of the expenditure said the report was the launch of direct-to-consumer services such as Disney+, HBO Max, Peacock and Paramount+ which has resulted in a plethora of content being held back as each looks to populate their own services. Kagan expects the distributors to continue to reserve rights for their own SVOD services, more so from territories where they are soon to launch. However, it also pointed out that some rights deals have lengthy contracts and would either require buying out the contract or waiting for it to expire.
Kagan said Netflix has prepared for this trend since entering the originals market in 2012 as it expected studios would eventually hold back programming. By 2014, about 6.8% of Netflix’s spend came from new orders and increased to about 37.8% of the budget in 2020. As the service focuses more on new content, Kagan expects that to grow closer to 50% by 2025 and calculates that total amortised spending may reach $13.60 billion by the end of this year and increase to more than $18.92 billion by 2025. Over that period, Kagan predicts that more focus will be put on originals, with growth at 14.0% annually, while the acquisition CAGR could be 4.8%.
While it highlighted that the company had a significant amount of content ready at the beginning of the pandemic, but production delays affected the latter half of 2020 and persisted into early 2021, Kagan emphasised that Netflix continues to concentrate on scripted series and movies with the highly anticipated return of The Witcher (season 2), Stranger Things (season 4) and the film Red Notice coming in the next several months.
S&P Global Market Intelligence added that spending on local content has been a strategy for the company in recent years as more subscribers come from non-US markets. Top titles include Spain’s La Casa de Papel (Money Heist), Germany’s Dark and South Korea’s Kingdom. Kagan also said that subscriber data indicates some payoff in the localisation focus. IT observed that second-quarter 2021 statistics showed that subscribers from the US and Canada made up about 56.2% of total subscribers in 2017 compared with just 35.4% in June 2021. During the same period, the US and Canada delivered 60.8% of revenues in 2017 compared with 44.3% in the second quarter of 2021.
