Benedicte Guichard| Tue Jan 05 2016 CET| Industry insights
Chances are that over the Christmas and New Year period, you sat down and watched the TV. You might have watched old reruns of a classic sitcom or a barrage of festive films starring the likes of Arnie, Bill Murray, Tim Allen, Will Farrell, McCauley Culkin or Jim Carrey. But, unlike the Christmases of years gone by, you may well have streamed most of your entertainment – and in between watching the same tired old seasonal favorites, you probably watched some brand new and exclusive video content that has nothing to do with Christmas.
Well, we’re just speculating but the point is, streaming is on the up and this year, we expect to see an even greater increase in cord cutting, plus a further shift in household viewing habits.
OTT and VoD services like Amazon, Hulu and Netflix are become a staple in most homes and in response to their ever-growing popularity, these colossal companies are working hard on campaigns to source – and create – their very own exclusive original content.
Before we continue, take a look at the chart below – just let that sink in for a moment:
In the U.S, revenues from OTT streaming services and through-TV subscriptions are on a constant rise, and things look even brighter in the years to come. As every other business out there, costs are a key aspect for sustainable growth, and providers and more then aware.
Let’s take Netflix for example. This SVoD giant dominates a good chunk of the market and its popularity has caused a stir with pay TV providers, as more and more people cut ties with more linear subscriptions and migrate to Netflix (and other similar providers). This has made many companies reluctant to license content to providers like Netflix; they seem to want to prevent them from monopolising the market.
Although licensing their content to SVoD providers like Netflix does provide companies such as Walt Disney Time Warner a solid revenue stream, they feel that the presence of their content on these sites is driving people away from their pay TV services.
In fact, a study by Media Realist shows that 41% of revenues for a media company producing a television show in the United States comes from international content licensing. At approximately 34%, the second biggest source of revenue for a media company is licensing content to broadcast networks in the United States.
However, Netflix feels that it’s being unfairly singled out by others in the market and states that it was the first SVoD provider of its kind. Netflix also states that it has helped others drive up the price of the licensing fees of participating media companies.
In the midst of this argument comes original content. Not only does Netflix gain profit from offering its customers classic movies and new releases, one of their major focuses is unique content, produced by Netflix and exclusive to subscribers only, and much of it has been glorious – just think of Daredevil and House of Cards. Of course, in order to compete, other SVoD providers have released their own subscriber only, top quality content – not a bad thing by any stretch.
The big boys carefully source and select the content they provide based on current events, consumer data and trends, budgets and the offerings of their competitors (but we’ll delve deeper into that another time) – and with new kids on the block like HBO Now and CBS All Access entering the arena, we are expecting to see some pretty amazing original content to be released this year.
Update: The chief content officer of Netflix, Ted Sarandos just announced that his company plan to invest $6 billion in new content. He noted the company will have 600 hours of original programming in 2016 and disclosed this year’s budget: “We’re going to spend in 2016 about $5 billion dollars on content on a P&L basis, which means about $6 billion in cash.” That number includes content acquisition and original programming.
If you’re a consumer, 2016 looks like it’s going to be an exciting one. If you’re a budding SVoD or OTT provider, the possibilities are endless. Either way, we look forward to sharing the ride with you.
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