Content Wars — Episode 1: A New Direction

I came across this article about Netflix’s planned massive investment in creating original content. Here’s a key quote from that article to highlight the size of the investment this year -

Netflix’s spending on original and acquired programming this year is expected to be more than $6 billion, up from $5 billion last year, more than double what Time Warner Inc.’s HBO spends and five times as much as 21st Century Fox’s FX or CBS Corp.’s Showtime.

Now add to that the fact that in 2016, Amazon spent over $3 Billion on content for its music and video service. Amazon doesn’t quite breakout all the expenses and intended spend but I would argue that they have doubled down given that people talking about the $40 million payday for Chris Rock on Netflix also need to remember Amazon’s $250 million bet on the ex-hosts of Top Gear to produce “The Grand Tour”.

Amazon and Netflix have recouped a lot of their investments given the number of Emmys, Golden Globes and Oscars that shows and movies such as Mozart in the Jungle, Transparent and Manchester by the Sea have won for Amazon and a much larger number for Netflix across all its shows — House of Cards, Orange is the new Black etc. And even more importantly, and I quote from a recent NY Times article -

Netflix added a record 7.05 million streaming members in the three months that ended Dec. 31. … Netflix now has a total of 93.8 million members. … Profits are rising steadily. Net income increased 56 percent to $67 million in the quarter from the same period in 2015. The company projected that profits would reach $165 million in the current quarter, up from $28 million in the period a year ago.

To state the obvious, it looks like Amazon and Netflix are looking to really up-end the television and movie business in a significant way. Whether and how traditional Hollywood, TV companies (such as CBS, NBC etc.) or even famed content producers like HBO can compete with this, is an open and interesting question.

My motivation to write this is somewhat different. I wanted to understand what drove them to embark on this journey and why they felt this was something they could be successful at i.e. what was their strategy? Secondly, should we expect Google and Facebook (and others like it — Snapchat maybe?) to do something similar? What can we expect as consumers?

Those are the questions I intend to take a perspective on in the next couple of posts.