With hits such as “Stranger Things” and “Orange is the New Black”, Netflix, Inc. (NASDAQ:NFLX) is making a lot of networks very nervous. It doesn’t help that the Los Gatos, Calif.-based streaming service is ready to spend $5 billion on content this year, forcing its rivals to spend more cash on TV shows to keep up. With that amount set on programming, Netflix is spending more on TV shows than any other network.
Netflix’s chief content officer Ted Sarandos confirmed that indeed, the company will be focusing on putting out more shows and spending big in the process.
“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.” He adds that the budget has ballooned to this amount because Netflix is a global network and the company is not relying heavily on advertisers. At the moment, Netflix has 70 million subscribers.
Netflix’s gain will benefit the viewers but it is making investors worried about the plummeting media stocks rooted from concerns about the shrinking TV audience and poor advertising sales.
Since TV is losing viewership, TV networks have to up the ante, raising more funds to spend on programming year after year. According to Cowen & Co. analyst Doug Creutz, cable networks are trying to push new shows to keep audiences engaged but at a cost.
A report by Cg42 noted that an estimated 800,000 current cable subscribers would cancel their subscription in 2017. This will lead to approximately $1 billion in losses for cable networks. And with the rise of online streaming, which needless to say, has become one of the most popular forms of entertainment on the web, viewers are able to access new TV shows and more content and this causes the shrinking TV audience even more.
Although sports programs continue to attract more viewers, it won’t be long before MLB and NHL games are shown online. In fact, both leagues are offering online viewing services and Twitter (NYSE:TWTR) inked a deal that allowed the micro-blogging social network to show live sports games. Adding to the headache of network execs is piracy which is hard to track and even harder to shut down completely.
But all is not lost for programmers. Thanks to more viewing options, there are other opportunities to sell their shows, including developing their own online services to market their programs locally and internationally, much like how Netflix and Amazon Prime has done. But will the move save the current domestic TV market? There’s no way to say it.
It’s also worth noting that Netflix just released its most ambitious project yet. And by ambitious, we mean expensive. The streaming service’s upcoming historical drama series “The Crown” has a budget of over $100 million with 60 episodes stretched over six seasons.
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