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The Future of Home Entertainment: Streaming Services Dominate

Strategic Insights

— 2 min read

Streaming video on demand (SVOD) is on the rise, with Netflix (NFLX) leading the charge as the future of home entertainment. The company's announcement of nearly doubling its streaming content costs in 2012 to $3.5 billion, surpassing what HBO spends in the U.S., signals a significant shift in the industry. Other competitors, such as Amazon, are joining the streaming fray, further increasing costs.

For companies with content, like CBS, Starz, and AMC, this trend means more control over content and higher profits. Starz, a content provider to Netflix since 2008, has opted out of an extension, citing a desire to "protect the premium nature" of the brand. This move allows it to shop its digital rights to a competitor for more money or offer its own streaming option.

The integration of Netflix controls into new televisions this winter will further blur the lines between traditional TV and streaming services. As the biggest earnings week for media and entertainment companies approaches, investors can expect significant changes in the content landscape.

Key Takeaways:

  • Netflix has announced that streaming content costs will be nearly double in 2012 to $3.5 billion, surpassing what HBO spends in the U.S.
  • Other competitors, such as Amazon, are joining the streaming fray, increasing costs for companies like Netflix.
  • Companies with content, like CBS, Starz, and AMC, are seeing opportunities for more control over content and higher profits.
  • Starz has opted out of an extension, citing a desire to "protect the premium nature" of the brand, allowing it to shop its digital rights to a competitor or offer its own streaming option.
  • Integration of Netflix controls into new televisions this winter will further blur the lines between traditional TV and streaming services.
  • Media and entertainment companies, including Time Warner, Discovery Communications, News Corp., Compass, AOL, Scripps, CBS, and DirecTV, will report earnings this week, providing insight into the changing content landscape.
  • Netflix has SVOD deals in place with Amazon, and has recently agreed to pay CBS and Time Warner (which jointly own CW) about $1 billion for the rights to stream CW network series.
  • Hulu has signed a similar licensing deal with CW, further highlighting the importance of digital content deals.

Statistics:

  • Netflix streaming content costs in 2012: $3.5 billion
  • Netflix streaming commitments as of 2012: $3.5 billion
  • Number of streaming deals Netflix has in place: multiple, including with Amazon and Time Warner
  • Value of licensing deal between Netflix and CBS/Time Warner: $1 billion
  • Percentage of revenue from advertising for Scripps Network Interactive: 68%
  • Number of networks owned by Scripps Network Interactive: 5
  • Number of earnings reports expected from media and entertainment companies this week: 10

Sources:

  • TheStreet
  • Netflix
  • Amazon
  • Time Warner
  • Discovery Communications
  • News Corp.
  • Scripps Network Interactive
  • CBS
  • DirecTV
  • Hulu
  • JPMorgan

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