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Report: Streaming Services Driving Up Cost of Talent

29 Aug, 2017 By: Stephanie Prange

As Netflix, Hulu, Amazon and other well-funded streaming services enter the original content space, competition for top production talent between new and traditional video providers escalates and drives content costs up, according to analysis from Kagan, a group within S&P Global Market Intelligence.

“The trend seemed to have begun in 2011, when in March Netflix announced a partnership with acclaimed director David Fincher,” the report stated, noting the director of such iconic and award-winning films as Fight Club and The Social Network translated to honors for his Netflix show “House of Cards” starring another “massive” name, Kevin Spacey. The report noted Netflix’s more recent deal with producer and screenwriter Shonda Rhimes, and Amazon’s deal with “The Walking Dead” creator Robert Kirkman as evidence of growing competition for talent. Other developments include Hulu bringing in AMC Networks executive Joel Stillerman, the executive behind such shows as “Breaking Bad” and “Mad Men,” to be its first chief content officer, reporting directly to Hulu CEO Mike Hopkins.

“Ratcheting up a competitive slate of directors, producers and actors is by no means cheap,” the report noted.

Netflix's general and administrative expenses jumped 55% year over year in the second quarter to $213.9 million, according to its most recent Form 10-Q, the report stated. Looking at full years, Netflix saw G&A expenses climb 51% between 2014 and 2015 and another 42% between 2015 and 2016.

“It looks like 2017 will be another year of acceleration, with content spending growing ‘for the foreseeable future,’ as Netflix CFO David Wells put it during a second quarter earnings webcast,” the report stated.

Netflix credited the expansion in G&A expense to headcount additions, up 39% in 2016, to support original content and international expansion, the report noted.

“Amazon has also been tracking significant growth in expenses, though it is less clear about the source,” according to the report.

G&A expenses climbed 51% in the second quarter to $874 million, 55% in the first half to $1.67 billion, according to its Form 10-Q, the report stated. The company also said that its third-quarter operating income will compress inside a range of negative $400 million and positive $300 million, down from $575 million in the second quarter. CFO Brian Olsavsky attributed the decrease in part to the company's increase in video spending.

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