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Amazon, Netflix Original Content Success Sparks Spending Spree

9 Jan, 2017 By: Erik Gruenwedel

Following Golden Globes wins for movie Manchester by the Sea and TV series "Goliath," in addition to 11 total nominations, Amazon Studios has bridged the divide in content spending with Netflix — the erstwhile awards show leader/winner among OTT video services.

The e-commerce giant in December said it had doubled original fare spending, which could be around $3 billion when factoring the $1.3 billion spent in 2014 — the last time secretive Amazon divulged actual numbers. Netflix, by comparison, will spend $6 billion this year.

Indeed, “The Grand Tour,” Amazon’s reboot of BBC’s “Top Gear,” and starring the original cast, reportedly cost $250 million. Manchester, which Amazon acquired the rights to for $10 million, has strong odds to become the first Oscar movie nominee/winner from an OTT service.

Meanwhile, actor Robert DeNiro reportedly is getting paid $850,000 an episode for a new Amazon series, and the company paid eight figures for the rights to Woody Allen’s Café Society. Amazon last year convinced Allen to direct/star in his first TV series, “Crisis in Six Scenes,” co-starring Miley Cyrus.

Netflix, which had fewer Globes nominations, scored wins for British-themed “The Crown,” for which it reportedly paid $100 million. Last October, the SVOD pioneer sought to raise $800 million from investors — money it said would be spent toward creating 1,000 hours of content in 2017 and achieving a 50/50 split between licensed and original fare.

Deadline.com in October reported that pending original series “The Get Down” was costing Netflix from $10 million to $16 million an episode, making the series more expensive than HBO megahit “Game of Thrones.”

Netflix ended its most-recent fiscal period with $14.4 billion in streaming content obligations — $4 billion more than it did in the previous-year period.

“We continue to see the escalation of the content arms race between Netflix and Amazon, and expect to see both companies to continue announcing high-profile deals in the coming months,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, wrote in a Jan. 9 note.

A longtime bear on Netflix’s stock, Pachter contends the SVOD darling continues to hemorrhage money expanding internationally while masking technology costs domestically.

“In our view, this reflects the pace of cost escalation and we do not see this as sustainable. Should this continue with other Netflix original series in the future, it is likely to keep the company from achieving “economic” profitability (that is, positive free cash flow) for the next several years,” he said.

Indeed, with Netflix reportedly spending $5 million and $7 million, respectively, for the rights to indie films Tallulah and The Fundamentals of Caring, in addition to $40 million to $60 million for slates of comedy specials from Chris Rock and David Chappelle, Pachter believes the fiscal largess underscores Amazon’s emerging clout/threat to Netflix.

“Amazon is putting upward pressure on content prices, and we believe that this pressure has, and will continue to, drive Netflix’s content costs to rise much faster.”

When combined with Amazon’s theatrical distribution strategy (versus very limited for Netflix), Pachter contends Amazon has the ability with a successful title to up revenue opportunities.

“Especially for films like Manchester that have the potential for reach beyond the independent film circuit, this could be very profitable … as the film could draw incremental Prime subscriptions as movie-watchers seek out the film after its theater run,” he said.

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