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IHS: Netflix Outspending HBO, BBC, Others on Content

18 Mar, 2015 By: Erik Gruenwedel

With content license obligations to third parties totaling $9.5 billion at the end of the fourth quarter, Netflix has elevated the bar on content spending into the stratosphere.

With 2014 content spending exceeding $2 billion, the subscription streaming pioneer spent about 20% of the amount on original programing such as “Orange Is the New Black,” “House of Cards” and “Marco Polo,” among others.

Netflix spent more on content than pending streaming rival HBO, BBC and Discovery, according to research firm IHS. Only Amazon Prime Instant Video came close to matching Netflix on license agreements.

Interestingly, Netflix, in the Q4 shareholder letter, said its originals cost less than third-party licensed content relative to viewer metrics — despite the fact the latter is well-known and created by major studios. While the disclosure could be a ploy to leverage more-favorable license rates, Netflix said it would up spending on originals as a more-efficient means of capital expenditures than studio fare.

“We will continue to grow the percentage of our content spending dedicated to originals for the next several years,” CEO Reed Hastings and CFO David Wells said in the shareholder letter.

In a March 17 presentation at Cable Congress in Brussels, Ben Keen, VP of consumer media at IHS, reportedly said that while pay-TV revenue still dwarfs SVOD, European pay-TV subs keep declining — much of it attributed to OTT video.

Indeed, revenue from SVOD, including ad-supported services, is projected to top $35 billion by 2018, according to IHS. Standalone OTT video subscriptions in Europe are expected to reach 40 million, with bundled OTT video subs contributing another 30 million by 2019.

“The [pay-TV] industry has been transformed by the transition to digital,” Keen said.

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