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Spending Spree for SVOD Content

24 Oct, 2014 By: Erik Gruenwedel

Subscription streaming services will spend about $7 billion largely on TV shows in 2015

Move over cable and satellite TV, there’s a new free-spending content buyer on the block: subscription video-on-demand.

While DirecTV, ESPN and Turner Broadcasting earlier this month re-upped separate broadcast rights deals with the National Football League and the National Basketball Association for a combined $4.1 billion per year, subscription streaming services are slated to spend nearly $7 billion on movies and TV shows in 2015, according to a 76-page report from David Bank, analyst with RBC Capital Markets.

That’s up nearly 31% from $5.2 billion in content spending this year. Big spenders include SVOD’s big three: Netflix, Amazon Prime Instant Video and Hulu Plus.

Indeed, Netflix is projected to spend $3 billion on content rights next year. It spent more than $1.2 billion alone in the most recent fiscal period. The SVOD pioneer ended the third quarter with more than $8 billion in third-party content obligations.

Amazon said it spent $100 million on content in Q3, with analysts estimating the e-commerce behemoth is spending upwards of $2.5 billion on content this year.

“We are seeing off-net programming acquisitions for multiple seasons, such as the Hulu/CBS deal for ‘Elementary,’ estimated at $1.5 million per episode for three seasons, or Netflix’s agreement with Sony Pictures Television for ‘The Blacklist,’ valued at $2 million an episode for the prior, current and future seasons. Amazon and Hulu purchased four seasons of ‘The Good Wife’ for a combined $2 million per episode,” Bank wrote.

Indeed, the “Good Wife” license deal is expected to generate more than $200 million for CBS — the largest streaming pact to date.

Other notable content deals include Warner Bros. Television’s pact with Netflix for new series “Gotham” at $1.7 million an episode and 21st Century Fox’s deal with Amazon for “The Americans,” valued at $1 million per episode.

Lionsgate is emerging a big winner in the SVOD content sweepstakes. It licensed “Orange Is the New Black” to Netflix for $2.5 million an episode, according to RBC Capital. “New Black” has emerged as Netflix’s most-streamed original programming — ahead of highly touted “House of Cards,” which is produced by Sony.

CBS helped usher in burgeoning SVOD content spending by demanding and getting $700,000 and $900,000 per episode, respectively, from Amazon for midsummer replacement series “Under the Dome,” and “Extant,” the latter starring Halle Berry.

“Netflix, Hulu and Amazon have undertaken massive ramps in original programming. That said, even as original budgets increase in the hundreds of millions of dollars, we see no real slowdown in demand for premium linear off-network TV content,” Bank wrote.

The analyst added that with the big dollars comes exclusivity. Bank said SVOD original rights have become more restrictive, including limitations on ancillary exploitation outside of "first run" windows for up to 10 years and lock-ups on territories where the SVOD platform has yet to even launch service.

Media companies cashing in at the SVOD trough in 2015 include: CBS Studios at $179 million; Warner Bros Television ($106 million); Lionsgate ($61 million); Sony ($43 million); Fox ($40 million); ABC Television Studios ($40 million), and Universal TV ($22 million).

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