I doubt many of you tuned in to the Golden Globe awards this past weekend. For those unfamiliar with my homeland’s love of red carpets and celebrity adulation, the Golden Globes are like the drunk, less formal little brother to the Oscars. Unlike the Academy Awards, the Globes award both television and movies, the former being the relevant topic to this post.
This year’s show saw forty one combined nominations in the major TV categories (supporting, actor, actress and show for each of the comedy and drama genres). Notwithstanding the massive caveat that the Globes can hardly be labeled an accurate judge of quality, online subscription video platforms (SVODs) like Netflix and Amazon were responsible for fourteen of those nominations. That is up from exactly zero as recently as three years ago. The five free-to-air broadcast networks accounted for only nine nominations, down from fifteen three years ago. What gives?
Analysts estimate that Netflix spent around US$500m on original content last year. That is roughly half of the amount that HBO, long the beacon of high quality television, spends annually. Not bad for a Johnny-come-lately. But here is where things get interesting. Netflix is projecting to spend more than US$5bn on content during 2016. That is a catchall that includes licensing fees paid for older film and TV content produced by other networks and movie studios. Ultimately, however, it aims for half of that outlay to be on original content like House of Cards and Orange is the New Black. That would be 2.5-3 times the amount that HBO spends. Three times! And, like HBO, Netflix is unencumbered by FCC decency standards—bring on the sex and profanity.
But it doesn’t stop with Netflix. Throw in Hulu and online behemoth Amazon, who are both looking to spend over $1BN on original content, and where do you think the quality programming is going to come from in the future? Given the growth that Netflix and Amazon are likely to see over the next few years, they should eventually be able to spend multiples more than the rest of the traditional cable powerhouses combined (I’m excluding the free-to-air broadcasters). Don’t be surprised if sometime in the next few years virtually all of the Globe nominations will come from the SVODs.
I’ll leave it to you to work out what that means for traditional television providers.
5 thoughts on “Why Netflix will Kill Television”
I am sure your right but i think ‘normal’ television will be more resilient than you think. Netflix and the like appeal to people who sit down to watch something specific. At our house, for the couple of hours in the evening when we watch tele, we just flick through the channels till we find something we want to watch, the difference being when we want to watch live sport. Footy, cricket etc.
It is easy to see that streaming will kill free to air TV. But what isn’t so clear is who the winners will be.
The trick will become working out which streaming service(s) will win. At some point network effects will likely take over. The more content a streaming service has, the more subscribers they will attract. The more subscribers, the more a streaming service can afford to buy or create more content. And so the feedback loop goes. But which streaming service will gain the most eyeballs? Or will it be a streaming service aggregator that becomes most profitable? Telstra already has a product aggregating streaming services via Telstra TV.
It’s like the old horse and cart vs automobile cliché. No one could predict which car company was going to be profitable and many car companies went bust. Alternatively, you could have shorted blacksmiths who made the horseshoes.
Perhaps shorting the free to air TV stations is the way to go. Though, they could very well change their business models too. Or perhaps it is better to go long the data companies a la TPG, IINet, Telstra, Superloop etc.
Kevin, thanks for the post.
You’re way ahead on this, so some advice please.
The kids got me an apple TV this year and said they would get me a streaming service next year.
I didn’t want the TV and I don’t want the stream but the best I can do is guide.
I’ve only heard of Netflix as a service. Are Amazon, Hulu or others better?
Hi Craig – I can only speak about the US market, so there may be differences or options I’m not aware of in Oz. Netflix is easily the best service currently available if you only consider TV, and it will only get better with even more original content. But I also love Amazon Prime (which includes free 2-day shipping and its video service) and find myself shopping there more than I ever thought I would. Unfortunately for you, their streaming app is not available on Apple TV. I’ve never used Hulu, but they have the most current content from the major US networks, and they are adding more original content. Just depends on what kind of TV you like to watch. Also, if you like British TV, we have a streaming service here called Acorn TV which is very good, but again, not sure if it’s available in your market.
in my view, there will always be a place for free-to-air, but the relative share-of-eyeballs (or whatever the proper term is to describe market share) will be a lot smaller for free-to-air. Similarly, in my view, shopping centres and physical store-front retail will remain and be viable for some retailers, but their overall receipt of dollars spent will be proportionally lower as on-line retailers grab more of consumers’ wallets.
Personally, since we bought a so-called ‘smart TV’ about a year ago, we see the benefits of VOD. We subscribed to Netflix the day it was open in Australia and we absolutely loved House of Cards. It seems understated though, but YouTube’s free content which includes a lot of music, NASA science documentaries (the recent fly-by of Pluto for example), history and of course investment seminars from world-renowned investors means a lot more of our viewing is done on-line. In fact, anything of interest these days can be found on YouTube and is a wonderful resource.
What keeps us on free-to-air though is, believe it or not, the regular 6 or 7pm news, some sport, and ABC for Kids! I can’t see myself ever wanting to dial up news via VOD, I simply love to watch the news live, for half an hour, and get my fix to relax after work (although all of the news these days is simply bad). There’s no doubt though, since the new TV appeared on the wall, our viewing habits have changed. Of course, my wife and I watched all of the Recent Forager investment videos on the TV from the comfort of our lounge. Thanks Kevin, Steve and Matt & Gareth! You look great on the big screen!
Many thanks Kevin for a very good blog.