The overwhelming popularity of Netflix has set off an "arms race" for original programming at traditional cable media companies to combat declining viewership, reports Bloomberg Business. However, that competition is eating into cable company’s margins, sending their profits down in the last year.
Netflix has had a virtually unprecedented string of critical and commercial successes via the likes of Jessica Jones, House of Cards, Orange is the New Black, and more in recent years. But those and other original programming hits, which have attracted millions of subscribers to the streaming media service, have cost the company billions in production costs. They’ve also cost traditional cable channels viewers.
In an attempt to stem further viewership loss to streaming companies like Netflix, Amazon, and Hulu—the latter two which are also spending big on original programming— Bloomberg reports that traditional media companies are now set to spend billions on original programming in 2016 and beyond.
In 2016 Netflix will spend $5 billion on non-sports original content, yet that lead isn’t as much as it used to be. Information gleaned from the latest financial calls and SEC filings of cable networks reveal that 2016 will see Time Warner, Fox, Viacom, Disney, and Discovery all spend big on original programming. Time Warner is set to spend $4.5 billion on original content this year. Fox and Viacom will both spend $3.8 billion. Disney will spend $2.8 billion and Discovery will spend $2 billion.
"All these companies have been raising the amount they’re spending on programming pretty consistently," Doug Creutz, an analyst with Cowen & Co., told Bloomberg. "TV is losing audiences, and you’re trying to have new stuff to keep audiences engaged with your programming."
However, in the near term that increased spending is reducing the profit margins at most of the companies involved. As spending on original content is planned for several years, and as it will take a while to attract back audiences who have abandoned cable TV, which will lead to lower ad sales for the time being, it could take a while for cable companies to see the fruits of their increased original content spending.
And that’s assuming that expensive investment will pay off. As Bloomberg notes, increased competition is making hits harder to come by. After all, cable and new media companies can pump out more original content, but they can’t create more hours in the day for people to watch their shows. John Landgraf, CEO of Fox’s FX Networks, recently lamented that there’s already "too much TV," noting that over 400 scripted shows were made in 2015. "You can’t even count the number of TV shows accurately," he added.
But there is some good news: Cable networks no longer only have to rely on their own channels to show and make money off their original content. They can sell their original programming to streaming-video-on-demand services like Netflix and Amazon and easily market their programming internationally via their own online services.
"The world is getting bigger and bigger and better and better," CBS CEO Leslie Moonves recently said at a financial conference in San Francisco, notes Bloomberg. "So you’ll see us do more content, but only if we know it’s going to be profitable. In most cases, that’s the way it is."