The biggest entertainment companies including Netflix (NFLX) Inc., Time Warner owner AT&T INc. (T) and Comcast Corp. (CMCSA) are spending billions of dollars at a frenzied pace in order to buy classic television programs to bolster their streaming services. Streaming has steadily grown in popularity, and customers' viewing options will expand even further when it comes to these services. Netflix, in particular, is a FANG stock, complicating things.
What it Means For Investors
As these companies increase spending on programming, they also raise the stakes for investors. Bringing in swaths of new customers could mean big success, but low viewership will make it increasingly difficult to recoup these investments, hurting these companies' profits and share prices. In recent weeks, these and other media giants have spent a whopping $2 billion on pre-existing television content alone, per a detailed report by the Wall Street Journal as described below. Investors should expect this classic TV arms race to continue as media companies compete for viewers and revenue.
In recent weeks, Netflix bought the rights to the sitcom, "Seinfeld," while Comcast secured exclusive streaming rights to "Parks and Recreation," and popular shows "Friends" and "The Office" found new homes. A major impetus for this outburst of spending is that four major new streaming services are being launched by Comcast, WarnerMedia, Walt Disney Co. (DIS) and Apple Inc. (AAPL) by spring of 2020. According to a Magrid survey, streaming customers are generally willing to pay a total of about $38 per month for a few streaming services; the media giants above are hoping to win a spot within that pool for as many customers as possible.
The bidding war for these shows is also intense because there are so few of them. Some of the priciest television shows are among the "very limited number of excellent comedy titles that have a large number of episodes and are evergreen," according to Michael Nathanson of MoffettNathanson Research. It is this type of thinking, perhaps, which prompted AT&T to spend $600 million for five years of domestic rights for "The Big Bang Theory" on HBO Max. That eye-popping price tag may make it hard for HBO parent Time Warner to make a profit, per Barron's.
No matter what, the shift is likely to continue toward streaming. Already only 65% of Americans pay for cable or satellite TV, less than than 69% who pay for streaming, according to Barron's. Media giants, of course, are betting these new classic shows will further expand the streaming viewership audience.