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Content spending among the nine leading media and technology companies will reach $140.5 billion in 2022, up about 10% year-over-year, according to new data from Wells Fargo. The content spend figure among these companies is projected by Wells Fargo to rise to roughly $172 billion by 2025.
Chalk it up to the rising cost of doing business in the streaming wars, especially for the traditional media companies, which are also still supporting programming efforts for their legacy linear channels.
Investor concerns about profitability already seem to be weighing down stocks for the content companies, some of which have seen a reset in valuation levels. For example, as of market close Jan. 7, the stocks of Disney, ViacomCBS and Discovery were down nearly 21%, 5% and 5% from one year prior, respectively. All of these companies’ stocks were booming earlier in 2021, but Wall Street seems to now be taking a more skeptical tack.
Disney has said it plans to spend $33 billion on content in its fiscal year 2022, which began in October. That figure is up from $25 billion in Disney’s fiscal 2021. Wells Fargo also predicted the combined Warner Bros. Discovery will boost its cash content spending to $22.4 billion in 2022 when factoring in sports rights, a figure that's up 8.2% from 2021.
Traditional media companies are caught in a bind: They have no choice but to spend their way to compete with the tech companies, but it’s compressing their profit margins. The hope is short-term pain will be worth it for the long-term gain, though it’s highly doubtful more than a few players will see that strategy work because there can only be so many streaming services consumers are willing to support at a global scale.
Warner Bros. Discovery’s 2022 content spend will partially go toward rights for sports like baseball and basketball. Turner will reportedly pay the MLB $470 million between 2022 and 2028 and is reportedly currently paying the NBA over $1 billion annually for broadcast rights. The NBA is also looking to increase the amount it charges its broadcast partners after the 2024-25 season.
Sports content costs are skyrocketing because of live sports’ increasing importance to the linear TV ecosystem. For example, TV sports is the most important genre in the top 1,000 cable originals and increased from a 25% share in 2016 to 38% in 2021 (read a detailed breakdown of the modern state of television in VIP+’s latest white paper, “Fading Ratings”).
While Netflix ranks fourth in total projected 2022 spending among the leading companies, the company leapfrogs to second place when sports is removed from the equation.
Splashy 2022 films like “The Gray Man” and “Escape from Spiderhead,” which VIP+ named as two of its top 20 most anticipated streaming titles of this year, exhibit why Netflix is projected by Wells Fargo to spend $19 billion on content in the year ahead, up 13% from 2021.
But Netflix faces its share of challenges as well. Media analysts MoffetNathanson pointed out in a study last month that found that many original Netflix hits have a relatively short shelf life, with audience levels peaking quickly after release, which makes constantly creating new content a necessity.
Moreover, while Netflix’s operating margins appear strong, its free cash flow margins are weighed down by the constant spending; MoffettNathanson in an early January 2022 note projected that Netflix’s cash-flow margins will drop to 2% in 2021.
ViacomCBS, which rolled out Paramount+ less than a year ago, is projected by Wells Fargo to spend $3.8 billion in cash on DTC content in 2022, a figure up roughly 25% year-over-year.
But ViacomCBS’ DTC content expense will still fall short of the $8.1 billion Apple is projected by Wells Fargo to spend on Apple TV+ content in 2022. Apple will reportedly double its content output this year.
Wells Fargo predicts Comcast and NBCU will spend $2.2 billion on DTC content in 2022, a figure up 22% year-over-year but still lower than that of virtually all its major U.S. based competitors. Comcast has said that it doesn’t expect Peacock to break even until 2024, though some cast doubt on the streamer’s ability to meet that goal.
Separately, research firm Ampere Analysis predicted in December 2021 that the nine biggest content spenders would spend roughly $126 billion on content in 2022. Ampere Analysis estimated that content spend globally would hit roughly $233.2 billion in 2022, a figure up about 6% over 2021.
But Ampere Analysis’ content spend figures are on a P&L basis and are different from Wells Fargo’s estimates, which are on a cash basis.
Content spend estimates on a cash basis for one year includes spending on projects that aren't necessarily released in that same year. Content spend estimates on a P&L basis for one year only includes spending on projects that are released in that same year, so they would generally be lower than spend estimates on a cash basis.
Meanwhile, Morgan Stanley in a mid-December note reported that the content spend among the top nine spending media and technology companies would spend over $140 billion on content in 2022, when factoring in sports rights. Morgan Stanley’s spend figures are not cash spend and were gathered from content expenses from companies' income statements.