Some of the largest entertainment companies in the world are dumping billions of dollars into streaming video content in 2018 in an attempt to gain share from market leader Netflix, Inc. (Nasdaq: NFLX). Netflix investors, though, can rest assured that the streaming giant plans to spend hand-over-fist to maintain its top position.
Bank of America analyst Nat Schindler says Netflix will face unprecedented competition in coming years. He estimates Alphabet (GOOG, GOOGL), Amazon.com (AMZN) and other streaming video leaders will spend a combined $20 billion on video content in 2018. Those projections come just weeks after Walt Disney Co. (DIS) dished out more than $52 billion to acquire content from Twenty-First Century Fox (FOXA) in preparation for Disney’s standalone streaming service launch planned for 2019.
After Netflix spent an estimated $6 billion on digital video content in 2017, Bank of America estimates it will ramp up its spending to range between $7 billion and $8 billion in 2018. According to Schindler, only Alphabet ($7 billion plus) and Amazon ($5 billion plus) have comparable video content budgets in 2018.
“While the mass influx of professional content makes competition for engagement more extreme, we think it also will lead to acceleration in cord cutting, which is net positive for Netflix as a clear leader in the space,” Schindler says.
A potential wild card in the video content buying spree could be Apple (AAPL). Bank of America estimates Apple will spend about $1 billion on video content this year, but Daniel Ives, head of technology research at GBH Insights, says Apple could invest much more.
“For a company that historically is not a huge fan of larger M&A and focused on organic initiatives to broaden its golden consumer ecosystem, a larger M&A deal around buying Netflix, a movie studio, and/or another avenue of adding significant content would be a cultural shift, although potentially necessary if Apple wants to make a big bet on the streaming front,” Ives says.
With or without an Apple buyout, Schindler says Netflix will spend its way to another big year in 2018.
“Despite great success growing subscribers, we see continued growth internationally and additional leverage with pricing increases over the next five to 10 years,” he says.
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