Streaming wars drive media groups to spend more than $100bn on new content

The top eight US media groups plan to spend at least $115bn on new movies and TV shows next year in pursuit of a video streaming business that loses money for most of them.

The huge investment outlays come amid concerns that it will be harder to attract new customers in 2022 after the pandemic-fuelled growth in 2020 and 2021. Yet the alternative is to be left out of the streaming land rush.

“There is no turning back,” said media analyst Michael Nathanson of MoffettNathanson. “The only way to compete is spending more and more money on premium content”. 

The Financial Times calculated the planned expenditures based on company disclosures and analyst reports. One entertainment executive called them “mind boggling”.

Most of the companies — a list that includes Walt Disney, Comcast, WarnerMedia and Amazon — are set to rack up losses on their streaming units. Including sports rights, the aggregate spending estimate rises to about $140bn.

Disney’s investment in streaming content is likely to grow by 35-40 per cent in 2022, according to estimates by Morgan Stanley. The company’s spending on all new movies and TV shows is expected to reach $23bn, though the number rises to $33bn including sports rights — up 32 per cent from its total content spending in 2021 and 65 per cent from 2020.

Among Disney’s programmes earmarked for 2022 are a retelling of Pinocchio starring Tom Hanks, a new instalment of the Cars franchise and Obi-Wan Kenobi starring Ewan McGregor. Netflix, ViacomCBS, Fox and Apple also intend to spend billions of dollars on content.

“The real headline in 2022 is how much money has been allocated to the platforms for content,” said John Sloss, partner at law firm Sloss Eckhouse Dasti Haynes and head of Cinetic Media, a talent management and advisory agency. “It is just mind-boggling”.

Subscriber growth has slowed for Netflix, Disney’s Disney Plus streaming service and others in the past few quarters. Netflix executives blamed this on a weaker schedule of programming owing to coronavirus-related production delays, a problem that plagued the entire industry.

But the fact that even the industry leader must invest heavily to churn out shows and keep pace with competitors has caused some investors to ask whether video streaming is a good business.

Netflix is set to spend more than $17bn on content next year — up 25 per cent from 2021 and 57 per cent from the $10.8bn it spent in 2020. The company expects to break even and become free cash flow positive in 2022.

“This is going to be a milestone for Netflix,” if it achieves those goals, said Tuna Amobi, senior media and entertainment equity analyst at CFRA.

For more traditional media companies, however, the transition from traditional television and movies to streaming “has been significantly dilutive to [profit] margins,” Morgan Stanley noted recently.

“The market is increasingly concerned there is no pot of gold at the end of this rainbow”, the bank’s analysts said.

Costs have been rising across the board as the biggest entertainment and technology companies rush to produce more shows to feed their streaming services. Finding locations to film in Los Angeles has become difficult. Sound stages, historically a niche form of real estate, have attracted investments from private equity firms Blackstone and TPG.

“Because of just the competition for talent, for everything that’s involved in productions, content costs have gone up”, Christine McCarthy, Disney’s chief financial officer, told investors last month.