Netflix, Inc. (NASDAQ:NFLX) is already disliked among content providers for consistently outbidding them, and the firm appears to want to charge ahead in that direction. The firm’s head of content Ted Sarandos says it plans to spend about $7 billion on content over the next year. That figure is being met by commitments by other tech firms.
A story that was published by The Wall Street Journal, claims that Apple Inc. (NASDAQ:AAPL) is planning to spend about $1 billion on content. The massive increase in spending by tech firms in the area could exacerbate the already booming prices for creatives. That could be creating a short term content bubble that will be interesting to watch.
Apple, Netflix go all out
The news that Netflix, Inc. (NASDAQ:NFLX) is spending more on content wasn’t a surprise. What was a surprise was the magnitude of the firm’s scheme. Chief Content Officer Sarandos announced the figure in an interview he did with Variety.
In 2017 the firm is set to spend a total of $6 billion. Analysts following the stock have been worried about the firm’s rising costs, and the debt that go along with them in recent months. Despite that it appears to think that putting more money in the content market is the optimal choice.
Apple has hired executives from Sony to take care of its content budget. The firm has never actually spent much money creating shows, however, and its initial foray into the world of streaming has been met tepidly.
We can be pretty certain that the Netflix story, which is significant enough in its own right is true. The Wall Street Journal has a great record on Apple Inc. (NASDAQ:AAPL) decision making, so that story is likely broadly true as well. From what we’ve heard out of other tech firms, with Google and Facebook looming large, these aren’t the only forces looking to spend more.
Is this the great content bubble?
If you’re a script writer, now may be the time to start writing. If there’s higher demand for content over the coming year, quality scripts may be able to attract outsized prices. The question, for all of those content buyers out there, is whether this is a short term squeeze or a fundamental change in the market.
It’s possible that total content spending will be reduced once the major competition ends, but there’s no telling when that will be. Right now there’s no sign of the traditional players reducing their spend, and outside groups are moving in. If some firms are driven out of the business quickly, prices could go back to normal.
On the other hand, a rise in script prices might result in an inflow of talent. It seems, however, that there’s major competition for competent writers in Hollywood, so it’s unlikely that there’s anywhere to source an influx from. Script writing is a talent that excludes most people from outside the US, because of both cultural and language concerns.
At the same time, it’s exceedingly difficult to move to script writing from another career, even for those already writing for a living. This may be a permanent, or at least medium term, change in the dynamics of the content market. Higher content prices aren’t ideal for Netflix, Inc. (NASDAQ:NFLX) or Apple Inc. (NASDAQ:AAPL) but they may be better off than their rivals.
Tech may be the future of content
Netflix, Inc.(NASDAQ:NFLX) hasn’t really shown that it’s able to drive content prices down. The firm’s most popular shows happen to be just as expensive as others in the industry. What is different, however, is its approach to audience targeting and other engagement metrics.
Netflix knows what kind of people watch which shows better than any cable TV firm ever can. They know whether people are really engaged, whether they take breaks and whether they binge watch. They also know what kinds of content are linked together in people’s minds. There’s a wealth of information that tech firms have access to that
Apple Inc. (NASDAQ:AAPL), on the other hand, doesn’t collect all that much information about its users. On the other hand, the firm has another value proposition. Those who buy the firm’s products tend to be much wealthier. That’s a market that advertisers love to get access to.
If there are true advantages that technology companies have over traditional cable, then this war may be close to over. Either the legacy giants close the tech gap, or they lose out on the best content over the coming years. High valued commodities are taken out of low value production because they can be sold at a higher price to other buyers.
When the commodity is as rare as great content, this effect could hit hard and fast. If America is talking about what’s on Netflix rather than CBS the networks and cable are losing. If it’s losing it’s going to have a hard time convincing investors to spend more on major content deals.
Is Apple stock affected by content?
Content is key at Netflix, but there’s a much bigger question about the goals of Apple Inc. (NASDAQ:AAPL) in the market. The firm doesn’t have much in the way of a video product. Right now the couple of original shows it does produce are part and parcel of its Apple Music offerings. The firm likely adds value to the music streaming service with content, but it doesn’t seem like a big winner in the long term.
The other exposure Apple has to video is even less inviting for investors. Apple TV, the $99 box you can plug in to your TV to get Youtube on it, has never been a major seller for the firm. That could, of course, change if it came with access to original content.
The $1 billion spend surely points to something more interesting at Apple Inc. (NASDAQ:AAPL) , however. The firm isn’t just dipping its toe in original content, it’s got an entire leg in the water. The firms future video plans could be very interesting indeed. In reality, for the time being at least, video has no effect on Apple stock. It may add marginal demand for the iPhone through Apple Music, but that’s about it.
For content creators, from writers to producers to people across the production process, now is a very exciting time to be in Hollywood. These firms are opening their wallets and driving prices up. It may be a bubble, depending on market dynamics, but many smart people have made their names in bubbles. This one will likely create a few success stories.