The battle of the streaming video services is escalating.
Netflix and Amazon have ramped up their spending on movies and TV programs for their respective subscription Net TV services so much that they are surpassing many traditional networks, such as HBO. Last year, Netflix spent nearly $5 billion on content, while Amazon spent $2.67 billion — that's more than twice the amount each spent in 2014.
Each is expected to continue throwing more cash around. Netflix plans to spend $6 billion in 2017. Why? Because consumers have taken to TV delivered over the Net — so-called "over-the-top" TV — with a growing percentage opting for multiple subscriptions to streaming services. This has consequences for Hollywood and the cable and satellite TV companies that deliver programming into homes.
"There’s no doubt that Netflix, Amazon and other (over-the-top Net TV) services are a challenge for pay-TV operators," said Tim Westcott, senior principal analyst at IHS Technology.
Last year, the only networks outspending Netflix and Amazon were Disney-ABC ($11.84 billion), NBC ($10.27 billion) and CBS ($5.7 billion), according to a recent report from IHS Markit. Even with its dragon-fueled fantasy series Game of Thrones, HBO spent only $2 billion.
Networks such as AMC and FX do grab viewers with series such as The Walking Dead and The Americans. But Netflix and Amazon have built their own audiences with original series such as House of Cards, Orange is the New Black and Jessica Jones (Netflix), and Transparent, Bosch and Mozart in the Jungle (Amazon).
And both services plan to keep spending. Netflix plans to spend more on developing its own original content as it did with its summer hit Stranger Things, as opposed to paying other studios, such as Sony, which produced The Crown, a new series that debuts Nov. 4, and Disney, which creates Luke Cage and the other series based on Marvel comics characters.
Netflix remains the leader in more homes, but about one in six (16%) TV viewers supplement their options with another service, such as Amazon or Hulu Plus, market research firm GfK. That's up from 10% in 2013.
The quality of programming on these services, along with the growing availability of Net TV packages from services such as Sling TV, has helped foster a steady decline in pay-TV homes. About 800,000 customers are expected to cut the cord over the next 12 months, costing the pay-TV providers as much as $1 billion in revenue, suggests a recent survey by management consultancy cg42. (Of course, some pay-TV providers would likely see some offset of that revenue by increased broadband spending.)
That mirrors findings, released last month by Magid Advisors, that as many as 6% of current pay-TV subscribers were "very likely" to cut the cord. That's up from 3.8% in its survey last year.
The main reason, according to Mike Vorhaus, president of Magid Associates: the growing libraries of quality content available from Net TV providers.
For now, this is all working out in viewers' favor. "We consumers are spoilt for choice right now," Westcott said. "Netflix and Amazon have shattered the model of pay TV."