James R | On 27, Oct 2014

The big subscription VOD companies will spend a total of $6.8 billion on content in 2015.

The video on-demand market is heating up, as companies fight over your subscriptions – and content is the weapon of choice. Get enough quality titles to justify your monthly fee, the theory goes, and people will subscribe for as long as it takes to watch them, possibly longer.

Bidding wars have already begun for the hottest new shows, with Amazon beating Netflix to sci-fi Extant this summer and Netflix beating Amazon to Gotham (once it’s finished airing on Channel 5 in the UK). As competition increases, the cost of content is being driven up. Amazon splashed out a reported $700k for Under the Dome, while Netflix recently forked out $2m per episode of The Blacklist in the US, a record high.

It is no surprise, then, that a new report from David Bank at RBC Capital Markets (via The Hollywood Reporter) forecasts spending from the biggest subscription VOD companies to keep climbing. This year, the top players (Netflix, Hulu and Amazon Prime) spent a collective $5.2 billion, says Bank. Next year, that will increase to $6.8 billion.

The staggering figure is already more than broadcast stations spend on syndicated content, although it remains far below the colossal $18.4 billion spent by cable. Nonetheless, double-digit growth in SVOD spending is expected for the foreseeable future, with all three together predicted to spend about $29.5 billion in 2015.

Where is the money going? The primary beneficiaries are CBS, Lionsgate, Time Warner and 21st Century Fox.

Already signed are deals for Elementary from CBS, which goes to Hulu for $1.5 million an episode, Gotham from Warner Bros. TV, which cost $1.75 million an episode, The Americans from Fox to Amazon Prime Instant Video for $1 million an episode, and, of course, Lionsgate’s Orange Is the New Black, which will return to Netflix under a $2.5 million-an-episode contract.

Most of these deals are US- specific, with even more spending happening internationally to bag content for different markets. Netflix’s Gotham deal, though, stands out from the pack because it gives them global subscription streaming rights to the Batman prequel.

Indeed, Bank says Netflix will remain the biggest SVOD spender, with a total of $3 billion forked out for content next year, then a projected $3.4 billion in 2016 and $3.9 billion in 2017. (Roughly 10 per cent of this budget is on “original”-branded content.)

“Netflix will have exclusive content from some of the most high-profile talent in Hollywood and tends to have limited ‘bombs’,” says Bank, who notes that they also have the edge in audience reception and perception compared to rivals.

“There also tends to be a great deal of positive buzz around these shows.”

Who is winning on the other side of the fence? Bank’s report ranks CBS as enjoying the highest “hit rate” for TV shows since 2007, ahead of Warner Bros., ABC Studios and Sony. Investors, though, he argues, should look to Lionsgate or CBS for profits, because the SVOD income will have a bigger impact in a smaller pond.

The bottom line, though, is that subscription VOD is changing the TV landscape significantly – not just for binge-viewing audiences, but for content syndication.

“In contrast to the traditional syndication models, some first-run shows are being sold into SVOD windows before they have even premiered in their first-run windows,” explains Bank. “Some shows will be sold into SVOD somewhere between 20-40 episodes at substantial per-episode prices.”

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