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Pay TV majors still spend lots more on content per subscriber than the SVOD giants

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Sky and Liberty Global spend much more on content per customer than Netflix and Amazon, a fact that is worth remembering when discussing the growing content investments at the two online giants. Ben Keen, the former Chief Analyst and Vice President at IHS Markit, and now an independent analyst and adviser, made the observation last week during Cable Congress, suggesting that it could be argued that the Pay TV operators still deliver more value to their customers.

He showed figures from IHS Markit showing content spend per subscriber in 2016. Sky towers above the SVOD providers at just over $350 per subscriber compared to Amazon, which is approaching $150 and Netflix on just over $50. Liberty Global spends nearly $200 on content per subscriber. Netflix spending is dramatically higher on a per subscriber basis than either HBO or Discovery, however. Two-thirds of Sky content investment is on sports rights, Keen noted, although it will broadcast eleven original dramas itself during 2017.

Keen showed figures provided by IHS Markit for total content spend in 2016. Netflix spent just under $5 billion, Liberty Global close to $4 billion, Amazon close to $3.5 billion, the BBC just over $3 billion, Sky and Discovery over $2.5 billion, HBO just over $2 billion and ITV around $1.5 billion. Netflix created 600 hours of original content in 2016 (up from 450 in 2015), is producing in nine countries and has over 90 productions underway in Europe, he revealed. The IHS Markit figures showed that Netflix has spent $1.75 billion on content in Europe since 2012.

The increased competition is driving up the cost of content and squeezing margins across the TV industry, according to Keen, and it is also encouraging companies like Sky and Liberty Global to invest more in production companies and make increasing amounts of regional content, which is one of the key battlegrounds. Outlining what he calls a “fight back”, Keen noted that Liberty Global has invested in five production companies, has created two original Swiss series and a Belgian drama and is co-producing four high-end dramas with All3Media.

He added that Sky has been investing in nine production companies in the UK and U.S. (alongside its Sky Vision production firm) and is now producing in Germany and Italy.

The competition between traditional Pay TV and the larger SVOD providers is not a simple black-and-white matter, of course. Liberty Global has a worldwide deal with Netflix to ‘onboard’ the app and so make its content available to subscribers. That means that the operator – and others ranging from Com Hem to Waoo! – benefit from the investments the Los Gatos-based company is making.

Ben Keen observed that Netflix is moving towards its ambition of delivering 50% original content and, despite the spend-per-customer figures, this company and Amazon “are increasingly outspending the other big players in the market.”

“They are global players driving a worldwide consumer business and they are spending high to get their content,” he told Cable Congress.

He also flagged IHS Markit figures showing content spend as a proportion of total video revenue, and this shows that Amazon far exceeds all other media companies, including Netflix. The company is spending close to 140% of its total video revenue on content. This suggests that Amazon is betting that it will quickly increase subscribers by paying more for content than it earns from its video service, or/and it intends to drive non-video revenues using content as the bait (in the same way that telcos used television to grow their broadband business).

Sky and Liberty Global are spending very close to 60% of their total video revenues on content, with Netflix a little under 60%. The BBC, HBO, Discovery and ITV follow. The figures are for 2016.

Speaking elsewhere at the Brussels conference, Liberty Global highlighted its investment in sports rights in Switzerland, including ice hockey and Formula E, as the bedrock for some new channels.

One major European platform operator that will not be investing in its own content is Vodafone, at least in Germany. Dr Manuel Cubero, the CEO at Kabel Deutschland and CCO for Vodafone Germany, made it clear that he is happy with the partnership between his company, which is primarily focused on fixed line broadcast, mobile and fixed/mobile convergence, and Sky Deutschland, which is focused on content and it satellite and OTT Pay TV services. Their cooperation has been deepening, with Vodafone distributing Sky’s Bundesliga football and movies on mobile.

“Sky Germany is a wonderful partner for us. We have exclusive soccer and first window movies. Sky is a big content provider that is not competing with us on fixed broadband or mobile broadband. As long as our content partners do not compete with us on fixed and mobile broadband, they are perfect partners for us.”

Pushed by the session chair, the media commentator Kate Bulkley, whether this happy arrangement can last forever, Manuel admitted: “We watch them very carefully, and they watch us to see if we start buying our own exclusive content, but so far it is a very good cooperation.”

Photo: Netflix in the UK.

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