Apple (NASDAQ: AAPL) turned heads earlier this month, when The Wall Street Journal reported that the tech giant had made plans to spend $1 billion on original content over the next year. While Apple's sizable foray into video content is notable, it also helps to show just how significant Netflix's (NASDAQ: NFLX) commitment to building out its content library is.
In 2017, Netflix plans to spend about $6 billion on new programming, more than any of its direct rivals. Here's a closer look at how Netflix is going big on content.
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Netflix's enormous budget
Netflix's expected $6 billion content budget for 2017 is up sharply from the estimated $2.4 billion Netflix spent on content in 2013, showing how quickly the streaming-video company has become a prominent player in Hollywood.
Further, Netflix's 2017 budget is not only six times higher than Apple's planned spending over the next year, but it also outpaces all of its main competitors, including Time Warner's HBO, Hulu, and Amazon.com.
Netflix's jump in the amount of original content produced recently similarly speaks to the company's content ambitions. While it doesn't break out the portion of its budget used for original content, Netflix does provide an update each year on how many hours of original content it will release. Netflix's hours of original content produced each year have climbed from 320 hours in 2015 to an expected 1,000 hours in 2017.
How much of its content budget is Netflix likely to be spending on original content? Approximately 25% of its 2017 budget, or about $1.5 billion, according to estimates from eMarketer.
Of course, Netflix's growing presence in Hollywood isn't just evident by the amount of money Netflix is spending. The streaming giant's ability to produce increasingly more quality content is notable as well, as evidenced by Netflix's 91 Emmy nominations in this summer -- nearly double its nominations last year.
Another way to understand the breadth of Netflix's content rampage is to view its releases during its second quarter, which Netflix detailed in its second-quarter shareholder letter:
Netflix's content budget will continue to increase
But Netflix isn't stopping at $6 billion. Shortly after the Journal reported on Apple's $1 billon content budget, Netflix's chief content officer, Ted Sarandos, fired back in a Variety interview with an even bigger number: Netflix plans to spend $7 billion on content in 2018, Sarandos said. While Sarandos took care to emphasize that most of this spending is still expected to go to licensed content, he said Netflix intends to hit a point in a few years where half of its content budget goes toward original programming.
For now, Netflix's content spending has been paying off handsomely, helping the company's streaming members soar from about 83 million in the year-ago quarter to 104 million in the second quarter of 2017. Similarly, Netflix's second-quarter revenue was up 32% year over year. Further, Netflix said its second-quarter performance was largely driven by the "popularity of our strong slate of content which led to higher-than-expected [member] acquisition across all major territories."
Going forward, a $7 billion budget for content in 2018 means Netflix has a chance to continue this momentum. But investors should keep in mind that there's always a risk this big spending won't pay off as handsomely in the future as it has in the past, particularly as Amazon, Hulu, and now Apple ramp up their content spending. As competitors step up their content plays, consumers will have more quality choices for where to watch the latest shows.
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