Decade-long spending boom on original TV content expected to slow

A decade-long spending boom on original television shows is expected to slow to a crawl this year as lossmaking streaming platforms moderate rapidly expanding budgets and traditional channels cut back on commissions.

Analysts predict 2023 will be a pivotal year for the video media industry, which has been hammered by the deteriorating economy and an expensive transition from traditional television to streaming, where most platform’s soaring content costs have yet to be matched by revenue gains.

Overall spending growth on original content is expected to fall from 6 per cent last year to just 2 per cent in 2023, according to research group Ampere Analysis. Excluding production shutdowns during the pandemic, the rate of expansion is the lowest in more than a decade where total worldwide spending jumped from $128bn to $243bn.

Commercial broadcasters such as RTL, Mediaset and ITV are facing some of the most severe pressure. Ampere predicts total original spending will fall by 3 per cent as the sector tries to cope with an advertising downturn, rising production costs and declining audiences for linear channels.

But streaming services have also begun to enter more straitened times, as media groups rein in costs to manage slower than expected subscriber growth and ballooning losses from establishing the platforms.

Total content spending for subscription streaming services, such as HBO Max, Disney Plus and Netflix, will continue to increase but at a rate of 8 per cent rather than the 25 per cent breakneck growth in 2022.

“Services will continue to focus on original content to compete in a crowded, cost-sensitive market, but we are already seeing a shift in content commissioning to incorporate a greater volume of cheaper unscripted formats,” said Hannah Walsh, research manager at Ampere.

Netflix, which accounts for about 25 per cent of spending on original streaming shows, said it was holding spending steady at around $17bn a year, while trying to make its shows more “impactful”. “The key for me is not that you have to spend more and more money,” said Ted Sarandos, Netflix’s co-chief executive, last month. “It’s: can you get more impact per million dollar spend than anybody else?”

Meanwhile, big legacy media companies such as Disney, Paramount and Warner Bros Discovery are facing another year of heavy streaming losses, with Morgan Stanley estimating content costs per subscriber will be almost double that of Netflix while revenue per member will be lower.

Excluding Netflix, Morgan Stanley estimates streaming services suffered operating losses of around $10bn in 2022. Losses are expected to peak for some services in what the analysts called a “tipping point year” where it will be clear costs are reaching “unsustainable levels”.

“Streamers are raising prices and cutting costs,” the Morgan Stanley analysts wrote in a note to clients. “If these moves do not deliver meaningful streaming profits, we see two options (not mutually exclusive): give up and/or consolidate.”