Competition against Netflix May Lead to Higher Media Content Prices

Netflix is enjoying their sweet position as the leader of media streaming. Now companies are entering the streaming business, movie studios are embracing this new industry, and studios are expected to charge more for their content. “Netflix’s vanished Sony films are an ominous sign” by Julianne Pepitone of CNNMoney.com reports, when Netflix’s contracts run out the cost of content will “increase more than tenfold”.

Netflix recently lost Sony content because of a streaming cap in Sony’s contract with Starz. The article reports that the Disney catalog could possibly suffer the same fate. These contractual problems are leading to the fact that studios see the value of their content in the streaming industry.  With Google, Amazon, and Hulu getting into the industry, studios see reasons to charge more. The article reports analyst Michael Pachter “predicts Netflix’s streaming content licensing costs will rise from $180 million in 2010 to a whopping $1.98 billion in 2012” and he goes on to say,

“The content owners realize they can’t give Netflix all the leverage… Netflix had the power when they were the only bidder. But you don’t have as much leverage when you suddenly have competition”

If content costs do go up, the belief is Netflix wouldn’t have enough cash to outbid others. The article reports Netflix made $161 million profit last year and had $342 million in cash; Amazon has “$7 billion in cash”; and Google has $37 billion in cash. Also Hulu is up for sale with “Google, Microsoft, Amazon, Yahoo and nearly every other tech giant, plus telecoms like AT&T and Verizon” as prospective buyers and this purchase by a company with a lot of cash would create a big competitor able to buy expensive content.

Netflix has a large amount of subscribers and a great price. They are able to stay at the top because for so long they had no competitors and studios did not acknowledge streaming as a permanent and popular. The problem is Netflix competitors have more money and this affects the content that is expected to get more expensive. Netflix may have gotten video streaming its respect as a new industry but can they keep and pay for the content to stay at the top? Hopefully, they can.