The Trickle of TV Streaming Services Will Soon Be a Deluge

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The stream is about to turn into a gush.

Streaming video-on-demand purveyors like Netflix (NFLX), Hulu and (AMZN) are set to open their wallets a lot wider for content. And where will that cash flow? For the most part, into the bank accounts of the content producers, specifically the Hollywood TV industry.

The Fight for Eyeballs

As everyone expected with the advance of streaming technology (and the bandwidth to accommodate it), video on demand has become one of the hottest items in entertainment.

The evolution has been fast. Five years ago, Amazon's Prime was essentially just a subscription service that provided free two-day shipping of physical goods for its members. Since 2011, though, it's been an increasingly aggressive player in the streaming market.

Amazon doesn't break down the figures it spends on streaming video; nevertheless, its "technology and content" expenses line item was $6.6 billion in the first nine months of this year. That was 41 percent higher than in the same period last year, and the amount comprised nearly 10 percent of the company's total net sales.

According to an estimate from Bernstein Research, Amazon is set to spend $1.5 billion to $2 billion this year on streaming syndication and original content, which should balloon to more than $2.5 billion in 2015.

It's in good company. Its two most prominent rivals, Netflix and Hulu -- a joint venture of units from Comcast (CMCSA), 21st Century Fox (FOX) and Disney (DIS) -- are also prepared to write big checks. According to Variety, an analysis from RBC Capital Markets estimates that the troika will spend a collective $6.8 billion on such content next year.

That's a chunky 31 percent increase from the anticipated 2014 figure of $5.2 billion. That higher spend is going both to the original content that has proliferated on such channels (series like Netflix's "Orange Is the New Black"), films, and syndication rights for such broadcast TV series as "The Blacklist," a production of Comcast's Universal brand.

Lights, Camera ...

The streaming services need content, and Hollywood is eagerly providing it, particularly in the form of TV series.

According to the RBC estimates, Lionsgate (LGF) -- whose TV unit makes "Orange Is the New Black" -- stands to take in $61 million from streaming rights next year. A bigger player is CBS (CBS), which at the moment has six series in streaming video syndication deals that will amount to roughly $179 million next year.

Industry stalwarts 21st Century Fox, Sony (SNE) and Universal are also getting in on the action, with anticipated 2015 paydays of $40 million, $43 million, and $22 million, respectively, from their TV production units.

None of these amounts is going to provide a big bump for any of those companies. Sony's take from streaming syndication is only a tiny part of its vast operations, which collectively saw a top line of 7.8 trillion yen ($66 billion) in fiscal 2014. Even a purer film/TV production outfit like Lionsgate makes the vast bulk of its top line elsewhere, to the tune of $2.6 billion in total in its most recent fiscal year.

Rather than a cash cow, streaming for the studios is a newish source of revenue either for a product they've already manufactured (like "The Blacklist") or for a fresh offering destined solely for one of the streamers ("Orange Is the New Black").

And that source will almost certainly rise steeply. RBC anticipates that its $6.8 billion estimate for 2015 (already a 31 percent hike, remember) will advance by double-digit percentages each year well into the future.

There's plenty of room to grow, after all. At the moment, for example, Netflix is driving deeper into foreign markets, launching this past September in six European countries: Germany, France, Switzerland, Austria, Belgium and Luxembourg.

In those nations it not only has to compete with on-demand services from entrenched local broadcasters like ProSieben, it is battling or will battle with its American rivals there too. Amazon's Prime video on demand, for example, can be accessed directly in the U.K. and Germany. So the more content it can offer, the greater its chances to grab market share.

Creeping Up On Cable

Syndication has been a rich market for the studios for years. A program that proves to be popular in repeats can produce revenue for years. Cable TV is, naturally, the major market for syndication at the moment and will continue to be so, with RBC projections putting that take at $18.4 billion for 2015.

However, the subscriber numbers for cable are shrinking, while those for streaming services are growing. The latter is a market that has momentum and power just now, so that gap in spending between the two will surely narrow, and soon. And Hollywood's studios will keep cranking out product to soak up that river of money.

Motley Fool contributor Eric Volkman owns shares of Lions Gate Entertainment and Walt Disney, and happily streamed both seasons of "House of Cards" in a matter of days. The Motley Fool recommends, Lions Gate Entertainment, Netflix and Walt Disney, and owns shares of, Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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