Netflix, Inc. Is Paying Huge Sums to Produce Original Shows
It's no secret that Netflix is hungry for original content. The digital video giant has 12 exclusive or homespun shows on tap, with another 24 scheduled for the next couple of years. Netflix is even getting its feet wet in exclusive distribution deals for future movie productions. All of these unique entertainment artifacts are meant to drive the company's expansion plans, both at home and abroad.
This torrent of original content can't be cheap. How much is Netflix spending on its original shows today?
By the numbers
Netflix isn't keen on discussing production budgets. To the best of my knowledge, we don't have access to any official budget figures.
We'll have to go by third-party reports, educated guesses, and inferring things from other evidence. This should be fun.
The trail of bread crumbs starts in 2013, when an agent from the powerful Creative Artists Agency shared some estimates for Netflix's first three originals. Based on talks with Netflix and other insiders, CAA agent Peter Micelli tabbed Hemlock Grove and Orange Is the New Black at roughly $50 million per season, while House of Cards stopped at $60 million per season.
The figures clearly won't apply to every show in Netflix's catalog. If so, the company would have to pay its production share of 14 seasons' worth of original programming in 2014, adding up to something like $700 million.
Netflix isn't saying much, but we do know this: Content chief Ted Sarandos said in 2013 that original content spending would sit below 10% of total content costs in 2014. Whether you're looking at the best estimates from the end of 2013 or the latest available figures, $700 million would be more than 20% of the annual content budget.
So let's bid farewell to that simple back-of-the-envelope estimate. Most of Netflix's original shows must come with far smaller budgets than those of Orange Is the New Black or House of Cards.
Buy the numbers
Some of the upcoming original content will certainly match the lavish production budget of House of Cards. The Wachowskis' Sense8, for example, saves money on a cast of rising stars, but racks up travel bills with shoots in seven nations on four continents. And when the makers of the Matrix trilogy, Speed Racer, and Cloud Atlas are involved, you know the special effects won't come cheap.
And some programming will rise even higher. The 10-episode miniseries Marco Polo, set to debut on Dec. 12, reportedly comes with a $90 million budget. That's $9 million per episode, or more than twice the episode budget of House of Cards.
A deep partnership with Walt Disney adds even more high-value entertainment to the Netflix slate. A set of five single-season series based on Marvel superheroes in New York's Hell's Kitchen? That's $200 million, total -- after deducting heavy tax discounts from New York's government, which dearly wanted to keep this production in The Big Apple.
The big budget for Marco Polo should count against the roughly $300 million overall tally in 2014. Add in the approximately $50 million costs for new seasons of Orange, House of Cards, and Hemlock Grove, and we're left with $50 million or so. That needs to be spread out across a handful of DreamWorks Animation titles such as TURBO FAST, All Hail King Julien, and Veggie Tales in the House. Netflix is also working -- and spending money -- on other titles like BoJack Horseman and Lilyhammer.
In short, Netflix might break that 10% limit Sarandos set for 2014.
Netflix is set to report third-quarter earnings in a few weeks later in October. Look for an update on original programming budgets then, including higher percentage ratios of overall content buys in upcoming years.
After all, exclusive content sets Netflix and archrival HBO apart from the commodity players in the entertainment market. HBO spends 40% of its content budget on (well-received, game-changing, award-winning) original shows such as Game of Thrones and True Detective. Netflix might climb to similar original programming levels, but that process will take many years.
"There's a big gap from where we are to where we could be," according to Sarandos. I think the aspiration to match HBO someday is obvious.
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The article Netflix, Inc. Is Paying Huge Sums to Produce Original Shows originally appeared on Fool.com.Anders Bylund owns shares of Netflix and Walt Disney. The Motley Fool recommends DreamWorks Animation, Netflix, and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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