Netflix is outspending streaming rivals on content purchases, and the company is finding that producing their own original content is better value, based on viewer metrics, than buying from third-party content owners.
Netflix currently has license and original content production obligations totally $9.5 billion, spread over several years, and content purchases in 2014 alone topped $2 billion. This is far and above spending by most of Netflix's rivals, including HBO, with only Amazon coming close.
Original programming currently accounts for 20% of Netflix's spending on content, but according to the streaming giant, they are getting much better value for money from producing shows like 'House of Cards' and 'Marco Polo'.
According to Netflix's Q4 shareholder letter, original content achieve better viewer metrics per dollar spent, and as far as Netflix is concerned, it represents a more efficient use of capital.
Research firm IHS estimates that revenue from subscription video-on-demand services like Netflix and Hulu Plus will reach $35 billion by 2018, and there will be 70 million SVOD subscribers in Europe alone by 2019. Most of these subscribers will be transitioning from cable and pay TV, according to IHS.
"The [pay-TV] industry has been transformed by the transition to digital," said Ben Keen, VP of consumer media at IHS.
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