Content Is King: The Transformation of Tech Giants Into TV Producers

Netflix  (NASDAQ: NFLX  ) released its first original content, Lilyhammer, in February 2012. Netflix wanted to untether itself from the content deals where production companies had all of the leverage, which could have become an Achilles' heel of mounting costs for the company. And with the success of the much more popular House of CardsOrange Is the New Black, and the reboot of Arrested Development, Netflix proved that you don't have to rely on the traditional content creators.

A variety of content offerings with the Amazon Fire TV streaming media player underneath. Source: Amazon.com

With Netflix-proven ground to stand on, a bunch of other tech giants like Microsoft (NASDAQ: MSFT  ) , Amazon (NASDAQ: AMZN  ) , Yahoo! (NASDAQ: YHOO  ) , and Google (NASDAQ: GOOG  ) have started creating their own shows. None of them sell subscription video streaming alone, so why are they wading into television production?

Complementary goods
That answer is different for each company, and the most abstract view is that these businesses are hoping original content will push sales of whatever they sell.

Microsoft plans on releasing six series, working with stars like Sarah Silverman, Michael Cera, and Seth Green. The specifics have yet to be determined, but some shows will be available for free on Xbox consoles, and it may also license out the content to other partners. The strategy is to bolster the console as an entertainment center, as its shows will target young, male gamers and have interactive features and games that employ the Xbox's hardware. To compete, the company behind the Xbox's nemesis, Sony (NYSE: SNE  ) , is coming out with its own drama for its PlayStation Network.

Amazon, on the other hand, hopes to promote its Prime subscriptions through 10 new shows that it will release this year, not including its own political comedy Alpha House with John Goodman. Through Amazon Studios it can harvest the best stories along with early feedback on ideas from Amazon customers. Through this crowdsourcing, it's aligned to Amazon's marketplace and frugal ideals. As it builds its stock of content, it continues to add value to its Prime service beyond free two-day shipping and access to the Kindle Owners' Lending Library. And now, it can help push sales of its Amazon Fire TV box that connects with a variety of online content providers.

Yahoo! and Google, meanwhile, aren't selling any hardware related to their original content production. Instead, they're looking for advertising dollars through more views. Yahoo! hired popular New York Times columnist David Pogue and former Today show star Katie Couric last year, and is looking to purchase News Distribution Network for $300 million. In addition, it now hopes to create four comedies with 10 episodes each.

In 2011, Google invested $100 million to help produce original channels and high quality content on YouTube, and doubled that investment in 2012 with another $200 million. YouTube has seemingly backed away from such broad funding, and recently stepped into a partnership with DreamWorks Animation to produce a daily wrap-up of popular videos. All this is to help drive views and ad revenue -- estimates for YouTube's 2013 revenue ranged from $3.6 billion to $5.6 billion.

Same tactic, different goals
Whether original content can achieve each of these disparate goals has yet to be proven. Netflix, which directly sells its content to subscribers and doesn't use it to fuel sales of other items or services, proves that its direct model works. A few exclusive shows may help bolster Xbox sales, or PlayStation sales, or Prime sales, or create a reliable viewership. But it's likely that it's only a part of solution, and only for a few of these purposes.

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