By just about any measure, Netflix (NFLX -4.36%) has a massive content budget. It planned to spend $17 billion in cash this year, or about $14 billion on a profit-and-loss basis (which amortizes content costs over their useful life). And that massive content budget has been instrumental in expanding its subscriber base around the world.
But there are three media companies that outspent Netflix in 2021, according to data from Ampere Analysis: Comcast (CMCSA -0.56%), Walt Disney (DIS -0.25%), and Alphabet (GOOG -0.19%) (GOOGL -0.26%). Here are some important takeaways for investors from this particular statistic.
Image source: Getty Images.
Sports rights are expensive
Over one-third of the content costs at Comcast and Disney in 2021 were for the rights to broadcast live sporting events.
Comcast aired the Summer Olympic Games, adding a significant expense to its usual lineup of sports rights, including deals with the NFL, Premier League, PGA, grand slam tennis tournaments, NASCAR, and more.
Meanwhile, Disney is home to ESPN and its trove of sports rights, including deals with the NFL, NBA, NHL, MLB, several college sports conferences, several European football leagues, and much, much more. Additionally, one of the leading reasons people sign up for Disney+ Hotstar in India is the Indian Premier League and Cricket World Cup matches available on the service.
All that adds up to billions spent on sports rights, an area Netflix has eschewed for years, even as competitors, including Google-owned YouTube and Amazon, snatch up expensive sports rights to increase engagement on their streaming services. Indeed, sports rights are expensive, but they certainly draw in viewers. Sporting events accounted for 95 of the top 100 broadcasts in 2021.
One factor holding back Netflix from investing in sports may be that sports often produce natural commercial breaks for media companies to sell advertisements. That's an area Netflix has no experience with, but Disney, Comcast, Google, and Amazon are all big ad sellers.
YouTube is as big as Netflix
If you account for YouTube's revenue-sharing agreement with content creators on its platform as well as the content it produces itself, it spent over $15 billion this year. YouTube pays out around 55% of revenue to content creators, and it's reported $27 billion in revenue over the previous four quarters. That number should continue to climb higher as more ad spending shifts to digital video.
Teens are particularly heavy YouTube users. They spend 30% of their daily video consumption on the ad-supported streaming service, according to Piper Sandler's most recent "Taking Stock With Teens" survey. Netflix barely edges it out with 32% of video consumption. But as teens grow up and start earning more disposable income, YouTube advertising may become more valuable, generating more revenue for the service and in turn increasing its content expense.
At this point, YouTube generates more revenue than Netflix with a similar content expense. That should make it extremely valuable to investors, and the market may still be undervaluing the segment.
What the future may hold
Content spending will increase across the media industry in 2022. Ampere expects another 5% increase in total content expenses, topping $230 billion for the year.
Disney will be a major contributor to that increase, with plans to spend an additional $8 billion on content in 2022. Most of that spend will go toward its streaming services, with its streaming content budget already starting to rival Netflix's.
Comcast may see a slight drop in content expenses, since the Winter Olympic Games cost less than the Summer Games. But YouTube's content costs should continue climbing along with its revenue growth. Netflix will also increase its content spending in 2022 as it works through production bottlenecks and releases more originals than ever.
All in all, it looks like the big media companies will get bigger while smaller media companies may struggle. The ultimate result could be further consolidation across the industry as companies combine in order to compete for bids on expensive content.
