Monday, January 29, 2018

Is Netflix falling into the ESPN model?

The criticism of ESPN is it pays excessive amounts for content, and has the highest per-subscriber rate for a non-premium television channel ($7.50).  That has led to its decline in pay-television, as people switch to streaming services which are lower in rates but offer primarily X-rated television.  However, a recent report regarding Netflix's 2018 plans should raise an alarm.  Will they fall into the same trap as ESPN, but worse?

ESPN, for example, pays $1.9 billion for NFL rights that is split among its ESPN, ESPN Deportes, ABC (primary market affiliates only; under an NFL policy, ABC airs the first round and Pro Bowl game in order to alleviate a problem that could have happened during ESPN's first-ever playoff coverage where a market that did not receive a Monday Night game during the season could be playing in the first-round playoff game ESPN airs since it would be impossible for a syndication package to be prepared six days in advance, and ABC affiliates that accept the first option would have to change programming within the same time frame, so the NFL made the mandate that ABC airs the Pro Bowl and ESPN Playoff game), then spends much on the NBA ($1.73B), MLB ($800M), College Football Playoff ($470M including part ownership).  (Other events do not have hefty rights fees.)

The Big Three of CBS, NBC, and Fox pay no more than $1.23 billion each for their NFL packages, and other sports packages are not even close to a billion dollars in rights fees.

Meanwhile, Netflix, one of television's New Big Four, has declared they intend to spend $8 billion for original programming, plus marketing.  Amazon intends to spend at least $4.5 billion (and probably more in 2018) on original programming, most of which is X-rated.

Consider Netflix's plan for $8 billion even surpasses ESPN's $7.3 billion, NBC at $4.3 billion, CBS at $4 billion, among others.  When Amazon and Netflix are now spending more on original scripted series, while NBC and CBS budgets include the billion-dollar NFL rights fees, the question will come for business analysis.  Will Netflix fall into the same trap as ESPN where they overspend to the point they have to drastically increase the price of their service?  I see Netflix and Amazon Prime both being over $50 per month in the next few years and maybe $100 per month within a decade if their spending habits for X-rated programming continue to grow (it was $6 billion a year ago, now $8 billion, you wonder if $10 billion is coming next).  Unlike ESPN's budget that is limited by a per-subscriber fee and civic governments' right to restrict subscription television prices, the New Big Four need not worry.  And this big budget will likely grow while the broadcast networks need not worry about the cost of NFL programming into the 2022-23 season since the networks' deals are set until Super Bowl LVII.

While Netflix is praised by the content, we must wonder if the continuing push to anti-life shows, especially in this month where we mourn the 60 million killed via Roe and millions other dying in euthanasia pushed by others, and other raunchy regietheater by the New Big Four is coming to a critical mass when the rights fees result in massive cost hikes.  Many have canned regular television over ESPN.  Will they do the same to the New Big Four when they overspend and decide to charge more?  Those with a Biblical worldview, along with parents, should be alarmed.  The New Big Four's spending habits will lead to a crash very soon.

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