Why it could make sense for Netflix to buy a powerhouse studio
Getty/Scott OlsonNetflix CEO Reed Hastings.The volume of TV content is going to grow exponentially over the coming years, and creative talent won't be able to keep up, according to analysts at Barclays.
In a note last week, the analysts outlined the case that an "over-the-top" (OTT) powerhouse like Netflix might have to actually acquire an established studio at some point in the future, simply to continue in the arms race for content.
The analysts believe we are at the start of an explosion in the amount of TV that will be produced (including streaming content from the likes of Netflix or Amazon). Indeed, Netflix alone will spend at least $5 billion on programming in 2016.
But eventually there will be a limit on how much good content can be produced, the analysts argue. "Creative talent is not infinitely scalable," they write. And if the competition to woo top TV talent heats up, organizations that can identify talent early and maintain a relationship will become more valuable. This means studios, "especially those with established franchises and an ecosystem of talent," according to the analysts.
Given the lack of big studios, in this new climate it could make more sense for a "OTT" player like Netflix to buy one, versus having to continually bid against its rivals, the analysts write.
The current situation
Right now, when Netflix puts out an "original," it doesn't usually produce the show. Lionsgate Television, for instance, makes "Orange Is the New Black." Netflix then pays for a global license.
But Netflix appears to be moving toward producing more of its own shows, including Chelsea Handler's upcoming talk show, according to Bloomberg.
Buying an established studio could supercharge these efforts.
A reliable pipeline
What is bubbling under the surface of Barclays' prediction is the threat that traditional TV giants might stop licensing their shows to Netflix. For the past few months, media executives have grumbled that they might have to reassess their relationship to Netflix. If media companies shy away from licensing to Netflix, presumably because they see the practice as financing a competitor, then it will become harder for Netflix to maintain its steady flow of content.
The analysts write that "OTT" platforms like Netflix will need a "more controllable" pipeline of content over time. One way to get it: buy your own studio.
Netflix was not immediately available for comment.