For all that Netflix Inc. (NFLX - Get Report) , Amazon.com Inc. (AMZN - Get Report) and others have done over the past few years to change how TV shows and movies are financed and consumed, there's still quite a lot of unfinished business. While original shows such as Netflix's House of Cards and Amazon's The Man in the High Castle have become cultural phenomena, a solid majority of the most popular U.S. shows still appear on pay-TV. And nearly every hit movie still appears in theaters for months before it's available anywhere else.
But as some recent reports and pending movie launches show, streaming providers are eager to uncork a second wave of disruption to Hollywood's traditional business model, one which aims to put their services on equal footing as venues for finding the most popular new content. Rising budgets, rearguard actions from studios and the arrival of new players should all be factors.
(This column originally appeared on Sept. 11 on Real Money, our premium site for active traders. Click here to get great columns like this from Jim Cramer and other writers even earlier in the trading day.)
On September 8, Variety reported Jeff Bezos has told Amazon Studios chief Roy Price to step up the company's efforts to create big-budget hit dramas on par with Game of Thrones. Towards that goal, Amazon has canceled plans for a second season of period drama Z: The Beginning of Everything and has greenlighted five new projects.
These are said to include a period drama, a comedy series, two comedy pilots and a "Seth Rogen-produced comic book adaptation." Amazon had already signed off on several costly 2018 projects, including an adaptation of Tom Clancy's Jack Ryan and a crime drama starring Robert DeNiro and Julianne Moore. In April, JPMorgan forecast Amazon would spend $4.5 billion on content this year.
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Price told Variety Amazon's new focus on potential mass-market hits stems from both its analysis of user data and from talks among senior Amazon execs. "If you have one of the top five or 10 shows in the marketplace, it means your show is more valuable because it drives conversations and it drives subscriptions," he said. Reed Hastings may have smiled upon reading that: In his shareholder letters, the Netflix CEO has often attributed subscription spikes to the arrival of new seasons for major shows.
A couple days before Variety's report, The Hollywood Reporter stated Amazon and Apple Inc. (AAPL - Get Report) have joined Time Warner Inc.'s (TWX) Warner Bros. and Sony Inc. (SNE - Get Report) in bidding on the rights to the James Bond franchise. Sources, possibly hoping to see a bidding war break out, put the value of the franchise at anywhere between $2 billion and $5 billion.
Apple, it should be noted, was reported in mid-August to have set a $1 billion 2018 content budget. The fruits of these investments are expected to be shared with Apple Music subscribers. More recently, Facebook Inc. (FB - Get Report) , which just launched its ad-supported Watch professional video platform, was reported to be willing to spend up to $1 billion to "cultivate original shows for its platform."
Netflix, meanwhile, is less than four months from releasing War Machine, a $60 million film starring Brad Pitt, and in December it is scheduled to release Bright, a $90 million action film starring Will Smith. It also recently released Death Note, a $40 million horror movie based on a Japanese animated series, and before that, Korean action-adventure film Okja. All Netflix films are notably released without a theatrical window: Subscribers get access as soon as anyone else.
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Big budgets don't, of course, guarantee good results: War Machine got mixed reviews, and Death Note, poor ones (Okja has been more well-received). But Netflix's track record with original shows does bode well for both its ability to find winners and -- with the help of its volumes of viewing data -- learn from its mistakes. Moreover, leading directors and actors have shown an eagerness to work with the company, in part due to the artistic freedom it provides them.
With Netflix's annual content spend at $6 billion and rising, and the company's revenue expected to top $14 billion 2018 and $17 billion in 2019, it's safe to assume that more big original film bets are on the way. Especially given Walt Disney Co.'s (DIS - Get Report) recent decision to pull Disney, Pixar, Marvel and Star Wars films from Netflix, and put them on a Disney streaming service, when its current deal with Netflix expires at decade's end. Though one can't fault Disney for acting as it did, considering the pressures its pay-TV and DVD businesses face, it's bound to make Netflix double its efforts to encroach on Disney's turf.
And collectively, growing attempts by Netflix, Amazon and others to finance hit movies and shows rather than just smaller-budget franchises aimed at niche audiences are bound to put a lot of strain on media incumbents in general. Not just by impacting box-office receipts, DVD sales and TV ratings, but also by upping content costs and -- for those not hooked on sports at least -- making consumers more willing to cut the cord.
It's a push that's going to take time to play out. Mass-market hits that become the subject of social media buzz and office talk aren't just cranked out of a factory. But between their money, their data, their patience and their growth rates, time is on Netflix and Amazon's side.
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