When I first read about Facebook Inc’s (NASDAQ:FB) plans to create original “TV-style” videos, I thought to myself that this was further proof that we are now living in “The Golden Age of Television.” Then I quickly realized that the social network’s ambitious plans may be laying the groundwork for the return of the “vast wasteland” that FCC head Newton Minow lamented about decades ago.
Indeed, companies as diverse as AT&T Inc. (NYSE:T), Apple Inc. (NASDAQ:AAPL), Snap Inc (NYSE:SNAP) and Twitter Inc (NYSE:TWTR) are getting into the original content game in a big way. New York-based AT&T is making the biggest bet of them all with its planned $85.4 billion acquisition of Time Warner Inc (NYSE:TWX), the parent company of the Warner Bros. film studio.
FB Stock and “Peak Original Content”
Former Sony Corp (ADR) (NYSE:SNE) executives Jamie Erlicht and Zack Van Amburg recently joined Apple to oversee “all aspects of video production.” According to the Wall Street Journal, both “old” and “new” media “clamoring to learn” how to produce short videos to appeal to Snap’s young audience. In May, Twitter announced 16 live streaming deals, which will bring hundreds of hours of new premium content to the microblogging site.
Of course, this is top of the billions that Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) are spending to capture the hearts and minds of today’s increasingly distracted audience and the billions more that broadcast networks. To be sure, the potential exists for viewers to be faced with an ever-increasing bounty of quality video content.
Indeed, this summer’s dismal summer box office proves that people can find loads of quality entertainment without leaving their homes. However, red flags abound that the market has reached a peak for original content.
Netflix recently canceled five scripted series including Marco Polo, Bloodline, Sense8 and The Get Down, which had $100 million production costs because they failed to connect with international audiences. Undaunted, Netflix hasn’t given up on original content. The company plans to make 1,000 hours worth of original content in 2017, a 350-hour increase from 2016. Its programming budget will surge to $5 billion. So far, Wall Street thinks that NFLX is making a solid investment, given the company’s more than 14-fold increase over the last five years.
Loads of companies including Wal-Mart Stores Inc (NYSE:WMT) are on the periphery of the original content boom. The world’s largest retailer acquired the Vudu streaming service a few years ago. Unlike, Netflix, Vudu offers content on an a-la-carte basis. Vudu last year launched “Movies on US”, which lets users stream some movies for free provided they watch some commercials. Although Vudu has gotten some positive reviews, I doubt that NFLX CEO Reed Hastings is losing sleep over it. Alhough Vudu hasn’t announced plans for “original content”, that seems to be the next logical step.
And then what?
Remember that media companies shelled out tens of billions on rights for sporting events in recent years expecting demand for live-sporting events to continue to expand forever. That strategy worked fine for a while, but now it doesn’t look so smart as many investors would agree. Unfortunately, history appears to be repeating itself, which might affect the long-term potential of FB stock.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.
