Study: Subscription VOD Will Generate $6.8 Billion in Revenue for Hollywood Studios

CBS, Lionsgate, Time Warner and 21st Century Fox should be the primary beneficiaries

The biggest subscription VOD companies — Netflix, Hulu and Amazon Prime — will spend a collective $6.8 billion to license content for their services, up from $5.2 billion this year, and double-digit growth is expected for the foreseeable future, according to a Wall Street research note published on Thursday.

Digital revenue, which was about zero in 2009, has already surpassed what broadcast stations spend, though it still has a way to go before catching up to cable, which will spend $18.4 billion for syndicated content next year, according to the report from analyst David Bank at RBC Capital Markets. Broadcast, cable and SVOD combined should bring in about $29.5 billion in 2015.

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Netflix is poised to remain the biggest player in SVOD, spending $3 billion for content next year, $3.4 billion the year after that and $3.9 billion in 2017. About 10 percent of that budget goes for original programming.

"Netflix will have exclusive content from some of the most high-profile talent in Hollywood and tends to have limited 'bombs.' There also tends to be a great deal of positive buzz around these shows," writes Bank.

On the content side, Bank sees CBS, 21st Century Fox, Time Warner and Lionsgate as the biggest beneficiaries of the explosion in SVOD spending. Investors, though, would be wise to focus on Lionsgate and CBS if they're looking to profit off SVOD, since the others are so big that their SVOD revenue won't make as big an impact.

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Bank says 2015 SVOD syndication deals include CBS' Elementary to Hulu for $1.5 million an episode; Warner's Gotham to Netflix for $1.75 million an episode; Lionsgate's Orange is the New Black to Netflix for $2.5 million an episode; and Fox's The Americans to Amazon for $1 million an episode.

"In contrast to the traditional syndication models, some first-run shows are being sold into SVOD windows before they have even premiered in their first-run windows (Zoo or Gotham to Netflix, or Under the Dome and Extant to Amazon, for example," writes Bank. "Some shows will be sold into SVOD somewhere between 20-40 episodes at substantial per-episode prices (The Blacklist was sold to Netflix at $2 million/episode during season 2)."

Bank's 76-page report concludes that CBS has the highest "hit rate" for TV shows in the past seven years, followed by Warner Bros., ABC Studios and Sony, giving them a "leg up" in syndication, be it traditional or SVOD.

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