Netflix Shrinks Australia’s Local Production Spend: My back-of-envelope lesson

The rise of the streamers has an overall negative impact on global spending on television production.

Why?

Channels greenlight 200-600 hours / year to populate their linear, 7-day schedules with original programs.
Streamers buy enough new programs to attract and retain subscribers.

The following Australian example is revealing… if you accept my back-of-envelope calculations and market-mixing assumptions.

Subscriber Math

Netflix enjoys 5.4 million Australian subscribers, according to The Age (Melbourne)
The estimated average fee / month is A$15.99.
Gross subscriber revenues: A$1,036 Million.

Program Spend Benchmark

If Netflix’s Aussie revenues are A$1.0 Billion, how much should they spend on Aussie producers?

Regulators and business planners involved with Cab/Sat channels and broadcasters use a benchmark.
For both U.S. and Canadian channels, the ratio of Program Spend to Gross Revenues is around 35%.
The Canadian spend is mandated by the CRTC regulator.

Netflix Australia Spending

On A$1.0 BN revenues, Netflix’s Australian content spend would be A$363 Million based on the 35% benchmark.
That’s $1,036 Bn X 35% = $363 Mn.
What is their current spend?
The Age reports: “In an attempt to invest in the local market, the streaming giant has announced programs Escape from Spiderhead, Surviving Summer, God’s Favourite Idiot, Interceptor and Byron Baes, which will start production later this month.”
I called several Australian producers, and the feedback is that Netflix’s Aussie spending is around A$150 MN in 2021, and much of that for U.S. programs relocated to a relatively COVID-free location.
But in any case, A$150 MN is not an insider number… it’s a guesstimate.

Peter’s Takeaways

If Netflix Australia was required to spend on local programming at the same rate as the channels in leading markets, Australian producers would benefit from an additional A$213 Mn in production and acquisitions.
That’s a lot of work!

Taxes

Netflix Australia recently reported paying a mere A$54,000 in corporate taxes.
The company books its global subscriber revenues in Amsterdam, and only miscellaneous license fees show up on the Australian books.
If Netflix was taxed by Canberra on its Australian revenues, its corporate taxes would increase.
At the 5% rate, the Aussie taxpayer would enjoy an additional A454Mn to redirect to local production.
And BTW, Netflix benefits from Australian tax offsets as well.

Summary

Netflix is enjoying more than a A$250 Mn in savings on Aussie operations versus the channels model.
This is due to the lower spend on programming for the streaming model versus the linear channels model, plus an indulgent regulatory framework related to local production quotas and taxation.

What You Need To Know!

Excuse me for mixing global benchmarks and operating conditions with Australian ones.
However, my modeling exercise does reveal why so many formerly busy producers are sitting idle during the Content Boom…
… and why regulators and producers’ associations in Australia, Canada and elsewhere need to step up to save the scale and diversity of their local production communities.

A Documentary Producer Writes

“Newly announced changes to the funding regime are likely to decimate small budget documentary projects. Docs will need to meet a $1 Mn threshold to even access the producer offset. That will kill most projects, reduce diversity, and mean that purely Australian subjects and culture will be difficult to produce. Call it the unintended consequences of the Netflix halo effect. Go big. Or forget about it!”