Netflix Inc is offering more than $300 million to buy a company that owns billboards across Los Angeles, including on West Hollywood’s famed Sunset Strip, a move that could help it save money maintaining a high profile in the world’s entertainment capital, according to people familiar with the matter.
The purchase of Regency Outdoor Advertising, if successful, would be the largest yet for the fast-growing Silicon Valley streaming video company, which has a studio in Hollywood and is now one of the world’s biggest film and TV producers.
Netflix’s motivation was not immediately clear, but it could save money over time with the deal, according to industry analysts, as it ramps up spending on marketing for its original shows and movies to $2 billion this year. Netflix used Regency Outdoor billboards to promote its “Stranger Things” and “The Crown” drama series.
A billboard ad on Los Angeles’s Sunset Strip can cost $140,000 per month, said Barry Lowenthal, president of The Media Kitchen, a New York-based media buyer.
“This is a smart move for Netflix because it is a very important viewing market,” Lowenthal said. “Los Angeles matters to the people in the industry.”
Tech firms Amazon.com Inc (AMZN.O), Hulu and Facebook Inc (FB.O) and traditional media companies such as Walt Disney Co (DIS.N) are all vying with Netflix to win subscribers.
Netflix is just one of the bidders for Los Angeles-based Regency Outdoor and there is no certainty that its offer will prevail, the sources said this week, asking not to be identified because the matter is confidential.
Netflix declined to comment. Its shares were close to unchanged in a slightly lower market. Regency Outdoor did not respond to a request for comment.
The world’s leading streaming media company still uses physical advertising space such as billboards to promote its shows. Billboards are holding their own compared to other forms of traditional advertising such as ads in newspapers or TV that are easy to skip.
Regency Outdoor, owned by brothers Drake and Brian Kennedy, owns billboards on Sunset Strip, a portion of Sunset Boulevard in Los Angeles known for its live music and night clubs and filled with splashy billboards promoting upcoming TV shows and movies.
It also has billboards at Los Angeles International Airport, on major freeways, near the University of California, Los Angeles (UCLA) campus, and close to the Los Angeles Angels baseball stadium, according to the company’s website.
Netflix said in a letter to shareholders earlier this year that its marketing spending was growing “a little faster” than its revenue.
As a result of the bigger marketing expenditure, Netflix’s expenses per subscriber will jump around 25 percent to $16 per subscriber, up from $13 per subscriber, according to a recent MoffettNathanson report. The company reported it had 117.6 million worldwide streaming subscribers at the end of 2017, more than any direct competitor.
“As the marketplace for original content becomes more crowded, Netflix is turning up the volume to promote the increasing number of Netflix originals,” Michael Nathanson, a MoffettNathanson analyst, wrote in the research note.
Netflix’s first known acquisition was last year’s purchase of comic book publisher Millarworld for an undisclosed sum.