Now What? The Five Crises Confronting a Post-Strike Hollywood

Streaming is a crappy business

Image credits: Peter Kramer/Peacock/NBCU Photo Bank via Getty Images

Streaming is great. Consumers can watch what they want, whenever they want. The fierce competition between services means more choices than ever. And the push for scale means streamers are available at a bargain price, with the ability to cancel or resubscribe at will.

There’s just one problem: The streaming battle cost highly lucrative entertainment giants and caused their rich profits to disappear faster than CNN+.

The so-called “streaming wars” actually have their origins in a few fateful months in 2017 and 2018. Yes, Netflix had been offering original content for a decade before that, but in 2017 its streaming business kicked into high gear, posting annual net profits. income increases from $186 million to $559 million (it would double again to $1.2 billion in 2018). Its stock price, which opened at about $130 per share in 2017, would soar to more than $360 in 2018 as Wall Street began valuing the company as a technology platform, giving it a multiple that rivaled Google and Facebook.

Netflix’s success sent Disney into a panic, announcing in 2017 that it would pull all its content from Netflix and launch what would become Disney+. In the wake of that 2019 debut, the floodgates opened, with NBCUniversal introducing Peacock and the arrival of Paramount+ and HBO Max (now Max).

The result is that tens of billions of dollars have flowed into streaming content and away from linear TV… and huge losses for the traditional media companies that entered this space. Comcast, Disney, Warner Bros. Discovery and Paramount lost a combined $10 billion on their streaming services in 2022, according to a review of their annual reports. Only Netflix reported a profit: $6.5 billion. And some, like Paramount+ and Peacock, have yet to see their losses peak.

It’s a dire situation, especially now that Wall Street no longer values ​​streaming companies as tech giants. And this situation has been made worse by the WGA and SAG-AFTRA strikes, which closed the pipeline for TV shows and movies.

It also raises an interesting question: can streaming even work as a business model?

In a call with investors and analysts on September 19 at Walt Disney World, Walt Disney CEO Bob Iger argued that this is indeed possible. When Iger outlined four key priorities for his company, making the streaming business profitable was at the top of the list.

“The company plans to create less content and spend less on what it does create, although it wants to acquire key franchises Star Wars getting back into theaters is a priority,” JPMorgan analyst Phil Cusick wrote in a Sept. 20 note, adding that he expects Disney+ to turn a profit by the end of its 2024 fiscal year.

A top streaming executive explains THR that they believe profitability will come, led by advertising, and by ‘getting the value proposition right’. Many services are launched at low prices to attract as many subscribers as possible as quickly as possible. That’s changing, and not only are prices rising, but they’re also rising in a way that’s meant to drive subscribers to advertising tiers, where these companies can monetize their users even more.

There’s a reason Netflix and Disney+ adjusted their prices to make it more expensive to avoid ads, and there’s a reason Amazon is adding ads to Prime Video. They want consumers to engage with those advertising levels (or pay dearly for the privilege of opting out). It turns out that streaming is difficult, but advertising remains a good business.

There are some encouraging signs that streaming can be profitable, if not as lucrative as the cable TV business model it replaces.

Netflix’s profits continue to grow, and for the first time a mainstream service from a legacy media company should turn a profit. WBD’s Max service was close to breaking even in the second quarter and is on track to turn a profit this year, CEO David Zaslav told investors on the company’s most recent earnings call.

WBD was, of course, particularly aggressive about cutting costs last year, including removing TV shows and movies from the service to avoid paying for programs with little traction.

If the other traditional media companies are a year or so behind WBD, that’s the case. Peacock and Paramount+ are aiming to break even by the end of next year, as is Disney+, although the impact of the strikes – as a help or hindrance to this goal – remains to be seen.

And then there’s Charter Spectrum’s wildcard: If the cable giant manages to bundle all its entertainment streaming services together, as it does with Disney+, the legacy companies might just find their way to profitability the old-fashioned way: by having a cable company pull it all together. to have it sold.

In any case, some of the most popular streaming shows date back to the late 1990s and early 2000s (Friends, Grey’s anatomy, The office). Why don’t we bring back the business model too? –Alex Weprin