The next turn of the box office and streaming recovery: a Hollywood consultant’s forecast for 2024

From strikes and streaming losses to major box office disappointments, 2023 was another challenging year for many in Hollywood. But there was also the success of “Barbenheimer,” Taylor Swift’s hit concert film, and signs that the streaming tide was beginning to turn.

John Harrison, Americas media and entertainment leader at accounting and consulting firm EY, has followed the ups and downs of the industry, the disruptions in the sector, as well as the challenges and opportunities for key players. “Feature films are seeing healthy year-over-year growth of more than 20 percent at the box office,” Harrison and his team wrote in a forecast for 2024. “However, despite decent performance in 2023, results are still down 19 percent.” percent below the comparable period in 2019 pre-COVID.”

The Hollywood Reporter He spoke with Harrison about what’s next for the box office in 2024 and beyond, where cord cutting is headed, and his expectations for the media giants’ next moves as they aim to achieve streaming profitability.

Hollywood companies have really started to put profitability at the center of their streaming strategies over the past year. Where do you think things will be at the end of 2023 and what do you expect going into 2024?

2023 was truly the year where streaming’s path to profitability came into focus. Before 2023, the question was how do we launch our platforms, how do we grow our subscriber base, how do we get content into streaming services and just drive subscriber activity, awareness and subscriptions.

In 2023, really driven by investors, frankly, there was kind of a hard stop to growth and a much greater focus on when are we going to get these services to breakeven and what the long-term earnings potential is here. And then how does that compare to the business that we’re leaving behind and moving away from? Linear, because there is a long-term transition taking place from linear to streaming.

I think in 2024 the focus will continue to be on profitability. And I think the media investor base is forcing the issue and saying, “you know, you can’t keep burning billions of dollars a year on unprofitable streaming, especially when your linear profit engine is in structural decline.” And I think that’s driving some of the actions that we’re seeing right now. Obviously, with the launch of ad tiers, there is a view that the average revenue per user of a streaming subscriber who is on an ad tier with a lower subscription fee, but is also monetized through advertising, it is a more profitable client than a simple SVOD Client. So everyone has released levels of ads.

And then we are getting the first signs of a rebundling, of a new type of package or next generation package, at least in the United States through some of the agreements between the media companies and the distributors, where the distributors say: “ Why should our consumers pay for pay TV and then pay again for the same content that is a direct-to-consumer service? “We want to regroup them and offer the same on both platforms to our subscribers.” That will be the model for 2024 as (transportation) renovations emerge, and that has the benefit of extending the life of the cash flows generated by linear businesses longer than they would likely otherwise last. For media companies, it has the benefit of gaining access to more streaming subscribers, especially for the ad levels you need to reach.

Am I right that you were referring to the big transportation deal between Disney and Charter as a model for future deals? I know you can’t usually mention specific companies…

I think we can mention it because it has been covered so well. We believe the agreement between Charter and Disney will serve as a model because it protects linear cash flow and the linear ecosystem.

I don’t think the pay TV universe will grow again. But I think a transaction where it is linearly combined with streaming at a single price so that consumers really highlight the value being offered, could very well slow the pace of cord cutting. And that has very long-term benefits for media companies in terms of cash flow generation, and allows them to expand the runway as they bring their streaming services to breakeven. Assuming this thesis holds, it will take some of the financial pressure off them and allow them more time to boost the profitability of their streaming service and ultimately figure out how the industry is organized.

What is EY’s expectation for the very small cable networks that distributors have become less enthusiastic about carrying?

There are long-tail networks, which are frowned upon and have low ratings. Media companies don’t invest much new content in those networks, because their best content is placed elsewhere. So I think in 2024, similar to what we saw at the end of 2023, we will see a rationalization of some of these very large network portfolios, where distributors say “we are not generating value in the market with our pay TV customers” , advertisers say, “we’re not really getting much value, because there’s no audience here,” and media companies aren’t investing much.

It is simply necessary for that portfolio to be reduced. I do not believe that today these networks generate any strategic value for media companies in an asset sale scenario or in a merger scenario. Therefore, it is most likely that as distribution agreements are renewed, companies will have a smaller network package than they have today. And those long-tail networks will close.

You could reassign the content to one of the networks that is a core network, you could reassign the content to a streaming service or a FAST service.

What is your forecast for the box office and can it return to pre-COVID levels?

In the long term, we are optimistic at the box office. Levels are still below pre-COVID levels, but we also need to understand that the shock to the system from COVID, with production shut down and strikes adding another layer of disruption, will drive recovery going forward. a bit.

But one of the things I see as positive is that there is a lot of feedback coming from the major studios right now about their understanding that we should focus on quality over quantity. We’ve had tremendous success in 2023 with original films and new storytelling, perhaps a lackluster performance from some of the biggest franchises that many considered surprising. But there is a willingness among consumers to return to movie theaters when there is new and exciting content. And studio leaders are fully aware of this and are investing in a future film that will hopefully tap into consumers’ willingness to be in the theater for entertainment. So I think it’s going to take some time, but I think the box office recovery is trending decently.

It will be difficult to get to that pre-COVID level in 2024, just because of the strike and disruption that will flow across the board. But if you look at the performance in the second half of 2024 and into 2025, I think it will be a pretty good indicator of long-term health.

Do you expect concert films to become a long-lasting big box office driver?

The concert films we saw this year were truly unique events, but I think it’s hard to call that a trend.

Taylor Swift is an economic engine in herself. But I don’t think she’s indicative of a normal path forward.