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Reed Hastings, Co-CEO, Netflix speaks at the 2021 Milken Institute Global Conference in Beverly Hills, California, U.S. October 18, 2021.
David Swanson | Reuters
The media and entertainment industry prides itself on its mastery of classical storytelling’s three acts: the setup, the conflict and the resolution.
It’s safe to declare the first act of the streaming video wars over. Barring a surprise late entrant, every major media and technology company that wants to be in the streaming game has planted a flag. Disney+, Apple TV+, Paramount+, Peacock and other new streaming services are spreading around the globe.
“Act one was the land grab phase,” said Chris Marangi, a media investor and portfolio manager at Gamco Investors. “Now we’re in the middle act.”
Last month, the central conflict of the streaming wars came into focus. The industry was thrust into turmoil after Netflix disclosed its first quarterly drop in subscribers in more than a decade and warned subscriber losses would continue in the near term. Second act problems
Netflix’s rapid decline after a pandemic-fueled boom has investors questioning the value of investing in media companies.
Streaming is the future of the business, regardless of recent problems, as consumers have gotten used to the flexibility the services offer.
There could be more consolidation to come, and streamers are increasingly embracing cheaper, ad-supported tiers.
That news set off worries about streaming’s future and cast doubt on whether the growing number of platforms could become profitable. At stake are the valuations of the world’s largest media and entertainment companies — Disney , Comcast , Netflix and Warner Bros. Discovery — and the tens of billions of dollars being spent each year on new original streaming content.
As recently as October, Netflix, whose hit series “Stranger Things” returned Friday, had a market capitalization more than $300 billion , topping Disney’s at $290 billion. But its shares are down over 67% from the start of the year, slashing the company’s worth to around $86 billion.
Legacy media companies that followed Netflix’s lead and pivoted to streaming video have suffered, too.
Disney shares are among the worst performing stocks on the Dow Jones industrials this year, down about 30%. That’s even though series such as “The Book of Boba Fett” and “Moon Knight” helped Disney+ add 20 million subscribers in the past two quarters. The highly anticipated “Obi-Wan Kenobi” premiered on Friday.
Warner Bros. Discovery’s HBO and HBO Max services also added 12.8 million subscribers over the past year, bringing total subscribers to 76.8 million globally. But shares are down more than 20% since the company’s stock began trading in April following the merger of WarnerMedia and Discovery.
Nobody knows whether streaming’s final act will reveal a path to profitability or which players might emerge dominant. Not that long ago, the formula for streaming success seemed straightforward: Add subscribers, see stock prices climb. But Netflix’s shocking freefall has forced executives to rethink their next moves.
“The pandemic created a boom, with all these new subscribers efficiently stuck at home, and now a bust,” said Michael Nathanson, a MoffettNathanson media analyst. “Now all these companies need to make a decision. Do you keep chasing Netflix around the globe, or do you stop the fight?”
David Zaslav
Bloomberg | Bloomberg | Getty Images Stick with streaming The simplest path for companies could be to wait and see whether their big money bets on exclusive streaming content will pay off with renewed investor enthusiasm.Disney said late last year it would spend $33 billion on content in 2022, while Comcast CEO Brian Roberts pledged $3 billion for NBCUniversal’s Peacock this year and $5 billion for the streaming service in 2023.The efforts aren’t profitable yet, and losses are piling up. Disney reported an operating loss of $887 million related to its streaming services this past quarter — widening on a loss of $290 million a year ago. Comcast has estimated Peacock would lose $2.5 billion this year , after losing $1.7 billion in 2021.Media executives knew it would take time for streaming to start making money. Disney estimated Disney+, its signature streaming service, will become profitable in 2024. Warner Bros. Discovery’s HBO Max, Paramount Global’s Paramount+ and Comcast’s Peacock forecast t he same profitability timeline .What’s changed is chasing Netflix no longer appears like a winning strategy because investors have soured on the idea. While Netflix said last quarter that growth will accelerate again in the second half of the year, the precipitous fall in its shares suggests investors no longer view the total addressable market of streaming subscribers as […]
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