It is easy to forget that investors barely blinked at enormous streaming losses until last year. The past week of earnings calls show just how far things have come and how far they have to go, writes Richard Middleton. But is there an end in sight?
The creative process of producing TV shows feels like it should lie far, far away from the number-crunching accounts department, but these two contrasting worlds have always been inextricably linked.
MIPCOM underlined the squeeze on producers as media giants struggle to make streaming pay and the past seven days of financial results have not done much to change this narrative.
Job cuts and removing content spend amid a squeezed advertising market have again taken centre stage, as the industry grapples with a market that continues to throw up obstacles to profitability, forcing its participants to dance to a very different beat.
Slicing & dicing the P&L
Disney led the charge on cost-cutting this week, with CEO Bob Iger promising he would remove $7.5bn from its costs, up from the previous goal of $5.5bn.
Part of that is because of fewer people – more than 8,000 job cuts have already been made across the Mouse House in the past 12 months – but there are also plans to hack back on content.
There will now be a not inconsiderable $2bn lopped off the planned content spend of $25bn in the next 12 months, with a focus on fewer titles of higher quality.
The move came despite subscriber growth – almost seven million new customers globally in Q4, tempted in by shows such as Ahsoka and Moving – while Iger is still confident that streaming profitability will be achieved by the end of 2024.
That’s just as well, because the news on Disney’s linear networks was one of decline (revenue -9% on the previous quarter), a universal theme across companies around the world.
By the time of Disney’s news, AMC Networks had already confirmed its advertising revenue had plunged 18% in Q3, with The Walking Dead: Daryl Dixon firm blaming the slump on “anticipated linear ratings declines” and fewer original shows.
Streaming helped to offset some of the declines, with its portfolio of services including Acorn TV and AMC+ taking overall revenue up 9% to $142m, while subscribers rose 100,000 – or 4% – year-on-year to touch 11.1 million.
The company’s operations outside of the US provided a mixed picture, with international and other revenues decreasing 2% from the prior year to $98m. Content licensing (and other revenues) decreased 24% to $22m, which the company blamed on lower production volumes at its 24/7 Media unit.
Over at Starz, there were more cuts – this time on the staff front and to the tune of 10% of its workforce.
The move comes ahead of its separation from Lionsgate next year in an “organisational restructure” that will also see it exit the UK and Australia.
Final plans for the split were delayed until early 2024, following Lionsgate’s acquisition of Entertainment One and “uncertainties” surrounding the Hollywood strikes.
Lionsgate has already revealed plans to pull out of Latin America by the end of this year, as it looks to scale back its international operations, having “quietly reduced” its workforce by 150 positions earlier in the year. It also sold a partial interest in Dubai-based Starzplay Arabia, underlining the shrinking global ambitions of US-based firms.
Embattled Vice Media Group is another Stateside operator that this week admitted it would be considering closing down operations in some countries and markets.
The company, which was acquired in August by former lenders including Fortress Investment Group, made cuts earlier this year but is now expected to trim a further 100 staff after its Vice On Showtime and Vice News Tonight shows were not extended.
There were few bright spots either for Warner Bros. Discovery, which revealed it had made $1.5bn from Barbie but lost 700,000 streaming subscribers in Q3.
It was another company affected by dampened demand for advertising in the US, with its networks segment revenue falling 7% to $4.86bn, although it claimed adjusted profits from its streaming segment of $111m.
WBD’s CFO, Gunnar Wiedenfels, added that $2.4bn billion of debt had been paid down across the quarter but the ad market and the now-settled Hollywood strikes continue to hamper growth.
“This is an evolving process and there is a real risk at this point that some negative financial impact of the strike will extend into 2024 to some extent,” he told analysts.
While there is no strike (yet) in the UK, similar concerns around advertising declines are causing content cutbacks.
UK commercial operator ITV said that its nascent ITVX service had seen total streamed hours increasing by 27% to the end of September and total digital advertising revenues up 25% to £283m.
But that did not do much to stem losses across ITV’s Media & Entertainment division, where revenue dropped 7% to £1.459bn (down from £1.561bn in 2022).
The company said the “challenging” ad market means it expects total advertising revenue in 2023 to come in 8% down on last year, with its 2023 content spend being trimmed by another £10m this year.
Even ITV Studios (ITVS), so often the bright point for the broadcaster, admitted times were tough with revenues expected to grow by just 3% in 2023 – down from 19% in 2022.
The decline is being blamed on falling demand from free-to-air broadcasters and while revenues rose 9% in the first nine months of 2023, the company behind shows such as Apple TV+’s Physical was candid in its outlook for the coming months.
For creatives, there are green shoots – not least the news that SAG-AFTRA had struck a new deal with Netflix, Disney+ et al via the AMPTP, which the actors union described as offering “unprecedented provisions”.
But as WBD’s CEO Zaslav pointed out in his earnings call, “this is a generational disruption we’re going through” and doing that with “a streaming service that’s losing billions of dollars [means it] is really, really difficult to go on offence.”
It’s a similar story for many others on the global stage.
Zaslav sees hope that increasing cashflow will give his firm “a chance not only to fight but to grow in the next year” and to be “really opportunistic across the next 12 to 24 months.”
Until then, the industry must continue to dance to the beat set down by the bean counters, as painful as that may be.