The media and entertainment industry is known for its mastery of classical story telling.
The first act of the streaming video wars is over. 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.
The first act was the land grab phase, said Chris Marangi, a media investor and portfolio manager.
The central conflict of the streaming wars came into focus last month. The industry was thrown into turmoil after it was revealed that the first quarterly drop in subscribers in more than a decade would continue.
The news cast doubt on whether the growing number of platforms could become profitable. The valuations of the world's largest media and entertainment companies are at stake.
As recently as October,Netflix had a market cap of more than $300 billion, compared to Disney's $290 billion. The company's value has been slashed by over 70% from the start of the year.
Legacy media companies that followed the lead of Netflix have suffered.
Disney shares have been one of the worst performing on the industrials this year. Disney+ added 20 million subscribers in the past two quarters thanks to series such as The Book of Boba Fett and Moon Knight. The movie "Obi-Wan Kenobi" was released on Friday.
The total number of subscribers to Warner Bros. Discovery's services has increased over the past year. Since the merger of WarnerMedia and Discovery, the company's stock price has fallen more than 20%.
Nobody knows if the final act will reveal a path to profitability or which players will emerge dominant. The formula for streaming success used to be simple: add subscribers and stock prices will go up. The shocking freefall ofNetflix has forced executives to rethink their next moves.
Michael Nathanson, a MoffettNathanson media analyst, said that the boom created by the Pandemic created a bust. Do you keep fighting or do you stop?
If companies wait and see if their big money bets on exclusive streaming content will pay off with renewed investor enthusiasm, the simplest path is to do so.
Disney said late last year it would spend $33 billion on content in 2022, while Brian Roberts pledged $3 billion for NBCUniversal's Peacock this year and $5 billion for the streaming service in 2023.
The efforts are unprofitable yet. 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. The Peacock would lose over $2 billion this year and over $1 billion in 2021.
It would take time for streaming to make money. Disney said Disney+ will become profitable in 2024. The same profitability timeline is forecast by Warner Bros. Discovery, Paramount Global, Paramount+, and Peacock.
The idea of chasing Netflix no longer seems like a winning strategy because investors have soured on it. The fall in the company's share price suggests investors no longer view the total addressable market of streaming subscribers as 700 million to 1 billion homes, as CFO Spencer Neumann has said, but rather a number far closer.
Does it make sense to keep throwing money at streaming, or is it better to hold back and cut costs?
We're going to spend $5 billion, but you're not going to see us come in and go.
Zaslav's philosophy may be similar to that of former WarnerMedia CEO John Stankey, who rejected the company's streaming strategy. More is not better, better is better, and the choice was made to focus on prestige rather than volume.
Zaslav is facing a market that doesn't appear to support streaming growth as he looks to put HBO Max together with Discovery+ and possibly add CNN news and Turner sports. It is possible that he will push all of his best content into his new product.
Disney's choice of approach has been to hold live sports outside of streaming to support the viability of the traditional pay TV bundle.
There could be drawbacks to holding back content from streaming services. Many shareholders would celebrate slowing down the inevitable deterioration of cable TV. Growth is not less rapid than decline.
Brian Roberts, chief executive officer of Comcast, arrives for the annual Allen & Company Sun Valley Conference, July 9, 2019 in Sun Valley, Idaho.Many viewers prefer streaming because of the lack of flexibility in traditional TV. Digital viewing allows for multiple devices to be used to watch. A la carte pricing gives consumers more choices, compared with having to spend nearly $100 a month on a bundle of cable networks, most of which they don't watch.
There is a growing number of players vying for viewers. Amazon Prime Video, Apple TV+, Disney+, HBO Max/Discovery+, Netflix, Paramount+ and Peacock all have global ambitions as profitable streaming services.
Media executives agree that some services will need to combine, but they don't know how many will survive.
One major acquisition could change how investors view the industry.
U.S. regulators may make any deal difficult. Amazon bought MGM, the studio behind the James Bond franchise, for $8.5 billion, but it's not clear if it would want to buy anything larger.
Government restrictions on broadcast station ownership would almost certainly doom a deal between NBC and CBS. A separate, messier transaction is likely to be the reason for the elimination of a straight merger between NBCUniversal and Paramount Global.
If streaming continues to take over as the dominant form of viewing, it is possible that regulators will eventually come around to the idea that broadcast network ownership is outdated. Current regulators may try to deny deals that new presidential administrations may be open to.
Warren Buffett and Charlie Munger press conference at the Berkshire Hathaway Annual Shareholders Meeting, April 30, 2022.The purchase of 69 million shares of Paramount Global by Warren Buffet and his associates is a sign that the company's business prospects will improve or it will be acquired with an M&A premium.
Evan Spiegel, CEO of SNAP Inc.Patrick Steel, the former CEO of the political digital media company, said that advertising is an inherently volatile business.
Bill Smead, chief investment officer at Smead Capital Management, said that cheaper, ad-supported subscription won't matter unless consumers are given a reason to sign up with consistently good shows.
The shift in the second act of the streaming wars could see investors rewarding the best content rather than the most powerful model of distribution. Reed Hastings told the New York Times that his company still has some of the most popular shows in America and around the world.
The break-up of the traditional pay TV business byNetflix may have underestimated how hard it is to come up with great content.
Staying the course is not an exciting new opportunity for investors who have soured on the streaming wars.
Andrew Walker, a portfolio manager at Rangeley Capital, said that the days of getting a tech multiple on these companies are probably over. That is what we are all trying to figure out right now.
One way to change the investment narrative is with a new storyline. Rich Greenfield, a media analyst, wants Disney to acquire a gaming company called Roblox to show investors it's leaning into creating Experiential entertainment.
Bob Iger made his mark when he bought Pixar. Early on, that transaction was doing something big and bold.
Bob Chapek, Disney CEO at the Boston College Chief Executives Club, November 15, 2021.Disney CEO Bob Chapek has an opportunity to make a deal that will change the way investors view his company. At the start of the year, the enterprise value was about $60 billion.
Out-of-the-box acquisitions have historically been avoided by media companies. The game development division was shut down by Disney. Acquisitions can help companies grow, but they can also lead to mismanagement, culture clash, and poor decision making. A person familiar with the matter says that a deal to combine NBCUniversal with a video game company was rejected by the company. The discussions were first reported by Puck.
Eric Jackson, founder and president of EMJ Capital, said that big media companies are no longer compelling products on their own.
Apple and Amazon have developed streaming services to bolster their services offerings. Jackson said that Apple TV+ is compelling as an added reason for consumers to buy Apple phones and tablets. The benefit of Amazon Prime Video is that it makes a Prime subscription more compelling, though the primary reason to subscribe is free shipping.
There is no obvious reason for the business to be valued differently. He said that the era of pure-play media may be over.
He said that the parsley on the meal is not the meal.
CNBC is part of NBCUniversal.
The weakness in internet advertising began in the first quarter of 2019.
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