The technology/media/telecom industry has officially hit the next phase of its Great Streaming Experiment. And investors hate it.
The latest “scientific paper” to drop from the mad scientists was submitted last week by the Walt Disney Company, in the form of some dismaying quarterly results.
The good news: the company keeps piling up the paid subscriptions, adding 14 million more to a grand total of 236 million globally across four services. (Please don’t confuse subscriptions with subscribers, however, given that Disney triple counts the 40% of its customers who buy its bundles). Coming just weeks before launching an ad-supported tier, that world’s-biggest number has to be a comfort.
Also read: Disney Jumps to No. 1 in DTC Subscription Scale ... At a Huge Cost
Far less comforting were the ugly side effects of Disney’s experiments: the company also lost almost $1.5 billion in the quarter, about half a billion more than anyone projected, thanks to what Needham & Co. senior research analyst Laura Martin called “its enormous and growing DTC losses.” That was considerably less comforting for shareholders who have watched Disney share prices fade alarmingly in recent months.
At the other pole of the Great Streaming Experiment is Warner Bros. Discovery, which is still saddled with $48 billion in debt despite Dave & Gunnar rifling under the couch cushions for hundreds of layoffs, closures, mothballed and cancelled projects and other savings of every kind.
What’s left? A near-repudiation of streaming as a business, and a hard clutch to the breast of WBD’s fading broadcast and cable operations, a shift to “arms dealer” sales of non-strategic shows, and theatrical-first exhibition. WBD shares are down 70% since the company launched last spring.
You could create a scientifically rigorous scatter chart placing all the other big media companies somewhere between Disney and WBD in terms their own streaming transformations.
Paramount Global is closer to Disney (and Netflix), with its resolute streaming push and that complete array of SVOD, AVOD and in-between service tiers. Like Disney, Par continues to rack up big growth in subscription ranks every quarter. Its shares are down about two-thirds.
Comcast is closer to the WBD end of the chart, what with Peacock proving repeatedly that it’s a bird that won’t fly. Parent Comcast’s shares are down 54% on the year, though they too perked up slightly at the end of the week.
But at least a couple of smaller Peacock experiments are proving promising. Just look at that day-and-date release of Halloween Ends in theaters and on Peacock. That both outlets were hugely successful showed Jeff Shell’s scientists are still cooking up some fascinating projects that also might pay bills.
The core of the experiments that all the major media companies are conducting (in different ways) is a simple one: can you invest enough in a streaming service that customers will pay for consistently, while also milking your fading legacy operations long enough to finance it all?
Disney may have been surprised by the speedy erosion of its legacy operations, and the mounting, non-scalable costs of streaming (more subscribers mean more costs). WBD may just be too crippled by debt for any experiment to work out. Other companies have other challenges.
Regardless of which experiment a given company is running, investors and analysts are getting impatient. For them, one date can’t come fast enough: 2024, when everyone is promising to be break-even or better.
The pressure is growing.
After Disney’s earnings, deeply chastened analyst Michael Nathanson admitted in a note to investors that MoffettNathanson had been way off in estimating Disney finances for next year. The company’s own projections for 2023 earnings before interest and taxes were roughly a third that of the 25% consensus among analysts, and way, way below Nathanson’s own 34% estimate.
“Rarely have we ever been so incorrect in our forecasting of Disney profits,” Nathanson wrote in a research note. “Given the company’s confidence that parks trends appear resilient, it appears that the culprit for the massive earnings downgrade is much-higher-than-expected DTC losses and significant declines at linear networks.”
Shares dropped a cringe-inducing 13% and Chapek subsequently issued a memo saying the company will cut some costs, and some workers. That, plus a very friendly new federal assessment of inflation rates, sent shares back up about 10%. The experiments continue.
But the difficulty in creating reproducible results with high success levels suggest why Netflix was so cocky in their quarterly report a couple of weeks earlier. You may recall the investor letter that positively gloated about making money while all the other companies have lost about $10 billion so far this year. Generating that sweet, sweet free cash flow is hard.
Of course, the mad scientists in other, more northern corners of the media business aren’t doing so great either. Over at Meta, Mark Zuckerberg somehow has spent so much money on his Metaverse visions that he blew through the many, many billions of dollars the company generates from its highly targeted, highly successful advertising on Facebook and Instagram.
People like the new $1,500 virtual-reality headset, but it’s $1,500, so that’s a business play that still may take years to pay off. Hollywood’s stressed-out scientists can give thanks they won’t have to further transform their companies from streaming to the Metaverse for at least a few more years.
As it was, Meta’s shares tanked after its earnings, sending CNBC’s Jim Cramer into a near-catatonic state of apology to viewers for trusting Zuckerberg to not do what he did.
Then Zuckerberg announced this week that he would lay off 11,000 people, about one in seven employees, the first significant cuts in the company’s history. At least the shares went up.
Over at Twitter, the truly mad scientist Elon Musk has taken the company private, laid off half the workforce, hired back dozens of them, and trotted out an array of changes that frequently were killed as quickly as they were created. Advertisers have not been pleased, and Musk is now warning the company might go bankrupt.
The good news: at least it’s a private company, so only a bunch of rich dudes at Sequoia, in Saudi Arabia, at some banks, and Elon himself are on the hook.
And it’s important to note that at least some experiments out there are going pretty well.
I took part in an Italian TV conference in Los Angeles this past week, and the TV people from Italia are upbeat indeed. Rai and Sky are pumping out programming that can travel the Continent and well beyond, thanks to Netflix and other global streaming buyers. Italian TV production is up 30%, one participant told me.
Meanwhile, the Italian Trade Agency, which sponsored the conference, also runs an annual boot camp in Tuscany to train smart young Italian creators how to be U.S.-style showrunners who can easily work with the Netflixes and Disneys.
Featuring U.S. showrunners to Tuscany, the boot camp offers the promise of both great food and great ideas. The ubiquitous presence of legions of very handsome humans in exquisitely tailored clothing appears to be another benefit. Some experiments are not mad at all.
