Status of Streaming Profitability

As I am flying to the NAB Show in Las Vegas and doing my last research online before the NAB Streaming Summit - where I will moderate a panel on "The Complex Business of Sports Streaming: Fragmentation, Bundling and Retention" with Christy Tanner Andreas Heyden Yannick Manuel Ramcke David Guinan - I wanted to be well prepared on the side of numbers.

It is clear from some time now than the last two years have shifted the focus of any streaming business to profitability. That's the core question, we all understood that streaming is (slowly) replacing more traditional media distribution and monetization models, but how this new model can become really sustainable is the big dilemma.

In early 2022 when Netflix saw the first decline in subscribers all the conservative forces shouted to the end of streaming... ehm it seems somehow Netflix knows how to navigate these waves and is now writing the playbook for streaming success with many trying to follow. Not everything is solved, the situation is still quite critical, fighting churn and customer retention has become the new focus in our industry. That's also why I launched Retention Zone in late 2023.

Streaming Profitability: Hollywood Giants Chase Netflix's Success

As Hollywood powerhouses continue their pursuit of streaming dominance, profitability remains a key focus. While Netflix has established itself as the leader in the streaming space, entertainment conglomerates are still working to prove they can make money in this competitive landscape. A closer look at the full-year results of major players in 2023 reveals mixed progress and ongoing challenges.

Netflix continued its upward trajectory, growing its full-year revenue by 7 percent and adding 29.5 million members in 2023, reaching around 260 million worldwide users. The company's operating margin climbed from 18 percent to 21 percent, and its profit jumped 25 percent. Netflix attributes its success to executing well, driving continuous improvement, and establishing itself in new areas like advertising and games.

NBCUniversal's Peacock saw subscriber growth of more than 50 percent, reaching 31 million users by the end of 2023. While Peacock posted the biggest full-year loss among streaming businesses at $2.7 billion, it showed signs of improvement, with narrowing losses in the third and fourth quarters. Comcast president Michael Cavanagh stated, "For 2024, we expect to show meaningful improvement in losses versus 2023."

The Walt Disney Company made progress in narrowing its streaming losses, excluding ESPN+. For the full calendar year 2023, Disney cut its streaming losses by more than half. However, subscriber growth was mixed, with Disney+ losing 1.3 million core subscribers in the latest quarter, ending the year with 111.3 million. Hulu continued to expand its customer base, while Disney+ Hotstar in India experienced a decline. CEO Bob Iger reiterated his goal of making the streaming unit profitable by the fourth quarter of Disney's current fiscal year.

Warner Bros. Discovery stood out as the first Hollywood conglomerate to turn a profit for its streaming unit, which includes HBO and Max, albeit a small one of $103 million in 2023. The company ended the year with 97.7 million streaming subscribers, a slight gain from 2022. CEO David Zaslav emphasized the company's commitment to driving profitable revenue growth, with plans to expand Max internationally and launch ad-supported offerings in more markets.

Paramount Global saw a slight narrowing of its streaming loss in 2023, while its streaming revenue jumped more than 35 percent. Paramount+ ended the year with 67.5 million subscribers, a gain of 11.6 million. CEO Bob Bakish highlighted that the company hit peak streaming losses in 2022, a year ahead of schedule, and expects further significant improvement in 2024. However, some analysts remain cautious about Paramount's ability to drive streaming profitability and navigate the secular trends facing the traditional TV business.

Despite the progress made by some entertainment giants, the streaming landscape remains challenging. As Ampere Analytics predicts, streaming revenue is expected to overtake pay TV subscription revenue in the U.S. for the first time in the third quarter of 2024. However, the question remains: which companies can successfully translate revenue growth into sustainable profitability?

Wall Street analysts have mixed views on the future of streaming profits for Hollywood conglomerates. Benjamin Swinburne of Morgan Stanley is bullish on Disney's path to streaming profits, stating, "By the end of fiscal year 2024, the two most impactful businesses to Disney shares should be inflecting – with streaming turning profitable and [theme] parks growth accelerating." On the other hand, Peter Supino of Wolfe Research argues that promising DTC trends at Warner Bros. Discovery could be outweighed by pressure at its cable networks unit.

As Hollywood giants continue to chase Netflix's success, the road to streaming profitability remains a challenging one. While some companies have made progress in narrowing losses and even turning a small profit, the long-term sustainability of these businesses is still in question. As the streaming landscape evolves and competition intensifies, entertainment conglomerates will need to navigate the delicate balance between subscriber growth, content investment, and operational efficiency to achieve the elusive goal of consistent streaming profitability.

Based on great reporting by the Hollywood Reporter

This is episode No. 116 of my LinkedIn newsletter, A guy with a scarf.

Subscribe here: https://lnkd.in/ddmvMF-Q

A guy with a scarf

LinkedIn newsletter: subscribe here

YouTube channel: watch here

Podcast: listen here

Follow my Retention Zone show!

Buy my books on eSports and AI: https://www.amazon.it/dp/B0CFSHKRKR

A FACTORY63 initiative