Media companies in Hollywood are facing multiple challenges, including two ongoing strikes, slumping ad revenue, and unprofitable streaming businesses. The industry is entering earnings season this week, with Netflix being the first to report on Wednesday.
Disney CEO Bob Iger recently stated that the company’s legacy TV operations might not be central to its business anymore. This admission has raised concerns among investors and industry analysts, who see it as a warning sign for the sector as a whole.
While the advertising market has been weak for several quarters, the introduction of cheaper, ad-supported options for streaming services like Netflix and Disney+ is expected to be a bright spot in an otherwise challenging quarter. Both companies have emphasized the importance of advertising in their plans to achieve profitability.
Netflix, in particular, seems to be better positioned compared to traditional media giants, with a new advertising model and efforts to clamp down on password sharing. The company’s stock has risen nearly 50% this year, following a correction in 2022.
Legacy media companies such as Paramount Global, Comcast Corp., and Warner Bros. Discovery are also under scrutiny, especially after Iger’s comments about traditional TV not being core to Disney anymore. These companies will report their earnings in the upcoming weeks.
In addition to these challenges, Hollywood is currently facing a long and bitter work stoppage, with both the Writers Guild of America (WGA) and the Screen Actors Guild – American Federation of Television and Radio Artists involved in strikes. This dual strike, the first of its kind since 1960, has brought the industry to a halt and could lead to a shortage of fresh film and TV content.
Netflix may be less affected by the strikes, as content produced outside the U.S. remains unaffected and the company has heavily invested in international shows. However, the strikes highlight the turmoil in the sector and the frustrations of shareholders.
The decline of pay-TV subscribers continues to accelerate as consumers shift towards streaming, posing challenges for pay-TV distributors. The weak advertising market has also been a significant pain point, particularly for traditional TV. MoffettNathanson’s recent report raises concerns about the lack of advertising pricing growth and the potential impact of ad-supported streaming platforms on TV pricing.
In an effort to reach profitability, streaming platforms have been introducing cheaper, ad-supported tiers. This strategy is seen as crucial in the industry, and Netflix’s recent crackdown on password sharing is considered a part of this broader push for advertising revenue.
Amidst these challenges, a recent ruling allowing Microsoft’s acquisition of game publisher Activision Blizzard to move forward has provided a glimmer of hope for the media industry. While regulatory interference remains a concern, the ruling has been seen as a positive sign for dealmaking in the industry.
As media giants grapple with strikes, declining ad revenue, and unprofitable streaming businesses, the industry faces an uncertain future. The upcoming earnings reports will shed further light on the extent of these challenges and how companies are navigating them.