Streaming Turns a Corner as Disney, Paramount Report Profits – But That Doesn’t Solve All Media’s Problems

VaselineAugust 18, 2024

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Streaming Turns a Corner as Disney, Paramount Report Profits – But That Doesn’t Solve All Media’s Problems

Most streaming platforms are finally profitable, or at least close to breaking even. But the demise of the cable bundle is still a complicated mess for most legacy gamers looking to survive in a new digital age.

Last week, both Paramount Global ( PARA ) and Disney ( DIS ) reported first-quarter profits in their streaming businesses, signaling a significant turnaround in the industry after several quarters of bruising losses.

In total, these two companies, along with Netflix ( NFLX ), NBCUniversal’s Peacock ( CMCSA ) and Warner Bros. Discovery’s Max (WBD), reported total profits of about $3.3 billion in the first two quarters of the year. That’s significantly ahead of the $683 million loss the combined companies reported in the year-ago period.

Still, “it’s a tough space,” Barton Crockett, managing director at Rosenblatt Securities, told Yahoo Finance.

Even with the recent achievement of profitability in streaming, “I think Netflix is clearly running the ball and media-based streaming companies are struggling to even get on the ball.”

And even for a pure-play streaming giant like Netflix, Crockett noted stagnant growth in the ecosystem as the consumer becomes “more price sensitive.”

“The free-to-air, ad-supported streaming TV deals are really where there’s a lot more growth right now,” he said. “But it’s hard to find a pure fair play on that.”

As Crockett alluded to, Netflix led the way in total streaming profit gains, pulling in about $4.5 billion in net revenue in the first half of the year.

The results come as the streamer has shifted spending to focus on more “quality over quantity” projects, added new revenue initiatives such as password-sharing crackdowns and advertising tiers, and -recently expanded content to include sports, live events and even games.

Other streaming services have adopted similar strategies in the race for survival. But they also experienced their own calculations amid the pressure to expand and achieve profitability.

Warner Bros. abandoned several projects in an attempt to cut costs by millions. Paramount began laying off another 15 percent of its workforce on Tuesday, closing its TV studio in the process. Disney went through an intense period of restructuring last year, following the surprise return of CEO Bob Iger.

In addition to these efforts, virtually all of the major streaming giants have raised prices at a time when consumers are becoming increasingly demanding, with churn rates hovering at high levels.

“Prices for ad-free subscriptions are starting to go through the roof,” Bank of America analyst Jessica Reif Ehrlich told Yahoo Finance. “As a result, our view is that consumers will drop more streamers and perhaps rotate a bit more depending on the content cycle.”

To combat fickle consumers, competing platforms are now bundling their services. As WBD CEO David Zaslav told investors in May, “There is more power together.”

But as media companies call for a truce in the streaming wars, it’s clear that other areas of the business could be even more problematic.

“Decline to Survive”

Amid last week’s streaming forays, Warner Bros. Discovery and Paramount took a collective $15 billion hit to the value of their respective cable businesses.

The back-to-back moves highlight industry struggles as more consumers cut the cord.

“I’m disappointed that trends in the linear business weren’t a little better? There was talk of recovery a year, a year and a half ago. It hasn’t really happened. It is what it is. We’re handling it as best we can,” he said. Zaslav said last week.

For years, linear advertising and affiliate fees have steadily increased revenue for these networks. The shift to streaming has caused cable subscribers to decline, hurting affiliate fees, and streaming companies now entering the ad market have taken another leg out of the chair.

Pressure from deteriorating linear networks, coupled with heavy debt, has forced traditional media giants to cut costs wherever they can – hence the massive restructuring and layoff efforts.

KeyBanc analyst Brandon Nispel said recent strategies at Paramount and others appear to be “centered around shrinking to survive where potential business growth is likely to be challenged.”

Rumors have surfaced when it comes to future strategic options, which could include sales and spin-offs. Paramount, for its part, is currently going through the process of being acquired by Skydance, with the company saying it expects the deal to close in the second quarter of next year.

Warner Bros. it was also at the center of M&A rumors after the two-year post-merger lockup period officially ended in early April. But the future remains unclear.

“WBD remains in a tight corner with more than 80% of its profits derived from linear cable networks,” MoffettNathanson analyst Robert Fishman wrote in a recent note. “Exploring different strategic options should be something that management is exploring, but we hesitate to see any significant upside unless the debt burden can be reduced.”