By Dawn Chmielewski and Lisa Richwine
(Reuters) – In an earnings period that signaled the end of Netflix’s envy, Walt Disney Co has renewed hope that growth in the streaming business will continue.
But Disney, which overtook Netflix as the world’s streaming leader in terms of subscribers last quarter, is an outlier among its media peers.
The industry-wide scramble over the past few years to copy Netflix Inc has slowed to a more deliberate pace in the past two weeks as companies change their approach to the streaming business. Instead of making streaming the centerpiece of your strategy, it’s now just one of many business areas.
“We actually have four or five or six box offices,” Warner Bros Discovery CEO David Zaslav told analysts last week. “And in a world where things are changing and there’s a lot of uncertainty … it’s much more stable and much better than having one cash register.”
In recent earnings reports, traditional media companies touted stable and shrinking businesses like linear TV as profit centers to weather economic uncertainty. Analysts say cash flow has become cool again, replacing subscriber growth as the main measure of success in recent years.
Hollywood’s new austerity comes as rising inflation threatens consumer spending and a surge in new subscribers during the global pandemic slows.
It also follows Netflix’s fall from grace. The company’s stock value fell to about $100 billion from a record $300 billion in November as its growth stalled.
There may be even bleaker news on the horizon. National ad spending fell for the first time in June in the United States after 15 straight months of growth amid concerns about the possibility of a recession, according to advertising data firm SMI.
After its $43 billion merger last week, Warner Bros Discovery said it would no longer sacrifice its traditional film and television businesses to support its HBO Max subscription streaming service, in a sharp rebuke of previous management’s focus on streaming.
He abandoned expensive projects such as the HBO Max sci-fi series Demimonde, which was being developed by Lost creator J.J. Abrams and the DC Comics-inspired “Batgirl” movie, and took $825 million in write-downs in the second quarter.
“I think they’re crying uncle,” LightShed Ventures media analyst Rich Greenfield said of Warner Bros.’ moves. “They are not in a financial position to take the pain necessary to compete.”
Bank of America Merrill Lynch media analyst Jessica Reif Ehrlich said Warner Bros. Discovery is playing to its strengths.
“It is imperative that media companies take a holistic view and try to monetize their increasingly valuable content on every platform, whether linear or digital,” she said.
This opinion is spreading throughout the media business.
Comcast Corp’s NBCUniversal, which has invested less aggressively than its rivals, has praised its foresight in not going overboard with its Peacock streaming service.
Paramount Global CEO Bob Bakish last week touted the growth of the company’s streaming service while applauding the decision to delay the release of “Top Gun: Maverick” so the film could premiere exclusively in theaters. The summer blockbuster, which debuted on May 27, has yet to reach Paramount+.
The media retreat makes the performance and forecast for Disney — which reported third-quarter earnings on Wednesday — all the more remarkable, analysts said.
“This is a pivotal moment in the streaming wars, as Disney now has more direct-to-consumer video subscribers than Netflix,” said Paolo Pescatore, an analyst at research firm PP Foresight. “It feels like a two-horse race.”
Disney shares rose 6.5% after it reaffirmed its streaming profit targets and reported that it had reached 221 million total global streaming subscribers, surpassing streaming pioneer Netflix for the first time, which has 220.7 million subscribers.
Disney, which was the first of the major media companies to restructure around chasing Netflix, has leveraged its roster of globally recognized entertainment brands and a robust $30 billion in content spending to beat Netflix.
But the past may not be the prelude to streaming, analysts warned.
“The key risk for Disney is that past subscriber growth has come at a time when many key franchises, such as Marvel and Star Wars, have been winding down. There remains significant uncertainty about how the next phase of content will perform in acquiring or retaining subscribers ,” Jamie said. Lumley, an analyst at Third Bridge.
(Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles; Additional reporting by Tiyashi Datta in Bengaluru; Editing by Kenneth Li and Matthew Lewis)
