Triggered by the pandemic, the world was thrown into a loop of abyss and industries and markets came to a standstill.
The entire distribution landscape of the entertainment sector fundamentally advanced from physical in-theater experiences to OTT streaming services. Representing the freedom of choice, Streaming services performed magnificently and were a force to be reckoned with.
S&P Global reported that the subscription-based market in the U.S. generated $121 billion in 2021 and projected that streaming services may dominate about 40 percent of the total U.S. subscription revenues by 2025.
In November 2022, Nielsen’s Gauge found that TV streaming had continued its year-long streak of gaining more viewers’ time, by spiking over 7.8 percent from the previous month’s record.
With the pandemic entering the state of passivity, industries are lulling back into balance but yet, flouncing the fanatical audiences back to the theater seats, is at sixes and sevens for Box Office Hollywood. Parallelly, the acceleration of in-home screens and the profuse availability of content on streaming services make the threshold for luring people to leave their houses quite high.
Is Hollywood’s Reign Threatened By Streaming Services?
While the 2022 box office revenue in the U.S. and Canada was up 65 percent, it was still 35 percent lower than its pre-pandemic averages. Analysts expect it to rise by this mid-decade. Even with the temporary problem of convincing the masses to holler at the big screens, Hollywood worries that the film business may never be the same. Walt Disney Chief Executive, Robert Iger recently put it in perspective, that people in the industry fear the pandemic has left a permanent scar on the movie business.
Over the course of 2020, Netflix gained more than 36 million subscribers and Amazon Prime boasted of the subscriber growth to over 50 million users. Disney+ turned out to have a fortuitous launch right before the onset of Covid, attracting more than 73 million subscribers in the year.
A requisite of being eligible for the Academy Awards (Oscars) – a perfunctory theatrical release in Los Angeles for a minimum of one week, was redundant for the second year in a row. In the prestigious 94th Academy Awards for Best Picture, family drama CODA won by triumphing over films of auteurs. A momentous win indeed, making Apple the first streaming service to win an Oscar. It was no mystery that the streaming services in the echelon were ambitious to prove their content’s artistic merits for quite a few years, vying for the awards.
Could Streaming dethrone and topple Tinseltown’s dominion? We believe most likely not. Maybe it’s just a chasm in time.
Streaming Services: I Saw, I Came But I Can No Longer Conquer?
After basking in the phenomenal glory of success for two years, the perfect streaming landscape started showing its true complications. Studios and media companies continued to pump billions into movies and TV shows for all formats, but the rising inflation and a potential recession ignited a slowdown in the streaming market as well. Amidst terming ‘downsizing’ as a euphemism for layoffs, even massive corporations had to furlough in the wake of economic uncertainty.
A special report by World Finance recorded that Netflix had announced a loss in subscribers when 200,000 users canceled their subscriptions in the first quarter of 2022.
Netflix saw the warning signals on a loss in US subscribers in mid-2019 and found that password-sharing was one of the culprits. According to Fox Business, with the mounting subscriber losses in 2022, in December Co-CEO Reed Hastings said the company would put an end to the arrangement of password-sharers rolling out in 2023. He said that the company would enforce the rules based on the account activity, IP addresses (passwords can be shared in the same family) and device IDs.
According to Bloomberg, streaming losses were at an all-time high with major streaming services foreseeing a loss of $10–15 billion in 2022. Disney, Warner Bros. Discovery, Paramount and Comcast incurred blaring losses of a combined $3 billion on their streaming services in the first quarter of 2022.
“As a result of the slowdown in addition to new subscribers, many in the industry are pivoting to a new wave of sobriety.” Media Analyst, Michael Nathanson
Wanting to stay relevant in the reign of Netflix, the entertainment industry was banking on subscription-based streaming platforms but Wall Street demands to see profits, not just the growing numbers of subscribers. The freefall of TV ratings and the sudden subscriber losses in the trendsetter Netflix suggests that the golden era of streaming services might be coming to an end.
What could be nigh in the battle for audiences’ attention? Would cinema or streaming win, or something entirely different?
The Transitioning Future Of The Entertainment Industry:
The modern era of media consolidation began way back in 2009 when Disney acquired Marvel Entertainment for $4 billion. In 2018, Disney purchased its rival 21st Century Fox for a staggering $71 billion, motivated by its vast catalog of TV series such as The Simpsons and The Walking Dead, to compete with pioneer Netflix in the streaming era.
Streaming services may be experiencing fluctuations in their revenues but according to NYTimes, more than 300 services proliferate in the United States. Prominent studios like Universal, Sony, Warner Bros, Disney and Paramount changed the course of theatrical films to be released to its streaming services or simultaneously released in both, OTT and theaters.
The movie business is far from breathing its last and most of the eminent Studios are developing strategies to make their streaming businesses more profitable. Losing billions in the past year, major streaming players are focusing on sustainable business models. Venerable film studios are in the middle of the transition of establishing a model that balances streaming services and theatrical revenues as a chunkier part of the equation for certain types of movies.
Amazon:
Amazon promised to release a myriad of movies a year in theaters after acquiring popular production company Metro-Goldwyn-Mayer (MGM). Warner Bros. and Paramount strive to deliver theatrical releases.
Netflix:
Netflix, the leading streaming giant with a market cap of $128 billion and 223 million worldwide subscribers, is set to experience a stark turnaround from its initial resistance to playing the advertising field by adding an ad-supported tier. Analysts at Cowen Inc. anticipate that Netflix’s efforts could generate additional revenue of $721 million in the U.S. and Canada in 2023.
Netflix is pioneering the revolution of confronting password-sharers and could likely prompt streaming services like Disney, Paramount, and HBO (Warner Bros) to also inspect password sharing.
Disney:
When Disney’s DTC segment steeped $2.3 billion during the first three quarters of the fiscal year, it was set to hike its ad-free monthly subscriber fee from $8 to $11, with subscribers who wished to follow the pricing of $8, having to watch ads. With losses peaking in 2022, Disney+ is expected to become profitable by fiscal 2024.
Warner Bros. Discovery (HBO Max):
After taking over the 99-year-old Warner Bros. Studios in April 2022, for a $43 billion mega-deal, Discovery’s CEO David Zaslav had to initiate hundreds of cost-saving strategies and layoffs due to the surmountable debt of $50 billion that the maligned AT&T era left. Warner Media was neglected through profligate spending by AT&T, as per a report of CNBC.
With Zaslav at the helm that will keep him at Discovery through 2027, HBO, Warner Bros, Discovery and Turner went through rigorous restructuring. Zaslav’s directive was lauded by the board of directors through superlatives like ‘extraordinary’ and ‘exceptional’ for what he was able to foresee for the merger’s future.
With a refined strategy for growth, Zaslav emphasized the importance of the quality of the films that Warner Bros. Discovery produced and told analysts that he had envisioned a ‘10-year plan”, mainly focused on fiscal responsibility. The shares having fallen over 50 percent since the merger, translates the market value of the company to $26 billion.
“We’re making a strategic shift. We’re not going to release any film to make a quarter before it’s ready.”
The legacy media company does not consider streaming as the only priority as Zaslav has indicated in his focus on generating billions in cash flow. Many Tinseltown power players believed that Zaslav would want to curry favors in his first year, given his lack of expertise with movies and television shows. Some even thought he’d want to be Hollywood’s next king. In the search for cost-savings, streaming service HBO Max had to prune popular upcoming shows. This has spurned the creative community and now, only time will tell of the ramifications of these decisions.
An estimate of Warner Bros. Discovery’s 2023 EBITDA is $12 billion, with the combination of HBO Max and Discovery+ anticipating a global profit of $1 billion in the U.S. by 2025.
Final Words:
With endless consolidations in play, great content would always rise to the top and the fight for subscribers may end within 3–4 years. After all, there is a slight chance that there won’t be as many streaming services in 5 years as there are, currently.
The familiarity and affinity for valuable content should not be bucked by non-discoverability. With the volume of content and split attention, it is harder to build a solid connection between the audience and the film. To thrive, media companies will need to get real about the spending and earnings as Studios seek to please investors as well as serve the streaming audiences’ insatiable appetite for good content. Hollywood and Streaming services may not arrive at an impasse, should they choose to evolve shoulder-to-shoulder.
