As Losses Skyrocket, Media Companies Scramble to Turn Around Direct-to-Consumer Fiscal Fortunes

A series of sobering fiscal losses, which include ongoing rollout marketing campaign expenses, technology investments and content licensing fees, among other costs, have prompted the big subscription streaming services to raise their monthly subscription prices, in addition to turning to advertising revenue to offer lower-priced subscription fees.

“We believe several media companies are set for strategic pivots as the industry inches toward seemingly inevitable consolidation,” Jessica Reif Ehrlich, analyst with Bank of America, wrote in a note. “Streaming operators are shifting toward a more-balanced approach that includes a focus on driving profitable growth.”

Profitable growth has proven elusive.

Paramount Global Feb. 16 reported a loss of $1.8 billion in its direct-to-consumer businesses in 2022, which include the Paramount+ subscription streaming platform. That widened more than 81% from a loss of $992 million in 2021. NBCUniversal’s Peacock streaming platform widened its 2022 operating loss to $2.5 billion, from $1.7 billion in 2021, while Disney expects D2C losses to hit $2.5 billion this year.

Disney’s unexpected $1.5 billion D2C losses in fiscal Q4 (ended Oct. 2, 2022) effectively marked the beginning of the end for former CEO Bob Chapek, rattled longtime Disney bull MoffettNathanson.

“Rarely have we been so incorrect in our forecasting of Disney profits,” Michael Nathanson wrote in a note last November, a sentiment that didn’t change in January 2023. “Investors and executives have accepted that streaming is, in fact, not a good business — at least not compared to what came before,” he wrote.

Even Netflix, which was the only SVOD service in the world to generate a profit in 2022 ($55 million, down from $607 million net income in 2021), continues to lose money in its international operations. Collectively, U.S. streaming services lost nearly $11 billion in operating losses in 2022.

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To Michael Pachter, media analyst at Wedbush Securities in Los Angeles, the burgeoning losses may attract media attention and cause collective handwringing on Wall Street, but how does it actually impact the bottom line?

“It’s really a function of accounting,” Pachter said in an email. “What does a movie on Disney+ actually cost Disney? If it’s in the former Starz pay-one window, the cost can be determined. If it’s in catalog, hard to know.”

The analyst believes SVOD services can right the fiscal ship by raising monthly subscription fees, which for Disney+ Pachter contends is around $11 to $12 monthly.

“None of the others will ever be profitable,” he said. “HBO Max is profitable already because it has a core business and charges more [$15.99 without ads] than everyone else, with far more limited content that is parsed out one week at a time. The others would be wise to emulate that model.”

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