Mar 21, 2023 - Economy

Analysts predict streaming spend and new content slowdown in 2023

Share of total TV consumption, by type
Data: Nielsen the Gauge; Chart: Axios Visuals

The number of new, original scripted series may start to shrink this year or next after hitting a record high in 2022, analysts warn. The amount spent on new content will also slow or contract for most of the traditional entertainment companies.

Why it matters: Under pressure to produce profits, media companies are beginning to pivot their strategies from producing a glut of original content for their own platforms to more cautious spending and licensing out more content to competitors.

  • "The number of shows is down this year, and there is no reason to expect it to climb back to prior levels," said Michael Pachter, managing director of equity research at Wedbush Securities.
  • "Everyone suddenly recognized that profitability matters, and they are cutting costs wherever they can. I expect more overseas production, but far less domestically."

Driving the news: A new report out Tuesday from leading media analysis firm MoffettNathanson predicts a "flattening in 2023" after two years of strong double-digit content spending growth.

  • "As more companies shift their focus away from solely subscriber growth, we would expect industry content spending to be relatively flat or even decline in the outyears," wrote senior analysts Robert Fishman and Michael Nathanson.
  • Companies "are no longer willing to spend whatever it takes, in part because attitudes and strategies have shifted and rationalized, but also because their balance sheets no longer have what it takes," they added.

The big picture: The slowdown will be more evident at traditional entertainment companies with less scale, like Warner Bros. Discovery, Paramount Global and NBCUniversal, none of which have profitable streaming services yet.

  • "The big players are investing more in bigger programming," said Rich Greenfield, a media analyst and partner at LightShed Partners. "Apple and Amazon are going to keep ramping ... and I suspect that negates any spending pullback you see from the legacy media companies."
  • Greenfield is more optimistic about overall spend, arguing that the rate of growth in total programming spending "will slow dramatically from the last 5–10 years," but "I don't think it flatlines or declines."
  • Instead, he argues, companies will focus on "fewer, better pieces of content," and he noted that while the number of new pieces of content is less relevant when evaluating the health of the industry, "2023 could be the peak."

Between the lines: The pivot toward licensing content could start to slow the number of original new shows, in part because it gives streamers more options.

  • In a different report last week, MoffettNathanson analysts noted that produced content for Netflix reached nearly 60% of its total content in 2022, up from about 20% five years prior.
  • Asserting that original production is an "inherently riskier" strategy than licensing previously released shows, the analysts questioned whether 2022 "might be the peak level of produced content [for Netflix] as media companies start to rethink licensing content."

Be smart: For traditional programmers, the push to compete with Netflix has put an enormous strain on finances, but it has helped them reclaim viewers' attention amid the shift to streaming.

  • Netflix's share of global demand for original streaming programming is shrinking as more competitors step up their content investments, according to data provided to Axios from Parrot Analytics.
  • Netflix is still the top streamer in terms of profitability and global subscribers, but increased competition has forced it to reconsider its business strategy to mimic its legacy competitors — adding a new, ad-supported tier, experimenting with theatrical releases, and putting a heavier focus on password sharing.
Share of global demand for original streaming programming, by service
Data: Parrot Analytics; Chart: Alice Feng/Axios

By the numbers: Streaming's share of TV consumption dipped last month, according to Nielsen, as streamers struggled to capture viewers' attention with new hits.

  • As Bloomberg notes, many of the top streaming shows at the beginning of February were reruns, suggesting new shows are struggling to break through.
  • "TV engagement in February confirms a very basic truth: viewership reflects the availability of what audiences are looking for," Nielsen wrote, noting that February had fewer "high-demand, mass-appealing programs than January."
  • Of note: Nielsen said it changed its methodology last month.

The bottom line: “We are post-peak relative to the pandemic-driven viewing and production in 2020 and 2021," said Seth Geiger, president and co-founder of SmithGeiger, a media research firm.

  • "From a consumer perspective, the shift is both in terms of total screen time — which exploded in 2020 and has now softened a bit — and contraction on spending. This of course drives the number of titles which is experiencing a reckoning as well."
Go deeper