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Streaming's moment of crisis

May 11, 2022

Illustration: Aïda Amer/Axios

The streaming industry faces an inflection point as nervous investors grow increasingly wary over the business model's long-term viability.

Why it matters: Media giants just spent the last two years sinking money into and reformatting their business around growing their streaming services.

  • Companies have been caught between catering to their declining legacy businesses while trying to grow their streaming footprint.
  • "There are huge positives about DTC. Subscribers pay upfront. There's a lot of cash benefits, but it's yet to be proven how great a business it will be, how competitive it will be," Bank of America's Jessica Reif Ehrlich tells Axios.
  • The so-called streaming wars have already seen a few casualties. Jeffrey Katzenberg's Quibi lasted only seven months while CNN+ had the plug pulled after less than one month.

Driving the news: All eyes will be on Disney on Wednesday afternoon — specifically Disney+ subscriber growth — when it reports its earnings for the March quarter.

  • "It's going to be the lowest quarter for net adds. This will be the trough quarter. And they said this for years," Ehrlich says.

State of play: Netflix's plan to finally incorporate advertising appears to be fast-tracked, as executives told employees that ads could come to the service by the end of this year, according to an internal email reviewed by the New York Times.

  • That's much quicker than what CEO Reed Hastings said last month, when he gave it a two-year timeline. A source says that the advertising plan is still very much in the early days.
  • The Times also reported that Netflix has held talks with The Trade Desk about helping build out its advertising infrastructure. Netflix's former CFO David Wells is on The Trade Desk's board.
  • While not confirming the talks, The Trade Desk CEO said during Tuesday's earnings call: "I believe they have more pressure on them to create an amazing ad experience than anybody in the streaming competition. ... I'm extremely optimistic in the potential for us to partner with Netflix."

The big picture: There's been a shift in thinking as to whether or not going all-in on streaming at the expense of still-profitable legacy businesses was the right call.

  • Warner Bros. Discovery CEO David Zaslav used the new company's first earnings call last month to endorse the theatrical window and promised to not "collapse the entire motion picture business on streaming."
  • TV networks, especially those that carry sports, still get millions in advertising revenue and carriage fees.

What's next: The box office will probably never get back to its pre-pandemic levels, and the bundle will continue to erode. That only puts more pressure on media giants to figure out how to live in a streaming world.

  • "I think there will be continued consolidation. I don't think you can tell where it's going to come from right now, but I definitely do think you'll see another two or three combinations," Jordan Fudge, founder of New Slate Ventures, said during a panel on streaming at last week's Milken Institute Global Conference in Los Angeles.
  • "I don't think the average consumer has bandwidth for this many streamers," Gail Berman, chairman and CEO of The Jackal Group, said on that same panel.

The bottom line: We don't know whether the current moment is a blip or a sign that investors' thinking has permanently shifted.

  • "We were using a 'sum of the parts' approach and valuing streaming separately. I think most investors will look at it on a consolidated basis and not separate out streaming," Ehrlich says.
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