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Another earnings season is in the books, and one thing has never been more clear: Investors no longer prioritize growing streaming subscribers at all costs.

Why it matters: Streaming was supposed to be the future of the media industry. It still is, but whether or not it's as profitable as the legacy model remains to be seen, Tim writes.

Driving the news: Disney's stock was down 11% this morning following yesterday's earnings report, which saw the company miss on revenue and earnings estimates but once again surpass subscriber expectations.

Disney lost $1.47 billion on its direct-to-consumer streaming division —  more than double the amount it lost the same quarter the year prior.

The company has lost more than $4 billion in streaming during its fiscal 2022. 

Despite that, Disney CFO Christine McCarthy said that losses will narrow going forward and the company is still on track to be profitable by the end of 2024.

💭 Tim's thought bubble: Just last year, these same results would have sent Disney's stock price soaring as investors were blinded by shiny subscriber growth. 

The big picture: The validity of streaming's business model is being challenged as most legacy media companies are facing two problems: the constant fears of a recession and the irreversible decline of their older businesses.

Media CEOs know it, too. Since taking over as CEO of Warner Bros. Discovery, David Zaslav has de-emphasized the importance of HBO Max subscriber growth and last week proclaimed that "the grand experiment — chasing subs at any cost — is over."

Even as it added subscribers after two quarters of losses, Netflix continued to push its focus toward revenue and profitability. In its investor letter this quarter, Netflix pointed out that its streaming business is profitable while "all of these competitors are losing money."

Additionally, Netflix said it will stop giving guidance on subscriber growth. 

The bottom line: Streaming is no longer a new child nor is it a fully mature business model. Welcome to the awkward teenager phase. 

1 big thing: Streaming's growth era is over

Illustration of a stagnating trendline that looks like a video streaming progress bar.

Microsoft's proposed $69 billion acquisition of Activision Blizzard is getting stiff pushback overseas amid fears that it would have too much power and harm competition in the video game industry. 

Why it's the BFD: The European Union's competition commission said it would conduct an in-depth review of the merger that could take as long as 90 working days, Tim writes.

"[T]he Commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access to Activision Blizzard's console and PC video games, especially to high-profile and highly successful games," the EU said in a statement.

The big picture: The EU's move comes a month after the U.K. opened its own deeper probe into the deal. 

A rep for Microsoft tells Tim that the company still expects to close the deal during its fiscal 2023. 

"We're continuing to work with the European Commission on next steps and to address any valid marketplace concerns. Sony, as the industry leader, says it is worried about Call of Duty, but we've said we are committed to making the same game available on the same day on both Xbox and PlayStation. We want people to have more access to games, not less," the company said. 

The intrigue: Intense scrutiny from two of the largest international regulatory bodies could signal that the FTC feels the same way. 

Unlike past mega-mergers, the FTC (along with the DOJ's antitrust division) will no longer approve big mergers with conditions. It's either all or nothing.   

💭 Thought bubble: Axios Gaming's Stephen Totilo says the best news about the EU's expected decision is that its arguments closely resemble those of U.K. regulators. Its lawyers and lobbyists can essentially write the same counter-argument.

For the EU and the U.K., the concern isn't about Microsoft getting control or World of Warcraft or Candy Crush; it's all about the power of owning Call of Duty (CoD).

Microsoft keeps swearing it won't yank CoD from rival platforms, but the biggest problem it faces is downplaying the market advantages it will have even if it kept the popular shooter series multi-platform: making its own platforms the cheapest place to play it and seeing its rivals suffer the results.

2. The BFD: Microsoft-Activision's European roadblock

Illustration of a close up of the Microsoft logo with a scale in the middle casting a shadow

Prosiebensat.1 of Germany is considering a takeover bid for Sky Deutschland, which Comcast bought in 2018 via its buyout of pay-TV provider Sky TV, per Reuters. https://axios.link/3NOT5HB

Banijay acquired a majority stake of 51% in MoviePlus Productions, an Israel-based drama, feature film and documentary producer. https://axios.link/3FYew6X

BBC Studios acquired Voltage TV, an unscripted production company. As part of the deal, BBC bought out Channel 4's minority stake. https://axios.link/3TlAaVO

Fremantle acquired a majority stake in 72 Films, David Glover and Mark Raphael's TV production company. https://axios.link/3Ul3oFO

3. Deal flow

TikTok named former NBA CMO Kate Jhaveri as its global head of marketing. https://axios.link/3DSisU6

Skydance TV named Netflix's Matt Thunell as president, replacing Bill Bost, who is launching his own production company. https://axios.link/3UBPoHg

4. Movin' on up (or out)

Record labels ask TikTok to share more of its $12 billion (Bloomberg)

"Universal Music Group, Sony Music Entertainment and Warner Music Group are asking TikTok to share the advertising revenue and increase the royalties it pays them for rights. ... The companies have been negotiating all year and are trying to reach a deal before their contracts expire in the coming months," Olivia Solon, Lucas Shaw and Giles Turner report. 

Facebook parent Meta laying off 13% of staff (Axios)

"A slower advertising market combined with skepticism about Meta's expenses around building virtual reality products that don't have much consumer application today has caused investors to lose confidence in Meta," Sara Fischer writes.

AMC Theatres posts $227M loss amid slow box office quarter (THR)

"[O]ur third quarter results were impacted by a particularly soft industry-wide box office in the latter two-thirds of the 2022 third quarter, but encouragingly our overall per-patron metrics for both admissions revenue and food and beverage spending remain well above pre-pandemic levels," CEO Adam Aron said.

5. Channel surfing

Illustration of a pair of sunglasses with lenses that look like tv screens.

🗓️ Situational awareness: Join Kerry today at 12pm ET for an exclusive, live conversation with Genies CEO Akash Nigam about investing in the metaverse and web3, and participate in some post-event networking with us and other subscribers. RSVP here.

@tim_bays: "The Crown" on Netflix. Dominic West goes from Jimmy McNulty to the future King of England.

@kerrymflynn: Pop-Up Magazine: Love Stories at New York City Center. Longtime admirer. First-time attendee. 

✏️ Thanks to George Moriarty for editing and Katie Lewis for copy editing this newsletter.

Thank you for reading Axios Pro Media Deals! Please ask your friends, colleagues and Call of Duty players to sign up. 

November 09, 2022

1 big thing: Streaming's growth era is over