Axios Pro: Media Deals

November 09, 2022

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1 big thing: Streaming's growth era is over

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

Illustration: Gabriella Turrisi/Axios

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.

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