Most streaming platforms are finally profitable, or at least close to breaking even, but the end of the cable bundle is still a complicated mess for most established providers hoping to survive in a new, digital-first era.
Last week, both Paramount Global (PARA) and Disney (DIS) reported first-quarter earnings in their respective streaming businesses, indicating a significant turnaround in the industry after several quarters of heavy losses.
In total, these two companies, along with Netflix (NFLX), NBCUniversal’s Peacock (CMCSA) and Warner Bros. Discovery’s Max (WBD), reported combined profits of about $3.3 billion in the first two quarters of the year, well above the $683 million loss the combined companies reported in the same period last year.
Still, it’s “a difficult field,” Barton Crockett, managing director of Rosenblatt Securities, told Yahoo Finance.
Despite recent gains in profitability in the streaming space, “I think Netflix clearly has the upper hand and the media-based streaming companies are struggling to even get on the playing field.”
And even at a pure-play streaming giant like Netflix, Crockett noted that growth across the ecosystem is stagnating as consumers become more “price conscious.”
“There’s really a lot more growth in free, ad-supported streaming TV right now,” he said. “But it’s hard to find a pure equity investment here.”
As Crockett indicated, Netflix led the streaming industry in terms of overall profits, posting net income of around $4.5 billion in the first half of the year.
The results come as the streamer has focused its spending on projects that prioritize quality over quantity, and has found new revenue streams, such as anti-password sharing measures and additional advertising layers. It has also recently expanded its offerings to include sports, live events and even gaming.
Other streaming services have adopted similar strategies in the fight for survival, but they too have had their own experiences in the face of pressure to grow and become profitable.
Warner Bros. has abandoned several projects to save millions in costs. Paramount began laying off another 15 percent of its workforce on Tuesday and is closing its television studio in the process. Disney went through an intensive restructuring phase last year after the surprise return of CEO Bob Iger.
In addition to these efforts, virtually all of the major streaming giants have raised their prices at a time when consumers are becoming more selective and churn rates remain high.
“Prices for ad-free subscriptions are starting to go through the roof,” Bank of America analyst Jessica Reif Ehrlich told Yahoo Finance. “So, our view is that consumers will cancel some streamers and maybe switch a little bit more depending on the content cycle.”
To counter fickle consumers, competing platforms are now bundling their services. As WBD CEO David Zaslav told investors in May: “Together we are stronger.”
But while media companies are calling for a ceasefire in the streaming war, it’s clear that other areas of the business could be even more problematic.
“Shrink to survive”
In the wake of last week’s streaming successes, Warner Bros. Discovery and Paramount saw a combined $15 billion loss in value of their respective cable companies.
These successive measures highlight the difficulties facing the industry as more and more consumers cancel their cable subscriptions.
“Am I disappointed that things haven’t improved a little bit in the linear business? A year or a year and a half ago, there was talk of a recovery. It hasn’t really happened. It is what it is. We are dealing with it as best we can,” Zaslav said last week.
For years, linear advertising and affiliate fees had steadily increased revenue for these networks. The shift to streaming led to a decline in cable subscribers, which in turn hurt affiliate fees, and streaming companies now entering the advertising market have taken another leg out of that business.
The pressure of deteriorating linear networks, coupled with a heavy debt burden, has forced established media giants to cut costs wherever possible – hence the massive restructuring and layoff efforts.
Brandon Nispel, an analyst at KeyBanc, said recent strategies by Paramount and others appear to be “aimed at shrinking to survive, which could test the company’s potential growth.”
Rumors are circulating about future strategic options that could include sales and splits. Paramount, for its part, is currently in the process of being acquired by Skydance and the company expects the deal to close in the second quarter of next year.
Warner Bros. has also been at the center of merger and acquisition rumors after the two-year lock-up period following the merger officially ended in early April. But the future remains uncertain.
“WBD remains in a tight spot, with over 80% of its revenues coming from linear cable networks,” MoffettNathanson analyst Robert Fishman wrote in a recent note. “Management should explore various strategic options, but we doubt there will be any significant benefits here unless the debt load can be reduced.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].
Click here for the latest stock market news and detailed analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
