Disney, Warner Bros Discovery, Comcast, and Paramount Confront a $5 Billion Streaming Deficit
In the unfolding drama of 2024, leading traditional entertainment conglomerates—Disney, Warner Bros Discovery, Comcast, and Paramount—are at a pivotal crossroads. These industry behemoths, with decades-long legacies, are grappling with a collective loss surpassing $5 billion over the past year, primarily attributed to their digital platforms struggling against the dominance of Netflix.
Paramount, overseen by billionaire Shari Redstone, is reportedly exploring a potential sale. Discussions have emerged about Paramount’s Hollywood studio potentially being acquired by Skydance, the production company behind Top Gun: Maverick. Paramount’s CEO, Bob Bakish, has also initiated early-stage talks with Warner CEO David Zaslav about a potential combination. However, insiders caution that any deal is far from certain at this juncture.
Industry in a State of “Complete and Utter Panic”
Rich Greenfield, an analyst at LightShed Partners, characterizes the state of the entertainment industry as one of “complete and utter panic.” Beyond grappling with streaming losses, traditional media groups are contending with a weak advertising market, dwindling television revenues, and heightened production costs stemming from Hollywood strikes. Greenfield underscores the urgency for these companies to explore strategic alternatives to weather the industry storm.
Netflix Emerges Triumphant in the Streaming Wars
While traditional media giants contend with setbacks, Netflix, a tech trailblazer in the streaming domain, emerges as the victor in reshaping video distribution. Netflix not only weathered a turbulent 2022 but reported profitability, significantly distancing itself from its competitors. The platform’s latest earnings surpassed expectations, driven by a 9 million new subscribers surge—its most robust rise since early 2020 during the COVID-19 lockdowns.
John Martin, co-founder of Pugilist Capital and former CEO of Turner Broadcasting, remarks, “Netflix has pulled away,” leaving competitors to grapple with the challenge of creating a viable streaming service with a sustainable business model.
Mounting Challenges for Competitors
Traditional media companies, like Warner, housing HBO and the Warner Bros movie studio, face formidable challenges in the streaming landscape. While the company managed a modest profit in its US streaming services through strategic price adjustments and content curation, it suffered a loss of over 2 million streaming subscribers in the last two quarters. The completion of a merger with Discovery last year has fueled speculation about Warner becoming a takeover target, with Comcast emerging as a potential buyer.
Disney’s Struggles and Restructuring Initiatives
As the largest traditional media company, Disney is undergoing a substantial restructuring marked by 7,000 job cuts and activist investor pressure. The company reported a streaming business loss exceeding $1.6 billion in the first nine months of 2023. Despite gaining 8 million subscribers for Disney+, the company aims to profit from streaming by late 2024.
Mergers and Consolidation Looming on the Horizon
Industry pundits anticipate that consolidation may be on the horizon in 2024, with smaller streaming services contemplating mergers or strategic exits. Bound by dealmaking restrictions until April 8 due to its recent merger with Discovery, Warner hints at a more acquisitive approach.
Analysts Voice Concerns Over Paramount and Warner’s Debt Levels
While Paramount’s shares surged amidst sale speculation, rising nearly 40% since early November, discussions about a possible combination with Warner led to a decline in both companies’ stock values. Analysts emphasize investors’ immediate concern regarding the high debt levels of both entities. While an all-stock merger between Warner and Paramount could yield substantial synergies, experts caution against combining two companies struggling with loss-making streaming services and dwindling television assets.
Rethinking Strategies for Survival
Amid the industry upheaval, analysts like Rich Greenfield advocate for a different approach. Rather than pursuing mergers to address challenges, he suggests a radical shift: “The right answer should be, let’s stop trying to be in the streaming business. The answer is, let’s get smaller and focused and stop trying to be a huge company. Let’s dramatically shrink.”
As traditional entertainment giants face a daunting reckoning, the evolving landscape of streaming services compels them to make critical decisions on adapting and surviving in an industry transformed by the success of platforms like Netflix.
