TBI Weekly: Are US majors approaching streaming profitability?

The Last Of Us

As the news cycle continues to be dominated by lay-offs and content cuts out of the US, TBI’s Mark Layton dives into the some of the biggest headlines from the past seven days to explore how these tough strategies may be starting to pay off for the major studios.

Another week, another round of staff cuts, pulled content and DTC ‘realignment’ from the US giants as they chase that unicorn of streaming profitability.

Quarterly reports from Paramount Global, Disney and Warner Bros. Discovery from over the past seven days indicate that we might actually be entering that long-awaited next chapter – when streaming segments are pulled out of the red and into the profit-spinning black.

But all the talk of “hard decisions” and “strategic restructure” from C-suiters in recent weeks can’t downplay the changing shape of these companies and the huge number of lay-offs and content cuts it has taken to reach this point.

David Zaslav

Mission accomplished?

Since the $43bn Warner Bros. Discovery (WBD) merger closed last year, all-too-regular headlines of staff cuts and unit closures have certainly read a little like a bloodbath has been taking place at the content behemoth.

So it was fitting language from CEO David Zaslav this week – though perhaps not quite in the same way he meant it – when he told investors: “Our US streaming business is no longer a bleeder. It’s hard to run a business when you have a big bleeder.”

After setting a $3.5bn savings goal – which may rise to $5bn in the next two years and has also seen shows pulled and a move towards FAST and third-party sales – it appears Zaslav’s strategy is beginning to bear fruit. Speaking on the WBD Q1 earnings call, he said the company now expects its US DTC business, including upcoming combined HBO Max & Discovery+ streamer, Max, to achieve profitability a full year ahead of previous expectations.

This comes after the company posted a $50m profit from its DTC segment – a much-improved picture over the same quarter in 2022 when it reported a $654m loss, and in the last quarter – Q4 2022 – which saw the segment lose $217m. WBD highlighted HBO post-apocalyptic series The Last Of Us as one of its key ratings drivers, with the show having become the most-watched series of all time on HBO Max in Europe and Latin America.

Zaslav has been indicating for a while now that the major staff cuts at WBD are behind them, and if the DTC segment can continue to turn a profit through the rest of 2023 then that particular spectre may be banished. Though the same may not necessarily be said for other segments – such as networks, which saw revenue drop to $5.6m – with DTC enjoying one of the few positive results for WBD this quarter.

The Mandalorian

‘This is the way’

Looking at Disney this week, you’d be forgiven for thinking that CEO Bob Iger had been peering over David Zaslav’s shoulder in class and copying his homework.

Speaking to investors following the company’s Q2 earnings call, Iger shared plans to launch a combined app for Disney+ and Hulu by the end of the year as a “logical progression of our DTC offering”, while also keeping Disney+, Hulu and ESPN+ available as standalone services – sound familiar?

Iger added that Disney be “rationalising” the quantity of and investment in its streaming content, with CFO Christine McCarthy clarifying they will be pulling content from streaming services and that “going forward, we intend to produce lower volumes of content.”

The moves are straight out of Zaslav’s HBO Max playbook – and why not, with WBD having just turned a $50m DTC profit – though no details have emerged on which shows are to be pulled, cancelled or otherwise relocated from flagship streamer Disney+ and its stable of high-cost series such as The Mandalorian and She-Hulk: Attorney At Law.

Iger predicts that Disney will reach streaming profitability by 2024, a little behind WBD’s new projection, and there was movement in this direction as the company’s Q2 2023 results saw its streaming losses go down by around $200m, while its revenue was also up by 12% to $5.51bn. However, this was tempered by the total number of global Disney+ subscribers dropping by 4 million (around 2%) during the quarter, when Wall Street had projected a small increase.

Disney, like WBD, has been similiary ambitious about cost-cutting, seeking $5.5bn in savings across the company, including $3bn from content spend. The Mouse House is, of course, just coming off the back of round two of its planned three waves of lay-offs, in which it aims to cut 7,000 jobs.

Among the casualties have been Disney’s digital content division, 20th Digital Studio, and execs across ABC, Freeform, ESPN and animation and unscripted divisions. With a third round of redundancies yet to come, and that savings target still to hit, expect more cuts in the coming months.

Dexter: New Blood

Economic headwinds

Speaking of job cuts, Paramount Global took a scyth to its US-based team across Showtime/MTV Entertainment Studios and Paramount Media Networks, cutting 25% of staff this week, following its disappointing Q1 financial results earlier this month.

Chris McCarthy, president and CEO of the division, said that the layoffs would allow Paramount to “reduce costs and create a more effective approach to our business as we move forward.” However, these are just the latest cuts, following the exit of around 120 staff in February as Showtime was integrated into the Paramount+ streaming service and its team merged into MTV Entertainment Studios.

MTV News was among the latest casualties of this “elimination” and “streamlining” process, a reaction to Paramount posting a $1.12bn revenue decline last week, leading to a share price drop of more than 28%.

Streaming losses also climbed to $511m during the quarter, but the company’s DTC revenue, coming in from services such as Tulsa King streamer Paramount+, as well as Pluto TV and Dexter: New Blood and Your Honor service Showtime, has risen 39% year on year, with subscriptions generating $1.11bn.

McCarthy said that “despite this success in streaming, we continue to feel pressure from broader economic headwinds like many of our peers” – an always timely reminder that as the media giants seek to course-correct after years of overspending on streaming, there are still books to be balanced elsewhere in their businesses.