🍿 2022-05-18 15:30:00 – Paris/France.
It's been a brutal year so far for Wall Street - the Dow Jones fell for seven straight weeks in its worst performance since 2001 - and most media companies have been hit harder than broader financial markets amid continuous fluctuations.
Equity volatility was triggered by a series of troubling indicators, including higher interest rates aimed at stifling rising inflation as well as supply chain disruptions, labor shortages work and geopolitical uncertainty due to Russia's war in Ukraine.
With actors like Netflix, Disney, the new Warner Bros. Discovery and Paramount Global at the heart of the wars of Streaming, there has been another post-pandemic reset: investors are taking a closer look at growth momentum and the economy of the Streaming video. Conventional Hollywood wisdom is that the Streaming will devour the world. But after that Netflix – the canary of the coal mine in Streaming, as it has the largest subscriber base – reported a drop in subscriber numbers in the first quarter, Wall Street wonders if the rise is as big as expected.
“Investors are realizing that user growth may not translate into attractive profitability of the Streaming video given the high costs associated with content, user acquisition and retention, and global expansion,” said Chris Vollmer, chief executive of consulting firm MediaLink.
Amid the turmoil, Paramount got a major vote of confidence from Warren Buffett: Shares in the media conglom (formerly known as ViacomCBS) jumped 15% on May 17 after billionaire Berkshire Hathaway revealed that he had amassed over $2 billion worth of stock. These last months. Buffett's boost reversed Paramount stock's losses for the year.
Meanwhile, Twitter shares have been hit by the never-ending saga of Elon Musk's potential takeover. In the latest round, Musk demanded evidence from the social network to back up his claim that less than 5% of its active users are spambots or fake accounts – threatening that otherwise the $44 billion deal “won’t cannot move forward”. Twitter shares closed at $38,32 a share on May 17, trading 29% below Musk's previous takeover bid as investors see growing odds of the deal collapsing .
Year-to-date, the sector's biggest stock market loser is Netflix, once a darling of growth stocks where the sky was seemingly the limit. The streamer has lost more than two-thirds of its market value since the start of the year, or more than $180 billion.
The 17 may, Netflix laid off 150 employees, mainly in the United States, as part of a cost-cutting policy. Unlike the loss of 200 subscribers of Netflix during the quarter, Disney+ exceeded user growth estimates, with a net number of 7,9 million in the first three months of 2022. HBO Max and HBO also gained ground (adding 3 million), while like Paramount+ ($6,8 million).
But are media companies overestimating the revenue potential of their media services? Streaming ? During Disney's May 11 earnings call, CEO Bob Chapek reiterated the company's goal of reaching 230-260 million customers by September 2024. "We believe Disney+ is one of a kind. , a service based on exceptional branded content with broad appeal across all four quadrants. , " he said. However, financial analyst Michael Nathanson suggests the company could see more attractive returns if it created a more focused Disney+ service focused on core brands like Marvel, Pixar and Lucasfilm, instead of aiming to build a " super service” to hunt Netflix in general entertainment in global markets.
"The market is now concerned that the combination of [Disney's 2024] subscriber guidance and rising costs to compete more broadly with non-Disney brands will result in less impressive steady-state business," Nathanson wrote in a statement. research note last week.
For traditional media companies, being all-in on the Streaming means reducing the importance of linear TV profit engines. This “creates tension, and those tensions show up in the market reaction to the first quarter results,” says John Harrison, head of media and entertainment for EY Americas.
The arms race for content spending in the Streaming seems to continue, although it may reach its peak. In 2021, online video services Streaming worldwide spent nearly $50 billion on content, up 20% year over year, according to researcher Ampere Analysis. Netflix, for its part, previously said it plans to spend about $18 billion on content on a cash basis in 2022 (up from $17,7 billion last year). Chief Financial Officer Spencer Neumann told investors in April that the company would be "smart and careful in terms of pulling back some of that expense growth to reflect the realities of growing business revenue."
While the US market for Streaming beginning to plateau — with penetration rates around 80% — providers are at an inflection point where they need to focus more on retention than subscriber acquisition, says Kevin Westcott, who leads the practice American Technology, Media and Telecommunications from Deloitte. “There was a race to acquire as many customers as possible. Now they have to figure out how to keep them and monetize what's there,” he says.
To reach a wider addressable market, Netflix and Disney+ have announced plans to roll out lower-cost, ad-supported tiers later in 2022. “Winners of the Streaming video will be the companies that excel in the hybrid ad/subscription revenue model,” says Vollmer.
Analysts say the macro storm clouds that have caused market turbulence this year are likely to continue into the second quarter and potentially into 2023. In a bright spot for live and in-person entertainment companies, consumers flocked to concerts, theme parks and theaters. But for businesses that have benefited from stay-at-home behavior during COVID, including Netflix and other streamers, "it looks like we're seeing a correction in earnings during the pandemic," says PP Foresight analyst Paolo Pescatore.
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SOURCE: Reviews News
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