NEW YORK—The ballooning program costs of the streaming wars are coming to an end this year, with total media industry content cash spending forecast to grow by only 1% to $130.4 billion in 2023, way below the 14% spike in 2021 and the 24% jump in 2020 at the height of the streaming wars, estimates Robert Fishman, CFA, at MoffettNathanson securities.
“If the launch of Amazon’s $1 billion Lord of the Rings series sounded like the peak of the bubble, that’s because it likely was,” he noted. “
In terms of content spending, Fishman expects Disney to once again lead the pack with $26.4 billion in FY 2023, followed by NBCUniversal ($22.5 billion), Warner Bros Discovery (18.4 billion) Paramount ($15.9 billion), Netflix ($15.2 billion), Amazon ($8.5 billion) and Apple $6.1 billion.
“Now that most media companies have moved away from driving streaming subscriber growth at all costs, we expect to see a rationalization of content spending in the years ahead and a shift towards rebuilding free cash flow and achieving streaming profitability,” Fishman argued in a recent report.
That means “after two years of strong double-digit content spending growth, we foresee a flattening in 2023,” he reported. “As more companies shift their focus away from solely subscriber growth, we would expect industry content spending to be relatively flat or even decline” in upcoming years.
While those lower costs will help companies reduce losses, the trend won’t necessarily help everyone, given the decline in traditional TV revenue.
“For each company, the ultimate question is whether slower growth in content spending will be able to grow streaming services large enough to offset the secular challenges facing the rest of the business?” he asked. “Unfortunately, we don’t think the answer is a positive one for companies with less scaled platforms today, especially given the accelerating pressures facing linear television….For the larger streaming players, we find that gross margins on a per-hour-viewed basis now approach those of traditional linear, although at much lower levels of revenue. For the smaller players, despite outperformance on revenue per hour-consumed, we see far worse margins, calling into question their ability to drive further monetization from here. Ultimately, linear dollars are fading, but so too are DTC losses. However, for those companies where the former is disappearing far faster than the latter, there is a critical need to address the path forward.”
In his analysis, Fishman predicts strong cash flow by fiscal year 2025 for Disney ($8.2 billion), Warner Bros. Discovery ($7.2 billion) and Netflix ($7.4 billion) but much weaker results for Paramount (only $0.6 billion in FY 2025) and AMC ($0.1 billion).