Big Tech Reports Surprisingly Strong Earnings – Which Means the Streaming Wars Will Rage On | Analysis
Tech doom or tech boom? Despite experiencing nearly 200,000 layoffs in 2023, the tech sector is proving surprisingly resilient in the face of a wobbly economy, as recent earnings reports have shown. Apple and Microsoft are jousting for market cap supremacy in the $2 trillion-plus range, and Amazon shares are up 30% so far this year.
That could threaten plans by Hollywood studios to get their streaming operations to profitability, and soon, as cash-rich tech companies continue to pour money into entertainment and gaming to lock in consumer loyalty. There’s no end, in short, to the high-stakes competition among media companies vying for a shrinking pool of available subscription dollars.
There may be more of a sense of caution, though.
“The streaming arms race is facing some crossroads,” Daniel Ives, managing director and senior equity analyst at Wedbush Securities, told TheWrap. “Apple, Amazon and other Big Tech players are looking to further penetrate their installed base and so far, Big Tech is winning, showing the economy is much more resilient than had been feared with recession worries looming.”
Overcoming investors’ fears about the “shaky macro,” or overall economic climate, recent tech earnings were a muscle flex from the industry’s power players, Ives said.
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Tech’s cash-generating machine is humming. It’s just a question of where the giants will deploy the money their businesses are spinning off.
“I believe streaming services will continue to witness investment, but at a decelerating pace,” Yugal Joshi, Everest Group’s business leader for technology services research, told TheWrap. He cited weakness on the consumer side of tech in first-quarter reports. And, he pointed out, “Most of the economic indicators are in red.”
Consolidation takes coordination
Joshi also noted that Amazon laid off employees in Studios and Prime Video, and that Disney and Netflix were both witnessing market share decline. Furthermore, given the abundance of streamers, he wouldn’t rule out consolidation, which he said could “help the industry broadly as too much fragmentation stifles innovation and differentiation.”
“I don’t want to say the market is saturated in the sense of too many services, but we have a lot of top-tier services,” said Greg Ireland, a research director for the future consumer research program at IDC. He agreed that Big Tech’s recent quarterly performance would likely continue fueling the streaming race.
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Ireland doesn’t expect a firehose of money aimed at content creators, but he does anticipate continued investment in established hits and some resources allocated toward creative, fresh ventures.
Beyond breakout creative successes, Ireland anticipated stiff competition in another streaming arena: sports.
“Live sports are a big deal,” he said, pointing to YouTube TV grabbing NFL Sunday Ticket rights as an example of the next major frontier in streaming licensing. “There are only so many to grab.”
Another area where Amazon and Apple are widely expected to make substantial investments is the movies. Both are seen as splashing out around $1 billion apiece on films destined for theatrical releases this year, to the delight of theater owners — and possible detriment of studios competing for those same box office dollars.
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Tech employees don’t have it easy
If there’s any upside for media companies competing with Big Tech, it might be a better shot at pulling talent away from the giants.
In 2023, most major tech companies underwent major layoffs, including Microsoft, Meta and Alphabet. The wave of corporate-mandated culling even dared to splash against Apple’s shores, despite CEO Tim Cook telling CNBC that mass layoffs were a last-resort measure and that Apple would, at present, not be joining industry peers in nixing thousands of jobs.
“We’re continuing to be extremely prudent on hiring. We’re continuing to hire, just at a lower clip level than we were before,” Cook said to CNBC’s Steve Kovach.
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According to analysis conducted by The Information, with data derived from disclosures in corporate proxy statements filed with the Securities and Exchange Commission, median pay declined for tech industry employees in 2022. In severe cases, such as Snap, median pay dropped by over 30%.
But if anything, those cost cuts are making tech leaner and meaner, and media companies have been eliminating jobs, too. The economy, not to mention common sense, may forestall the kind of wild spending sprees that marked the peak streaming era. But there’s little to restrain Big Tech from continuing to spend aggressively on their growing media businesses. There’s still no pause button on this arms race.
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