Streaming Wars on a Budget? How Hollywood Plans to Scale Back Content Spending

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The Hollywood moguls who run the industry’s dominant streaming services sent out a surprising message in recent weeks: They all intend to slow down spending on exclusive new streaming series and movies.

Warner Bros. Discovery’s David Zaslav, Disney’s Bob Chapek, Netflix’s Ted Sarandos and Paramount’s Bob Bakish never met in person to discuss how to avoid runaway streaming spending to lure subscribers. They didn’t have to. Studio chief executives used quarterly earnings calls with Wall Street analysts to make their point.

And one by one over 22 days, Hollywood CEOs scaled back on what Morgan Stanley projected will be $140 billion spent this year on streaming programming — after recognizing the limits of streaming subscriber growth, including Netflix’s surprise loss of 200,000 customers last quarter.

As Lightshed Partners analyst Richard Greenfield put it, “Investors have soured on direct-to-consumer streaming as losses pile up while Netflix’s dramatic slowdown in the past six months has undermined the idea of achieving the necessary scale to drive robust profitability.”

Sarandos, the longtime creative force behind Netflix shows, seemed unwilling to throw in the towel during the company’s conference call with Wall Street analysts even after reporting its stunning loss of subscribers: “Look, I think we’ve got to continue to invest in content…” But his own chief financial officer, Spencer Neumann, quickly corrected the narrative by stating, “We’re pulling back.” (The company soon announced layoffs, dropped multiple projects in development and signaled further belt-tightening.)

Zaslav, an executive known to be notoriously frugal even after plunking down $43 million to merge his Disovery with WarnerMedia, signaled more modest plans for his combined streaming giant: “We will not overspend to drive subscriber growth.”

Then Bakish tried to thread the needle for his streaming late-comer Paramount+, noting that the company spends less than its competitors but promising that its “streaming investment will obviously continue to ramp up.”

Then Hollywood’s other Bob had the last word, announcing that Disney will spend $1 billion less in content to squeeze more profits out of its streaming platforms. “We’re very carefully watching our content cost growth,” CEO Bob Chapek told analysts.

The winners and stragglers in the streaming wars are easy to rank simply by looking at the number of total subscribers. Netflix, which pioneered the idea of streaming video content in 2007, leads the pack with a total 221.8 million worldwide subscribers as of the end of March.

Disney+, launched in late 2019, is in second with 137.7 million, while Warner Bros. Discovery’s to-be-combined HBO Max and Discovery+ total nearly 101 million (that doesn’t account for overlap of subscribers who already subscribe to both services). Paramount+, home to “Star Trek” and other former ViacomCBS fare, has beamed up 62 million subscribers. Hulu, controlled by Disney while Comcast owns a third, has 45 million. And NBCUniversal’s Peacock, which includes a free, ad-supported tier, had 28 million monthly active accounts and 13 million paid subscribers.

It’s harder to draw comparisons with other top streamers like Amazon Prime, which doesn’t release subscriber numbers other than saying last year more than 200 million Prime members worldwide streamed content (though many sign up just for free Amazon shipping). Apple also doesn’t release subscriber numbers for its Apple TV+ platform — which comes free to purchasers of other Apple products like phones and computers.

Overall subscriber numbers may deliver bragging rights to a few of the studios. But it doesn’t tell the real financial story when it comes to how much money consumers are willing to pay compared to what entertainment companies need to spend to sign them up — then keep them.

According to a February study by the data research firm Morning Consult, the ideal streaming-subscription price in the U.S. is $12 per month, or $10 with advertising. The study, which surveyed 2,210 households, found $11 to $16 as an acceptable price range.

For the top streamers that report subscribers, Netflix is at the top of Morning Consult’s range at $15.50 a month for a standard plan. Disney+ is $7.99, HBO Max is $14.99 ($9.99 with ads), Paramount+ and Peacock both cost $9.99 ($4.99 with ads), while Hulu is $12.99 ($6.99 with ads).

Disney+ may be making gains on Netflix in the number of overall subscribers. But Disney makes much less off each subscriber when factoring in the amount spent on content for A-list talent, high production costs and marketing. During its fiscal second quarter, Disney said its average revenue per streaming user (ARPU) rose 9% to $4.35. That’s significantly lower compared to the $10 that Netflix earns per subscriber in the U.S. and Canada.

The streamer with the most revenue per user during the quarter was Hulu, which delivered $12.77 for each subscriber. Paramount+ reported ARPU at about $9 per subscriber, while HBO Max hit $11.24 during the quarter.

However, as Netflix already demonstrated, there’s a risk to relying on streaming as the main gateway to deliver movies and series to consumers compared to the traditional broadcast and theater methods.

The Murdoch-led Fox has modest goals for its push into streaming, from the Fox News spinoff Fox Nation to the entirely ad-supported platform Tubi, which it acquired two years ago with no expectation it will ever compete directly against Netflix. (The company has also bet its fortunes on live sports programming that delivers lucrative cable contracts.)

Meanwhile, Sony Entertainment have decided to skip launching their own streaming platforms and instead sell its content to other studios. Of course, there’s persistent speculation that the Japanese conglomerate intends to put a “for sale” sign on its film and TV studio — and the most likely buyers are already invested in the streaming business.

“Unlike the bundled linear TV world, where just enough content was the winning strategy, in the streaming video world you need a constant supply of fresh content to attract new subscribers and keep subscribers because churning off is as easy as clicking a button,” Greenfield said. “In turn, being an arms dealer has become an incredible business for Sony, not to mention talent agencies such as Endeavor.”

Ari Emanuel, the mogul behind the mega-talent agency and home of the Ultimate Fighting Championship, doesn’t seem to be fazed by all the promises to cut back content spending.

The Endeavor CEO told Wall Street analysts last week that — despite the tough talk coming from big Hollywood studios — the talent representation side of Endeavor has clients booked for productions locked in through 2023. He simply doesn’t think Disney+, Paramount+, HBO Max and Peacock will actually spend less money on content at a time when gaining subscribers has never been more critical.

“For the past few weeks, there’s been a lot of conversation around the future of content,” he said. “At the end of the day, for platforms to gain and maintain customers, they have to spend on premium content.”

His message to Wall Street: “Think of us as the ultimate proxy for content growth.”