Despite Netflix hurdle, Hollywood streaming content spending could increase in the near future

In the context of speculation, if the market eventually exaggerates, Wall Street doesn’t expect major streaming services to reduce content consumption, at least not for the foreseeable future.

After losing 200,000 subscribers, slowing revenue growth and giving instructions that it would lose 2 million more subscribers in the next quarter, Netflix CFO Spencer Neumann said on April 19 that the streaming giant. He would be “Withdrawal “in content and non-content spend increases.” This has only intensified rumors that Hollywood, after years of pushing Peak TV by competing for guns for broadcast costs, will eventually undergo a belt-tightening course adjustment.

But despite the stagnation of Netflix shares, the streaming giant Expect to spend more this year than in previous years. And many others too. But IIf more streaming platforms see a slowdown in subscriber growth, that trajectory will be less clear. “Are the next 12 months as good as ever in Hollywood?” asked Rich Greenfield, general partner at LightShed Ventures. “Is this the best time to get out of here?”

But so far it’s too early to tell. In December, Morgan Stanley predicted that Hollywood’s biggest spenders — Disney, Comcast, Warner Bros. Discovery, Amazon, Netflix, Paramount, Fox, Apple, Lionsgate and AMC Networks – together spent $140 billion on entertainment and sports content in the North. 2022 year.

This includes Disney plan to spend $33 billion in fiscal 2022, an increase of $8 billion from the previous year, the conglomerate has given instructions that Disney+ will not destroy until fiscal 2024. [spend is] “First and foremost, it’s content for our direct-to-consumer platforms and for our other platforms, including some linear ones,” Christine McCarthy, Disney’s chief financial officer, said at the Morgan Stanley conference in March, adding, “Of that total, about $11 billion, about a third, goes to sports rights.

NBCUniversal has promised to double Its Peacock spending in 2022, over $3 billion, went to streaming content. “You need to be able to make money and have a roadmap to get there, and we think we can do that,” Comcast Chief Executive Brian Roberts said at Morgan Stanley’s investor conference in March. “We think we are positioned, as I said just now. But we have about $20 billion a year spent on content between Sky and NBC, and we need to do that, plus a little bit of growth, we need to use a lot of that to help Peacock make money.

Warner Bros. Discovery finds something anomalous, along with the new CEO David Zaslav promises Don’t splurge on content and quickly turn off the new CNN+, which cost several hundred million before it launched in March. That balancing act was answered by CFO Gunnar Wiedenfels when the company announced its earnings on April 26.

“I work closely with our creative and financial management teams to track $23 billion plus annual content spend to analyze the ROI of every dollar spent,” Widenfels said on an earnings call. “The purpose of this exercise is not to identify ways to reduce content spend, but to harmonize processes and analytics to be more consistent and efficient in how we distribute spent content across our global portfolio to optimize revenue. ”

This strategy has not yet been fully implemented as the new leadership team is led by United Warner Bros. Discovery. Will redistribution of linear content costs affect cable revenue drivers? The new company will sell HBO Max domestic, which is hurting Warner Bros. with high-margin third-party TV licenses? he asked a group of analysts at research firm MoffettNathanson in an April 26 report.

At Netflix, the company said it would cut costs as a way to control margins after a sluggish performance. But this only reduces the “spending increase” as a budget increase, not the budget itself. Netflix spent $17 billion on content in fiscal 2021.

Asked by a JP Morgan & Chase analyst if he would spend “about $18 billion” on content this year, Netflix CEO Ted Sarandos said the investment would continue. “I think we need to keep investing in content, both in quality and in content. And ours: We will continue to increase spending on content over previous years,” said Sarandos.

Also, due to the lifecycle of production costs, where a lot of money has already been spent, the only way to reduce content costs this year may be to delay releasing some already completed projects so they are not done right away. , he said. Moody’s analyst Neil Begley.

And while the move is intended to compensate for the loss of subscribers, analysts say the loss cannot be attributed solely to the loss of the streaming service. Last quarter, Netflix struggled to lose 700,000 subscribers due to service outages in Russia as well as potential outages. Your recent price level Grow, which Beagle sees as a key issue for customer retention.

If subscriber growth continues to stagnate, which means the stream space has hit a wall, it will be annoying. But the second quarter is usually Netflix’s weakest year, so its forecasts and those of others will likely come out later. “I think we have to wait and see what the third and fourth quarters look like before they take radical action. said Begley. “They’re still pretty confident they’re going to increase their subscribers this year.”

However, there is reason to believe that many streaming platforms will continue to drive up costs as a purchase necessity. Franchising is becoming a more competitive necessity, said Peter Xati, president of consultancy CreaTV Media. This could mean that more streaming players will have the “less is more” strategy, but will still spend a lot of money to attract big names. Csathy adds: “It’s becoming more and more important to get into this game and spend your dollars there.”