After years of companies spending like drunken sailors on streaming video, some are now suffering hangovers.

Netflix, in the first quarter of 2022, lost customers for the first time in more than a decade. It could shed 2 million more in Q2. The streaming giant is scrambling to find new sources of revenue growth, with execs hoping to monetize password-sharing freeloaders and — previously unthinkable at the Big Red N — planning to introduce advertising-supported plans.

CNN+, hailed as a bridge to the news cabler’s future, is DOA: It’s getting axed 32 days after launch under new management at Warner Bros. Discovery. The WBD team led by CEO David Zaslav quickly decided to cut their losses with CNN+, concluding the service simply wouldn’t draw enough viewers to sustain a budget reported to be $1 billion over four years.

Taken together, the events suggest that the speculative, spend-big-at-all-costs era of streaming video is over. Indeed, the sector is showing signs of “stream cutting,” says Scott Purdy, KPMG’s national media industry leader.

“What you are facing is a period of no growth or slow growth that people had thought was five years out — but is happening now,” he says. “There’s no room in the U.S. market for 10 providers to have 100 million-plus subs.”

To be sure, different players are at different stages of growth and investment on the streaming-adoption curve. For example, HBO Max and HBO, in WarnerMedia’s last quarter under AT&T, packed on 3 million net new subscribers in the first quarter to stand at 76.8 million worldwide (versus 221.6 million for Netflix as of the end of March).

And CNN still has a future in streaming — but as part of something larger. “In a complex streaming market, consumers want simplicity and an all-in service which provides a better experience and more value than standalone offerings,” J.B. Perrette, president and CEO of global streaming and interactive entertainment at Warner Bros. Discovery, said in announcing the shutdown of CNN+. CNN’s content will “play an important role” in WBD’s consolidated streaming offerings, he added.

On the Warner Bros. Discovery earnings call Tuesday, Zaslav told investors that the company “will not overspend to drive subscriber growth,” saying, “As you’ve heard me say, we are not trying to win the direct-to-consumer spending war.”

For Netflix, the category leader, the worry is that it has hit a plateau. Investors pushed the company’s shares down around 40% in the days after the subscriber miss, leading to Netflix’s biggest-ever market cap decline.

Netflix’s estimate that more than 100 million households (including 30 million in the U.S./ Canada) are piggybacking off someone else’s account “is further evidence that the product has hit maturity in key markets,” MoffettNathanson principal analyst Michael Nathanson wrote in a note. Overall, Netflix’s earnings report and discussion “portrayed a company that was more surprised by things and less clear
than ever about the path forward.”

Madison Avenue cheered the idea that the world’s biggest premium video service would soon open its doors to advertising. “My own reaction was ‘Yippee! At last!’” says Arun Kumar, chief data and marketing technology officer at ad-agency holding company Interpublic Group.

It remains to be seen whether Netflix will introduce traditional ad breaks with, say, 15- and 30-second spots or if “they are going to innovate the model,” Kumar adds. “I think they have the opportunity to
reinvent the customer experience.”

Not everyone is bullish on Netflix’s revenue-generating ideas. After the first quarter earnings release, billionaire hedge fund manager Bill Ackman liquidated his entire holdings in the company, taking a loss of around $400 million less than four months after buying the shares. Why? He said the plans to monetize password sharers and roll out ad-supported tiers introduced X-factors that threw off his original investment thesis.

Ackman’s note to his firm’s shareholders summed up the mood in Hollywood after a turbulent week of disclosures. “We have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” he wrote about his decision to unload his Netflix shares.