Note: This article is based on content from Variety Intelligence Platform’s special report “Dare to Stream,” available exclusively to subscribers.
After a rough Q3 earnings season that saw media companies continue to post huge losses in streaming, the industry and investors are awaiting Q4 results with bated breath.
Unfortunately, there’s little to suggest the next quarter will be different, given the economic headwinds still facing the media business. The ad-market slowdown and cord-cutting will continue to pressure companies’ margins, while the economics of streaming remain unlikely to translate into profit in the immediate future.
The players are preparing for the challenges ahead — nearly every Big Media and Tech company has announced or begun layoffs and active cost-cutting — but there is only so much that can be done to reverse investors’ newfound skepticism toward the streaming business. With the rock of costly direct-to-consumer operations on one side and the hard place of linear TV’s decline on the other, the current market will likely remain unfriendly terrain for media companies for at least the next quarter, if not longer.
Iger’s ex-successor Bob Chapek claimed Q3’s $1.5 billion loss would represent the peak of the company’s streaming deficits, and Iger is surely moving quickly to curb expenses as much as possible. But that won’t happen overnight, and we will likely see Iger instead working to reduce investors’ expectations on the next earnings call. Look for the reinstated CEO to revise Chapek’s ambitious Disney+ subscriber targets downward, for instance.
Still, this month will see Disney+ finally introduce its promised AVOD tier and price hike, which should help boost revenues for the popular but notoriously low-ARPU streamer. However, the effects of these changes are unlikely to fully manifest until next year, meaning Disney may have another bleak quarter ahead of it before its fortunes in streaming begin to turn around.
The subscriber front is a bit more encouraging, though investors do not value sub growth as much as they once did. Streamers have historically seen strong subscriber growth in Q4, with the holiday season and its attendant rollout of marquee content helping to drive sign-ups. Paramount+, for instance, will likely continue and even accelerate its robust subscriber growth, with “Top Gun: Maverick’s” long-awaited streaming debut on Dec. 22 sure to deliver an influx of new customers.
Additionally, the slowdown in consumer spending that many analysts have predicted throughout the year still has not come to pass. With net U.S. subscriber additions on the rise again in Q3 after two lackluster quarters, there is reason to hope the domestic market is bouncing back a bit from its slowdown.
Will it be enough? Paramount’s success in streaming hasn’t deterred investors’ concerns over its balance sheet and linear operations. Comcast continues to grapple with the same pressures facing the entire sector, including steep declines in its pay TV subscribers. And Warner Bros. Discovery CEO David Zaslav has aggressively trimmed costs since officially taking the reins in April, but the company’s share price hasn’t topped $15 since August.
And then there’s Netflix, whose return to sub growth in Q3 spurred one of the few positive reactions from media investors, though the streamer remains far diminished from its peak. Netflix will unveil the first results from its own ad-supported tier in its Q4 earnings report, which should help its standing a bit as the streamer tries to position revenue as its new primary topline metric.
It remains to be seen whether investors will go along with this shift, but what is certain is that the streaming business will end 2022 in a very different place than when it began. It has been perhaps the most transformative year yet for this ever-changing sector, and Q4 will likely drive that point home as companies prepare for more turbulence ahead.