Streaming at its peak? Hollywood’s second-quarter earnings warning

  ”The problem is the economy.” This was a slogan put forward by the former’s campaign team in 1992 when Clinton and George W. Bush ran for president of the United States, and later became a campaign phrase.
  Now, as the U.S. film and television entertainment giants announce their second-quarter earnings reports from late July to early August, that sentence may keep echoing in the minds of Wall Street investors. However, at least on the surface, the financial reports of major companies in the second quarter may not be too ugly. After all, there are still many popular film and television dramas in this quarter. For example, “Stranger Things” season 4 and “Star Wars” IP spinoff “Obi-Wan Kenobi” boosted ratings for Netflix and Disney’s Disney+, respectively; while Paramount’s “Top Gun” 2: The Lone Ranger and NBCUniversal’s Jurassic World 3: Reign, which significantly boosted the North American box office in the first half of the year.
  However, the popularity of these productions can’t mask the gloomy forecast that Hollywood will head against the wind in the third quarter. Investors in Hollywood are paying close attention to what executives are saying, especially their inferences and comments about the third quarter of this year. Meanwhile, inflation and economic pressures in the U.S. are likely to peak in the second half of 2022. There is a view that the U.S. economy may experience a recession, which will undoubtedly directly affect the advertising revenue of large streaming media platforms.
  Morgan Stanley analyst Benjamin Swinburne believes that Wall Street investors are worried about the Hollywood economy. In a July 18 report, he said, “A shift in business focus to streaming services in the context of a slowing economy does not reduce the risk of falling valuations for media companies. Advertisers and consumers behave in a recession. All will converge.” For the second half of 2022, Swinburne warned, “Three factors of declining advertising revenue, inflationary pressure and supply chain crisis have led to more and more cautious investments in the TV/streaming media groups we track and study. ”
  In this crisis-ridden situation, Netflix took the lead in releasing its second-quarter earnings report in mid-July. Next, Comcast/NBC Universal, Disney, Paramount Global, etc. will also release financial reports one after another, and the newly established Warner Bros. Exploration will also hand over its first transcript after its establishment.
  Netflix’s earnings report showed that after losing about 200,000 subscribers in the first quarter, as management had forecast earlier, Netflix lost more subscribers in the second quarter, but it fell short of the company’s expected global loss of 2 million, a decrease of only 970,000. . At present, Netflix seems to be optimistic about the prospects, and has recently adjusted the direction of content investment. It is expected to add 1 million users in the third quarter, but it remains to be seen whether it can do so.
  Notably, in a letter to investors on the day of its second-quarter earnings report, Netflix, while not directly mentioning a competitor, said it plans to launch an ad-supported, lower-priced membership tier in response to slowing growth. . The move should attract more members and convert the portion of accounts currently watching Netflix for free into paying subscribers in 2023, which Netflix estimates at more than 100 million people.
  Netflix’s earnings forecast will have ripple effects across the industry. Guggenheim analyst Michael Morris believes that Netflix’s latest quarterly earnings report will have “a broad impact on its stock price and media ecosystem” given its plans to introduce cheaper membership tiers.
  Almost at the same time, Wall Street economic analyst Michael Nathanson also noted that streaming household penetration in the U.S. “rose” in the second quarter, paving the way for other streaming companies to take subscribers from Netflix. Nathanson predicts, “We’re seeing subscriber growth on relatively newer streaming platforms like HBO Max and Paramount+, compared to established streaming platforms like Netflix, Disney+ and Amazon, despite the fact that Growth is slower than in previous quarters.”
  For other media companies, there is no shortage of concerns in the industry. Disney added 11.8 million subscribers in the first quarter, bringing its total to 137.7 million. However, Disney’s internal forecast is that user growth may slow down in the next few quarters. Disney’s performance in the first half of the year was much stronger than expected due to the launch of “Thor: Love and Thunder”, “Doctor Strange 2: Multiverse of Madness”, etc. The film and television works that the market responded enthusiastically, but whether there will be more than expected works in the second half of the year, it is still unknown.
  In addition, the Russian-Ukrainian conflict has worsened the supply chain crisis, which will also affect the performance in the second half of the year. While Disney has said content in the second half of the year is also strong enough to offset some headwinds, analysts are concerned about whether the company can meet its goal of growing Disney+ subscribers to 230 million to 260 million by 2024.
  Not long ago, Disney won the TV rights to the Indian Cricket Premier League from 2023 to 2027, but withdrew from the auction of cricket streaming rights due to high prices. That has analysts skeptical that Disney may lose some Indian subscribers as a result of cricket’s huge local audience, and the company may reduce its 2024 streaming subscriber forecast.
  Everything will be known only after Disney releases its second-quarter earnings report on August 10.
  Bob Bakish-helmed Paramount is expected to report growth in its streaming subscribers in its second-quarter earnings report in early August. “Top Gun 2: The Lone Ranger” boosted the company’s performance, which has grossed more than $1.24 billion worldwide.
  It’s based on Top Gun: The Lone Ranger’s stellar performance that Wells Fargo analyst Steven Cahall recently raised his forecast for the company’s operating income before depreciation and amortization from $134 million. raised to $173 million. But like many other streaming platforms, the shadow of Netflix’s loss of subscribers hangs over Paramount, and Wall Street investors are increasingly worried about whether streaming has reached its peak. “Because of the weak advertising market,” Cahor cut Paramount’s quarterly advertising revenue forecast by 4.2% to $2.54 billion, which would represent a 2% decline from $2.59 billion a year earlier.
  While lowering its forecast for direct-to-consumer ad revenue, Cahor still expects that segment to grow 33.5% compared to the past year, while TV media advertising revenue will fall 6.6%. Whether these numbers will be squeezed further, time will tell.
  Comcast Jurassic World: Dominion, produced by
  Comcast ‘s NBCUniversal company, clearly has a very worthy box office performance. The film has surpassed the $1 billion mark at the global box office since its release on June 10. But there are growing concerns about the media giant’s broadband subscriber growth and advertising revenue prospects. Morgan Stanley analyst Swinburne, while forecasting an increase of about 65,000 broadband subscribers at Comcast, emphasized continued investor concerns about the industry’s growth, “For NBCUniversal, we have reduced short- and medium-term growth. Advertising prospects are expected.” “Considering the lack of programming in this quarter,” he also lowered his forecast for the growth rate of monthly active users of the streaming platform Peacock to “flat”. Peacock currently has 28 million monthly active users, of which 13 million are paying users.
  Warner Bros. Exploration
  For , which was formed by the merger of the two companies on April 8 this year, Wells Fargo analyst Cahor believes that its second-quarter earnings may look a bit “chaotic.” This will make it more complicated and difficult to evaluate because the second-quarter earnings report will include transaction fees and restructuring costs. The second quarter also tends to be a weak season for subscriber growth, so Cahor lowered his forecast for HBO Max’s net subscriber growth to 2 million from 3 million. Still, investors remain focused on the company’s plans for 2023 and its combined streaming strategy, Cahor said: “We think future investor days will be more critical than the second-quarter earnings report.”