By the end of a brutal trading day on May 18, Wall Street had delivered a wallop to Hollywood that will change the course of business as surely as the COVID pandemic accelerated the pace of transformation during the past 26 months.
Indeed, the streaming bubble that boosted shares of media and entertainment companies in 2019 and 2020 has all but burst. Falling stock prices are coinciding with rising interest rates, inflation and heavier-than-usual debt loads at the largest conglomerates. The heightened pressure to deliver earnings and the need to pay more to service debt will inevitably force a pullback — at least in the short term — in the tidal wave of spending on content production, marketing and distribution.
Among institutional investors, enthusiasm is waning for the thesis that streaming services will drive enormous growth for traditional Hollywood players. As macroeconomic conditions worsen, there’s more scrutiny of strategic road maps that require tens of billions of dollars of investment before generating meaningful profits. Entertainment giants that have gone all-in on streaming — Disney, Warner Bros.
The streamer’s bombshell subscriber miss sent the stock, already suffering from Wall Street concerns about the company’s slowing growth, spiraling to four-year lows. The swiftness last month of Netflix’s about-face on bringing advertising to the platform — after years of strenuous denials that sponsor messages would ever cross the Big Red N — was another indication that its internal forecasts for revenue and subscriber gains were slowing considerably.
“What’s obvious is the overwhelming majority of the space is still attached to advertising, whether we’re talking about Disney or Paramount or Facebook, so the whole sector is affected by an economic slowdown,” Greenfield tells. “The double whammy for traditional media companies is you have cord-cutting and now the ad market is falling.
All of those content costs are about to pile up at the same time the company faces a bill of at least $8.5 billion due to Comcast as early as January 2024 if NBCUniversal exercises an option to sell its 33% of Hulu to Disney. Disney and Comcast in 2019 worked out a deal that gave Disney full operational control of Hulu. In return, Disney is on the hook to buy out Comcast’s Hulu stake by 2024 at a purchase price that values the streamer at a minimum of $27.5 billion.
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