America’s biggest media conglomerates already had plenty to contend with heading into their next earnings roadshow: the tough ad market, the tricky metrics of streaming, the slow and painful death of traditional television. Now, as the handsomely compensated faces of these companies spin their latest quarterly financial results to Wall Street, an even more menacing bête noire looms large: the complete and indefinite shutdown of the scripted entertainment business.
“We’ve got a lot of work to do,” Ted Sarandos acknowledged of the ongoing writers and actors strikes during last week’s Netflix earnings, the first up at bat. “There are a handful of complicated issues. We’re super committed to getting to an agreement as soon as possible.”
Netflix, of course, has a good story to tell. After the great subscriber stumble of 2022, the company now appears to be back on track. It brought in 5.9 million new subscribers from April through June, while cracking down on password sharing and introducing a cheaper ad-supported tier, once an unthinkable prospect for the 16-year-old streamer. Netflix also has a famously prodigious content stockpile that includes oodles of strike-exempt reality and documentary fare. Plus, it doesn’t have to worry about television ratings and box office figures and the like.
The same can’t be said of the other programming behemoths set to report earnings over the next couple of weeks—Comcast on July 27, Warner Bros. Discovery on August 3, Paramount Global on August 7, and Disney on August 9. “In some cases, the challenges are greater than I had anticipated,” Bob Iger told CNBC during a July 13 interview from Allen & Co.’s annual mogul retreat in Sun Valley, Idaho. The longtime Disney boss, who recently re-upped through 2026, talked about “making sure that our cost structure reflects the economic realities of the business,” and “dealing with businesses that are no-growth businesses and what to do about them, and particularly the linear business.” (That would include ABC, FX, Nat Geo.) ”We have to be open-minded and objective about the future of those businesses.” Iger’s next comment was the one that made news: “They may not be core to Disney.”
Whether it was an off-script slip of the tongue or a flare fired in the direction of potential TV-network shoppers, Iger’s remark seemed to capture the ominous cloud hanging over earnings season. A subsequent CNBC headline declared, ”The media industry is in turmoil, and that’s not changing anytime soon.”
Hollywood’s blackout is only magnifying such anxieties. (As one trusted Hollywood source texted me this week: “The tensions continue to rise like the heat on both coasts.”) Depending on the duration of the dual strikes—Labor Day falls on the more optimistic end of the timeline, and it’s of course possible they could last into the end of the year—the real impact isn’t likely to be felt until the third or fourth quarter. The longer the strikes go on, the bigger the implications (such as the potential to encourage cord-cutting and subscriber churn, for one), and the worse things get for all parties involved, from the studio bosses to the talent to the consumer.
“If this goes past summer,” an industry heavyweight tells me, “it’s gonna start having a real impact on the content flow and what 2024 looks like in terms of being able to put content out on all platforms.” Another big shot says, “It’s time for the grown-ups to get in the room, close the door, and bring this to closure.”
In the short term, without any expensive movies or shows in the making, Wall Street can appreciate the free cash flow. (Netflix told investors last week that it had bumped its own projection from $3.5 billion up to at least $5 billion for 2023, thanks to the production savings.) The caveat, of course, is that the bill on those short-term gains will eventually come due.
“We know traditional media companies are in dire need for incremental cash flows thanks to the pressure from the pivot to streaming, acceleration of cord-cutting, and secular challenges facing TV advertising,” reads a research note that MoffettNathanson issued Friday. “The strikes shutting down productions may benefit 2023 cashflow…but, as we saw post-COVID, any short-term gain is unlikely to last once production ramps back up.”
