Amid slowing growth and heightened competition, streaming video services will focus on profitability in 2023, Wall Street analysts cited in Investor's Business Daily say. According to the experts, this could mean reduced spending on content, an increased emphasis on advertising-supported services and possibly consolidation.
"Long term, this should improve returns," commented Benjamin Swinburne, Morgan Stanley analyst, in a recent note to clients. While streaming video services have gained viewers as traditional pay TV services lose subscribers, they will face recession headwinds in 2023, he considers.
Swinburne sees a "reckoning" in the year ahead for streaming video services. He estimates that The Walt Disney Company, Warner Bros. Discovery, Paramount Global, and Comcast's Peacock will lose a combined US$10.4 billion on their streaming video services in 2022. Meanwhile, industry leader Netflix will earn US$5.5 billion.
● CHALLENGING YEAR FOR STREAMING VIDEO
"With the promise of peak losses in 2022 or 2023, media streamers are raising prices and cutting costs. If these moves do not deliver meaningful streaming profits, they have two options: get out of the business or consolidate,” Swinburne noted.
At the same time, Wells Fargo analyst Steven Cahall sees limited media mergers and acquisitions in 2023. “The most likely transaction in the year ahead will involve Hulu,” he believes, as majority owner Disney and minority owner Comcast both have expressed interest in taking full control of the service.
"The year of consolidation could be 2024. We think 2023 is setting up to be a challenging year for media, and challenges force companies into each other's arms," Cahall added in its recent note.
● SMALLER PLAYERS COULD GET URGE TO MERGE
Meanwhile, subscale players are most likely to consolidate, according to Cahall. They include Paramount, Peacock, Lions Gate Entertainment, and AMC Networks. In his words, those companies need bigger scale to take on Netflix, Disney, Amazon and Apple in streaming video. In line with him, Needham analyst Laura Martin says she believes Paramount will be acquired. The entertainment company has large film and TV libraries and an inexpensive valuation, she said in a recent note to clients.
At the same time, Martin is skeptical that any media company can displace today's leaders in streaming video. "The Streaming Wars are essentially over," she said. “Disney and Amazon are the winners in subscription video on demand because they offer service bundles, while Alphabet's YouTube is the winner in ad-supported video on demand,” she added.
● MEDIA STOCKS DO NOT LOOK GOOD FOR 2023
Media stocks got rocked this year, with companies losing billions of dollars in market value, as streaming subscriber growth waned and the advertising market worsened. The pain is likely to continue in the first half of 2023, according to media executives and industry analysts cited in CNBC.
Disney and Warner Bros. Discovery, two companies undergoing transitions, especially when it comes to streaming, each hit 52-week lows in recent days. So far this year, Warner Bros. Discovery’s stock is down more than 60% and Disney is off more than 45%.
According to CNBC, the media industry has come to a turning point as competition among streaming services is at an all-time high and consumers are getting pickier about their number of subscriptions. On top of that, companies are contending with lower ad revenue and more cord cutting. Some expect consolidation to occur in the near future.
“Across the sector, it is chaos. Everyone has been saying for years that technology is going to change the media world, and it has. But we are at this real point now where it is crunch time,” said Mark Boidman, Head of Media and Entertainment Investment Banking at Solomon Partners, who also predicts bundled streaming will become more important in 2023.
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