🏅 Streaming: The Fight For Gold
🏅 Streaming: The Fight For Gold
Unpacking the latest quarter and subscriber trends
Welcome to the Free edition of How They Make Money.
Over 140,000 subscribers turn to us for business and investment insights.
In case you missed it:
🏅 Fighting for Gold: While linear TV continues its secular decline, ad-supported plans are taking an increasing share of streaming subscriptions. As a result, live sports take the spotlight. NBC’s Peacock saw a massive surge in US downloads as the exclusive streaming app for the Paris 2024 Olympics. Disney, NBC and Amazon Prime secured NBA rights in a massive $76 billion deal, leaving Warner on the sidelines. But questions around churn and long-term pricing remain.
Today at a glance:
Trends and Market Share.
Disney: Streaming in the Black.
Comcast: Olympics Boost.
Warner: NBA Impairment.
Paramount: Merger & Job Cuts
For a glossary on SVOD, AVOD, OTT, DTC, and more, revisit our Industry Showdown article for an extensive market overview.
1. Trends and Market Share
The chart below shows the paid subscriber trends in the past four years.
💡 Reminder: Some platforms only started sharing their membership numbers recently. YouTube Premium, Amazon Prime Video, or Apple TV+ don’t share their numbers quarterly. Disney+ Hotstar is excluded from the Disney+ subscribers below (Disney will merge its Indian assets with Reliance in 2025).
The shift from linear TV to streaming has been a high tide lifting all boats. According to Nielsen, streaming accounted for 40% of US TV Time in June 2024, representing a 2.6-point increase year-over-year, eating away at Cable.
Key trends to watch:
📢 Ad-supported subscriptions dominate: According to Antenna, they represented more than half of new sign-ups and nearly 40% of all existing subscriptions earlier this year.
▶️ YouTube remains the living room king: The UGC giant accounts for nearly a quarter of US TV streaming time (excluding YouTube TV) and is still growing.
🥇 Netflix walks to the beat of its own drum: Netflix’s US market share was more than Hulu, Prime Video, and Disney+ combined (its three closest challengers). The company secured exclusive NFL games on Christmas, showing another critical step toward live sports focused on meaningful events.
👨👩👧👦 Serial churners: Netflix dominates the industry because of its low churn rate. But everyone else is struggling to keep subscribers all year round.
2. Disney: Streaming in the Black
Disney ends its fiscal year in September, so the June quarter was Q3 FY24.
🍿 Streaming in the Black: Disney's DTC streaming businesses (Disney+, Hulu, ESPN+) achieved their first-ever profit, with a $47 million operating income. This is a significant milestone, beating expectations and demonstrating the effectiveness of price hikes. Entertainment DTC (excluding ESPN+) had a $19 million loss, improving from a $505 million loss last year.
🏰 Experiences face challenges: The Parks, Experiences, and Products segment faced headwinds, with a slight decrease in operating margin. Rising costs, softening demand in US parks, and the Olympics' impact on Disneyland Paris were critical factors. Due to these challenges, the outlook for Q4 remains cautious.
🎥 Box Office Triumph: The Studio Entertainment division saw a solid rebound to $254 million in profit (from a $112 million loss last year) driven by the success of Inside Out 2. There is more good news to come, with Deadpool 3 already closing in on $1 billion at the box office in the current quarter.
📺 Linear TV Continues to Slide: Traditional TV networks experienced revenue and profit declines, reflecting the broader industry shift towards streaming.
What to make of all this?
Disney continues its complex transition. Streaming contributed to the bottom line while traditional TV declined and the Parks segment experienced turbulence. There are many moving pieces, but on the positive side, linear TV has now dropped to only 12% of overall revenue. Management expects earnings to grow 30% in FY24 (vs. 25% previously), with continued improvement in streaming profitability through its password-sharing crackdown.
3. Comcast: Olympics Boost
📉 Broadband blues continues: Comcast lost 120,000 broadband customers in Q2 as competition from wireless providers intensified.
📽️ Studios miss Mario: Universal Studios revenue declined by 27% to $2.3 billion due to a tough comparison with The Super Mario Bros. Movie released last year.
🎢 Parks get a post-COVID rebound hangover: Theme Parks revenue declined by 11% to $2.0 billion, primarily due to lower guest attendance at domestic parks and some currency headwinds.
🦚 Peacock wins in Paris: The app narrowed its adjusted operating loss to $348 million in Q2 (vs. $651 million last year). The streaming service had 33 million subscribers at the end of June (down 1 million during the quarter). However, these numbers will likely improve in Q3 thanks to Peacock being the official app in the US for the Paris Summer Olympics. Appfigures estimated nearly 11 million new downloads since the games started at the end of July. That compares to 3 million for the COVID-affected Tokyo Olympics in the same period in 2021. These Paris Olympics have a certain je ne sais quoi.
What to make of all this?
The ongoing decline of cable and the intense competition in broadband continue to pose significant challenges. Comcast's future growth now largely depends on Peacock, which must compensate for the losses in NBC’s linear network—a daunting task. The real test will be how many of Peacock’s new subscribers remain after the Olympics.
4. Warner: NBA Impairment
📺 Cable TV Woes: Cord-cutting, low ratings, & weak ad market led to an 8% decline in network revenue to $5.3 billion. That’s a problem, given that most of the company’s profit comes from this segment.
🏀 Lost NBA Deal: Failure to secure a new NBA contract casts a shadow over TNT's future, contributing to a gigantic one-off $9.4 billion non-cash impairment charge.
🎬 Studios decline by 5%: Notably, the video game unit saw a 41% revenue decline, primarily due to the underperformance of Suicide Squad: Kill the Justice League and tough comparison to Hogwarts Legacy in the prior year.
▶️ Streaming Silver Lining: Max streaming platform now boasts 103 million subscribers globally, a 3.6 million increase from the previous quarter. House of the Dragon dropped at the end of June, likely giving the service a boost.
🔮 Zaslav's Vision: Despite the disappointing quarter, the CEO remains committed to the streaming strategy and sees no need to split the company.
What to make of all this?
Warner can’t catch a break. The latest quarter was dismal, missing revenue and earnings estimates. The decline of linear TV and underperformance in the Studios division paint a bleak picture. While streaming is meant to be the savior, its 6% decline raises concerns. The company seems overly reliant on future hits like Lord of the Rings. Can Warner overcome these hurdles and emerge stronger, or will it be forced to make drastic changes to survive?
5. Paramount: Merger & Job Cuts
💸 Cable TV's Decline: Paramount wrote down the value of its cable TV networks by nearly $6 billion, acknowledging the industry's ongoing challenges due to cord-cutting and declining advertising revenue.
🤝 Skydance Deal: The company's merger with Skydance Media remains on track, pending a go-shop period that ends this month. However, a potential break-up of Paramount's assets remains possible.
➕ Streaming Shows Promise: Paramount+ achieved its first-ever quarterly adjusted profit, showcasing progress despite a subscriber decline due to a hard bundle exit in South Korea.
📉 Other Areas Struggle: Paramount Pictures faced headwinds due to a less robust film slate than the previous year (Transformers: Rise of the Beasts released last year), contributing to a decline in overall revenue.
✂️ Cost-Cutting Measures: The company initiated significant layoffs, impacting 15% of its US workforce, as part of its ongoing $500 million cost-savings plan.
What to make of all this?
Paramount is undergoing a period of significant transformation and uncertainty. While the streaming business shows positive signs and the Skydance merger progresses, the company faces challenges in traditional media and the need for substantial cost reductions. Watch out for the end of the go-shop period in the next two weeks.
Other market participants:
Amazon Prime Video is part of the broader Amazon Prime subscription. We cover the latest NBA deal and the critical move to make all Prime Video subscribers ad-supported by default here
We discussed Apple and Roku for PRO members here.
That’s it for today.
Stay healthy and invest on!
Disclosure: I’m long AAPL, AMZN, GOOG, NFLX, and ROKU in the App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.