Is the Netflix jealousy over in Hollywood? Not too

During a period of earnings that seemed to signal the end of the Netflix envy, Walt Disney Co restored hope that growth in the streaming business would continue.

But Disney, which surpassed Netflix as the streaming leader by global subscribers in the last quarter, is the outermost among its media peers.

The industry-wide scramble in recent years to copy Netflix Inc has slowed to a more deliberate pace over the past two weeks, as companies change their tune on the streaming business. Instead of placing streaming at the center of their strategy, it is now just one of several lines of business.

“We effectively have four or five or six cash registers,” Warner Bros Discovery CEO David Zaslav told analysts last week. “And in a world where things change and there’s a lot of uncertainty … it’s much more stable and much better than having one cash register.”

In recent earnings reports, traditional media companies touted stable and shrinking businesses such as linear television as profit centers to cope with economic uncertainty. Cash flow has cooled again, analysts say, replacing customer growth as a key metric of success in recent years.

Hollywood’s new savings come as rising inflation threatens consumer spending and a surge in new customers as the global pandemic subsides.

It also follows Netflix’s fall from grace. The company’s stock market value has plunged to about $100 billion from a high of over $300 billion in November, as growth stalled.

More gloomy news may be on the horizon. National advertising spending fell for the first time in June in the United States, after 15 straight months of gains, on concerns about a possible recession, according to advertising data firm SMI.

Fresh off a $43 billion merger, Warner Bros. Discovery said last week that the company would no longer sacrifice its traditional film and TV businesses to shore up its subscription streaming service HBO Max, in a sharp rebuke to management’s previous focus on the streaming business.

It has canceled expensive projects such as the HBO Max sci-fi series “Demimonde” in development from “Lost” creator JJ Abrams and the DC Comics-inspired film “Batgirl,” and picked up $825 million in takedowns in the second quarter.

“I think they’re crying uncle,” said LightShed Ventures media analyst Rich Greenfield of the Warner Bros. movement. “They are not in a financial position to endure the pain it takes to compete.”

Bank of America Merrill Lynch media analyst Jessica Reif Ehrlich said Warner Bros. Discovery was playing on its strengths.

“It’s important that media companies take a holistic perspective and try to monetize their increasingly valuable content across every platform, whether it’s linear or digital,” he said.

That view spread throughout the media business.

Comcast Corp’s NBCUniversal, which invests less aggressively than its competitors, credits its prudence in not spending too much on its Peacock streaming service.

Paramount Global Chief Executive Bob Bakish last week bragged about the company’s streaming service growth, even as he praised the decision to delay the release of “Top Gun: Maverick” so the film can premiere exclusively in theaters. The summer blockbuster, which debuted on May 27, has yet to hit Paramount+.

EMPIRE STRUCTURE BACK

The pullback across the media made Disney’s performance and forecasts – which releases third-quarter earnings on Wednesday – even more remarkable, analysts said.

“This is a pivotal moment in the streaming war because Disney now has more direct-to-consumer video subscribers than Netflix,” said Paolo Pescatore, an analyst at research firm PP Foresight. “It feels like a two-horse race.”

Disney shares rose 6.5 percent after reaffirming its streaming profit target and reporting reaching 221 million total global streaming subscribers, surpassing streaming pioneer Netflix for the first time, which has 220.7 million subscribers.

Disney, which was the first major media company to restructure in pursuit of Netflix, has leveraged its roster of globally recognized entertainment brands, and a strong $30 billion content spend, to beat Netflix.

But the past may not be the prologue in the streaming business, analysts warn.

“The main risk for Disney is that past subscriber growth comes at a time when major franchises like Marvel and Star Wars are ending. There is still great uncertainty about how the next phase of content will go in attracting or retaining subscribers,” said Jamie. Lumley, an analyst at Third Bridge.

(Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles Additional reporting by Tiyashi Datta in Bengaluru Editing by Kenneth Li and Matthew Lewis)

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