As our State of the Industry bulletin explained, the recent negative press and analyst coverage of our employers is distorted by Wall Street’s obsession with stock price and short-term profit growth. Company profits for 2022 are lower than in preceding years, but this is mostly the function of one-time events and transitory industry dynamics rather than the long-term fundamentals of the business.
Most of the media companies continued to report profits in 2022. Excluding Warner Bros. Discovery, total entertainment profits were approximately $14 billion in 2022, compared to $20 billion in 2021. Warner Bros. Discovery, on the other hand, reported losses of $5 billion that were primarily a one-time outcome of its recent merger. The merged company’s restructuring costs, including content write-downs, comprise 75% of their losses for 2022.1
For the other legacy media companies, the lower level of profits in 2022 was anticipated and reflects investment in their new streaming services as they build towards increased profitability. As Disney CFO Christine McCarthy said last year:
[W]e expect Disney+ to reach peak losses in this current fiscal year '22. So that is something that is consistent with what we've previously said. As it relates to higher costs of content and programming…this is a peak year of losses, which includes those costs.2
During an investor call last year, Paramount CEO Bob Bakish explained why they are investing so much into content:
Our content investments are critical to building our company for their streaming future, and they really support our long-term revenue growth and subscriber plans.3
NBC Universal CEO Jeffrey Shell shared similar sentiments earlier this year:
We wouldn’t be investing in Peacock if we didn’t think it was going to return the segment to growth over time. … could not be more positive about our trajectory. We’re right where we expected to be in terms of investment and we’re well above where we expected to be as far as paid subs, which is going to pay off.4
The companies continue to move toward streaming profitability by adding subscribers, diversifying revenue sources, and raising prices. Disney and Netflix have reported positive responses to their advertising tiers,5 and Paramount,6 Comcast,7 Disney8 and Warner Bros. Discovery9 have all increased prices on their streaming services in just the last few months.
Narratives can change very quickly in the media and entertainment industry, as these contrasting views of Netflix—just nine months apart—aptly illustrate:
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April 2022 vs. January 2023 |
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| Source: Forbes | Source: Barron's |
After Netflix’s subscriber losses in the first quarter of 2022, Wall Street analysts were quick to call the news “disastrous,”10 and opine that “it will take a while for investors to believe Netflix can return to growth.”11 Sentiment had changed dramatically by the end of 2022, however, as analysts celebrated strong subscriber growth, a new ad-tier, and password crackdowns as signs that Netflix was “re-accelerating revenue growth.”12 The other media companies are likely to follow; even Warner Bros. Discovery has recently been applauded by Wall Street analysts for turning the corner on its losses.13
The impact of the 2023 negotiation will be felt for years, as MBA provisions we negotiate now will apply long beyond the current contract term. The Guild’s assessment of the entertainment industry is informed by a long-term view of the business, not the next-fiscal-quarter orientation of Wall Street.
1 Warner Brothers Investor Materials.
2 Disney Q3 2022 Earnings Call Transcript, S&P Capital.
3 Bob Bakish, CEO of Paramount, Remarks at Credit Suisse Communications Conference (June 14, 2022).
4 Dade Hayes, “NBCUniversal And Comcast Execs ‘More Confident’ Than They Were A Year Ago In Peacock Profit Outlook, Jeff Shell Says,” Deadline (January 23, 2023).
5 Jon Porter, “Netflix’s ad-supported tier is reportedly gathering momentum in the US,” The Verge (March 20, 2023).
6 Emma Roth, “Paramount Plus will go up in price when it combines with Showtime,” The Verge (February 12, 2023).
7 Ben Fletcher, “NBCUniversal’s Peacock stops offering free tier for new subscribers” Fierce Video (February 1, 2023).
8 Todd Spangler, “Bob Iger Is ‘Bullish’ on Disney+ but ‘We Were Off’ on Pricing Strategy and Needed to Rationalize Costs,” Variety (March 9, 2023).
9 Todd Spangler, “HBO Max Announces First Price Hike, Effective Immediately,” Variety (January 12, 2023).
10 Frank Pallotta, “Netflix’s world has been turned upside down as stock plunges 35%,” CNN Business (April 20, 2022).
11 Sergei Klebnikov, “Netflix Stock Crash: Growth Story Is ‘Dunzo For Now’ As Analysts Slash Outlooks,” Forbes (April 20, 2022).
12 MoffettNathanson, “Netflix: A Good Narrative Is Hard to Beat,” (January 20 2023).
13 MoffettNathanson, “Warner Bros. Discovery: Turning the Corner?” (February 24, 2023).