Yahoo Finance It was a rough May for media stocks amid fight for profitability
More challenges might lay ahead for media companies such as Netflix, Paramount, Disney, and Warner Bros. Discovery.
It was a rough May for media stocks following a slew of dismal quarterly earnings, coupled with an ongoing writers' strike that threatens to upend the industry the longer it continues.
Paramount (PARA), Disney (DIS), and Warner Bros. Discovery (WBD) all saw double-digit declines over the month — falling roughly 32%, 14%, and 17%, respectively. Comcast, which owns NBCUniversal, fell 6% over that same time period. To compare, the S&P 500 was flat on the month.
In one bright spot, Netflix (NFLX) was able to eke out a nearly 20% gain as it rolled out its password-sharing crackdown, a key revenue driver, in the US and beyond, in addition to positive data surrounding its ad-supported tier.
But even Netflix, the perceived leader in the streaming wars, will battle "a lot of noise" in the back half of the year as analysts warn of a choppy few quarters ahead amid increased subscriber churn.
That churn is a problem streaming-facing companies are acutely aware of as many have them have searched for ways to maintain subscribers without risking their bottom line.
Disney, which saw its biggest stock decline in six months after subscribers missed estimates, revealed during its latest earnings call it will be it will soon offer a one-app experience domestically that incorporates Hulu content via Disney+ — a similar play to Paramount's Showtime combination, as well as the integration of HBO Max and Discovery+ into the recently launched "Max" service.
"Bundling is increasingly going to be a theme," Mark Boidman, partner and global head of media at Solomon Partners, previously told Yahoo Finance. "Some of that is to unify the streaming experience, reduce churn and give consumers greater experience and engagement [but] that could also help on the advertising side as putting content under one app brings in more advertisers."
Advertising, in Boidman's view, will be the next frontier in the streaming wars, especially as companies begin to take ad dollars away from traditional broadcast media.
At Netflix's virtual Upfront presentation earlier this month, the platform revealed its ad-based plan, dubbed "Basic with Ads," has 5 million global monthly active users, or MAUs, a metric that Netflix Worldwide Advertising President Jeremi Gorman said "actually matter[s] to advertisers." The plan debuted in November.
Disney, meanwhile, said it plans to optimize its pricing model in order to "increase subscriber revenue for the premium ad-free tier and drive growth of subscribers who opt for the lower cost ad-supported option." The company launched its $7.99 ad tier in December of last year.
But those efforts have come with their fair share of challenges, too, as analysts warn the effect of these changes will take time to play out — hence the recent stock slumps.
Paramount was the worst performer of the bunch after it announced a dividend cut when it reported disappointing first-quarter earnings, sending its stock down nearly 30%.
The company also reported a direct-to-consumer loss of $511 million in the first quarter compared with a loss of $456 million in the prior year period.
Virtually every media company has undergone layoffs and restructured their respective businesses in a bid to improve streaming profitability and lessen losses. Price increases have also been implemented (or at the very least teased) in order to improve average revenue per user, or ARPU.
Content spending has shrunk amid those efforts: "As we now painfully know, money is no longer cheap," MoffettNathanson analyst Robert Fishman wrote in a note earlier this year.
Even media powerhouse Disney has said it will be more strategic when it comes to the content it produces — particularly the content that lives on Disney+, which, despite reporting a narrower loss, still shed $659 million in the second quarter.
MoffettNathanson predicted a "flattening in 2023" when it comes to content spending, which previously enjoyed two strong years of double-digit growth: "As more companies shift their focus away from solely subscriber growth, we would expect industry content spending to be relatively flat or even decline in the out-years."
Still, it's not a total coincidence that the one media company that outperformed this past month also seems to be producing the most content this summer.
According to Factset, Netflix, which confirmed its content spend will be flat year-over-year at $17 billion, plans to release 45 releases this summer. Disney and Comcast follow with 21 and 12, respectively.
The company will reportedly cut costs in other areas with plans to cut its overall spending by about $300 million this year, according to the Wall Street Journal.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com
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