Media companies are trying to rein in their content spending to make their streaming services profitable. A ongoing strike by Hollywood writers can cause them to reduce even more.
Disney (DIS) said CFO Christine McCarthy MoffettNathanson’s Inaugural Technology, Media and Telecom Conference On Wednesday, she announced that the entertainment giant’s content spending will reach around $30 billion this year, but warned that the strike could impact spending for the rest of the fiscal year: “We will update this when it’s appropriate,” she said.
The comments come as Disney is targeting a $5.5 billion cost cut, of which $3 billion will come from content savings.
Meanwhile, Netflix (NFLX) Content spending had already fallen in the year first quarter this year compared to the same period last year. While the company expects total spending for the year to remain unchanged at $17 billion, writers go on strike entails further risks like some of the streamer’s most successful shows, including ‘Stranger Things’ and ‘Cobra Kai’, have stopped production in view of the shutdown.
earlier this month, Hollywood writers went on strike in protest of higher wages and other demands amid the streaming boom. This triggered a production standstill throughout the industry.
While Moody’s has warned Some media companies could see their credit ratings fall as a result of the strike, while others point out that cutting content costs is a good thing for the industry as investors increasingly focus on profitability.
“A disruption in production work, or even a slowdown, simply due to the use of existing scripts could result in far less content being delivered to subscription streaming services in the second half of 2023,” said Rich Greenfield, analyst at Lightshed Partners. wrote in a note Last month. “If content isn’t delivered to a streaming service, the streamer doesn’t bear the cost. Conversely, multi-billion dollar operating losses could end up significantly higher than expected and free cash flow also end up far higher than expected (Keep in mind that Netflix’s free cash flow has been far better than expected during the pandemic).”
Netflix’s reduction in spending in the first quarter — $2.5 billion compared to $3.6 billion a year earlier — helped improve overall free cash flow, which was $2.1 billion in the first quarter -dollars compared to just $802 million in the same period last year. The company also raised its full-year free cash flow guidance to “at least $3.5 billion” from a previous $3 billion.
Strikes harbor further risks
That doesn’t mean the strike is necessarily good for media outlets.
priority (PARA) CEO Bob Bakish said so in the company’s recent earnings announcement the impact of the strike depends on how long it takes.
“In terms of the financial impact, ultimately it really depends on the length of the strike,” he said at the time. “But at this point, we believe it is likely to be slightly dilutive to revenue, flat (operating income before appreciation and amortization) and positive (on cash spend).”
JPMorgan analyst Doug Anmuth wrote in a note Tuesday that given the strike, Netflix may consider delaying its crackdown on US password sharing — a decision likely to impact revenue, subscribers and the growth of its ad-supported tier .
“Paid sharing is effectively a price increase, as paying members who share their password get less value for the same price or may pay more to add an additional member. And for borrowers who are not currently paying, paying for sharing means either activating their own password subscription or being added as an additional member or losing access to NFLX,” Anmuth said.
As a result, he argued, “It’s possible that NFLX might not like the look of the paid-sharing implementation while 11,500 WGA writers are on strike, suspended production, or paused writing on at least a handful of NFLX titles, including Stranger Things S5 and Emily.” was.” including in Paris S4.”
Netflix, which didn’t immediately respond to Yahoo Finance’s request for comment on the upcoming rollout, previously said 100 million users had joint accounts. Anmuth estimated that at least 30 million in this space could be converted into paying users, whether as add-on members or as new subscribers.
Therefore, a prolonged strike could “further delay revenue and subscriber growth.”
Anmuth also warned of a knock-on effect on Netflix’s recently launched ad-supported tier, writing, “Ultimately, advertising is intrinsically tied to paid sharing, and borrowers are likely to see a standard plan with $6.99 worth of advertising as compelling, well-priced ones.” Option.” , ad tier increase will also be delayed if paid sharing is delayed.”
Advertising, already under pressure due to macroeconomic headwindswas further complicated by the ongoing strike.
As Anmuth pointed out, this is Netflix’s first-ever upfront presentation switched from a face-to-face event to a virtual event. The analyst theorized that the postponement “is related to the risk of heavy picket lines and protests at an in-person event, as well as lower availability of starting talent.” Disney, Warner Bros. Discovery (WBD) and NBC Universal (CMCSA) also treated more restrained upfront presentations amid a lack of acting and writing talent.
Alexandra Channel is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at email@example.com
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