Streaming services reevaluate outlook amid ad market concerns, price hikes, restructurings

Yahoo Finance media reporter Allie Canal breaks down the top takeaways from streaming earnings season, including the ad market, profitability, price hikes, and what to look for heading into the second half of 2023.

Video transcript

[AUDIO LOGO]

RACHELLE AKUFFO: The earnings season has wound down for the streamers, and now we're taking a look back at the biggest themes that we've seen this quarter. For that, we bring in Yahoo Finance's Alexandra Canal with her three biggest takeaways. What have you got, Allie?

ALEXANDRA CANAL: Hi, Rachelle. Well, you're right. This was a very important earnings season. It sets us up for the back half of the year. I do have three takeaways. And the first one I want to start with is advertising. Because the ad market, it's still a serious problem.

We're in the middle of upfronts this week. That's been overshadowed by the ongoing writer's strike. But despite the confidence in a lot of these major studios over the demand for advertising, we have heard on various earnings calls that it's still a problem, that slowdown really eating into margins, eating into revenue targets.

There is optimism that, perhaps in the back half of this year, we will start to see some relief that perhaps this is cyclical. But right now, that's still an ongoing issue. And management did admit that on the call.

The second thing I want to call out is we have seen improvements when it comes to direct-to-consumer profitability. Warner Brothers Discovery reporting a streaming profit for the very first time. Paramount Global also seeing sequential improvement. Netflix beating expectations.

However, subscriber slowdowns really started to take effect this quarter. Netflix shares took a hit after they reported a miss. Disney stock seeing its worst decline in six months after that company missed targets. And for me, that was interesting to see the investor story play out there. Because we know profitability has been very important to shareholders.

But perhaps how fast a lot of these media companies are showing declines in that subscriber growth, that's spooking investors a little bit, especially since that brings me to my third point. Price hikes are on the horizon here. We have heard that Disney is looking at its price structure.

Paramount confirming that price hikes will hit later this year. We have the Netflix password-sharing crackdown. And that's in the face of a lot of other restructuring efforts. There's been mass layoffs. There has been companies that have shut down certain organizations and divisions and comboed that with other units of the business.

And that's all in hope that these efforts will bear fruit down the line, that they will improve profitability, improve revenue, and that these companies are on track to hit their targets. That remains to be seen. I think a big thing to watch, heading into the back half of the year, is content.

We have heard from a lot of these companies that they're going to be really strategic in how they approach content and that content spend. So, perhaps, as a consumer, you're going to be paying more for less product down the line. So, overall, I give this a lukewarm earnings season. Not too great, not too poor.

But I think we're really going to start to see some answers towards the end of 2023.

RACHELLE AKUFFO: So, then, I'm trying to try and see here some of the upside for the consumer, then. If you might not be-- going to be getting these, sort of, big-budget, you know, content wise, and then you're also going to have to be paying more-- and this is coming at a time where we're already seeing consumers pulling back on spending. What does this mean for some of these streamers, then?

I mean, is the timing just a little bit off, you think?

ALEXANDRA CANAL: I think it means consolidation is on the horizon, right? I think it's obvious that not all of these companies are going to survive this tumultuous period. Because, as you said, the consumer, they're going to start to be a little choosy. We've already seen that play out in those subscriber declines.

So I do think that consolidation is coming. I think, in 2024 and 2025, we're going to see a lot of M&A activity in this space. But we'll have to wait and see how this all plays out. But for now, I think all of these companies are just trying to be the number one choice here.

They're trying to create a, sort of, value proposition. That's why you're seeing a lot of ad-supported offerings to try and lure in that consumer that might not want to pay as much, on that ad-free tier. But there's still a TBD factor on how effective that will be down the line.

RACHELLE AKUFFO: Indeed. You know, we all, sort of, pulled the plug because we thought it would be cheaper, cheaper than cable, yet here we are, sort of, paying more for all of these individual streaming services. Oh, well. Great stuff there. Thank you for that. Allie Canal there for us.