Streaming services will slow their spending on original content in the coming year after a decade of rapid expansion and expensive investments.
In 2023, content spending will grow by +2%, down from the +6% growth in 2022, according to a report from London-based research firm Ampere Analysis.
So why is this happening?
In short, it’s because streamers are facing tougher circumstances as media corporations cut spending to deal with slower-than-anticipated subscriber growth and skyrocketing losses from building the platforms.
It all started when Netflix shocked Wall Street by reporting a loss of -200,000 subscribers in the first quarter of 2022, followed by an outstanding loss of -970,000 subscribers in the second quarter.
And while the company rebounded in the third quarter, adding 2.4 million, bringing the total to 223 million subscribers worldwide, the writing on the wall was clear: the streaming bubble was about to pop.
And the majority of platforms aren’t making a profit. The lone exception is Netflix, which in an October letter to shareholders, predicted a $5 billion to $6 billion annual operating profit.
But outside of Netflix, Morgan Stanley said streaming services suffered operating losses of around $10 billion in 2022, per the Financial Times.
These losses mean companies will pull resources from other areas to fund their streaming services or sell or combine with other media entities in the next few years.
WarnerMedia and Discovery merged in April 2022 to form Warner Bros. Discovery, and there’s even been speculation about WBD merging with NBCUniversal, though WBD CEO David Zaslav rebuffed such reports.
Companies are also raising prices and launching lower-priced, ad-supported tiers to increase their user base and revenue. Netflix, Hulu, Disney+ and Apple TV+ all announced price hikes this year, while Netflix and Disney+ launched cheaper ad-supported tiers over the past few months.
But even these efforts may not be enough.
Losses will only get worse, as Morgan Stanley analysts called a “tipping point year,” where it will be obvious that costs have reached “unsustainable levels, according to FT.
For example, Paramount, Warner Bros. Discovery, Disney, and Comcast don’t believe their standalone streaming services will become profitable until at least 2024 or 2025, per Axios.
“Streamers are raising prices and cutting costs,” the Morgan Stanley analysts said, per FT. “If these moves do not deliver meaningful streaming profits, we see two options (not mutually exclusive): give up and/or consolidate.”
“It’s really, really expensive to run a streamer, especially at the start,” writes Vox journalists Peter Kafka and Rani Molla.