The pinched economics of streaming are especially galling for old media firms like Disney, which are used to the far more profitable cable-TV business
, his “north star”. Disney+ is all but guaranteed to be among the survivors of the ruthless period of competition that has become known as the streaming wars.
Markets took fright last month when Netflix, the leading streamer, forecast that in the first quarter of 2022 it would add just 2.5m new members. That would be the weakest first quarter since 2010, when most Netflix subscribers still got DVDs by mail. Its share price fell by more than a quarter on the news. The previous quarter Disney said it had added only 2.1m streaming subscribers, the least in its short experience, sending another judder through markets.
As revenue growth slows, costs swell. Media firms will spend more than $230bn on video content this year, nearly double the figure a decade ago, forecasts Ampere Analysis, a research firm. Netflix’s weak results came despite what it billed as its “strongest content slate ever”, including “Squid Game”, its most popular series, and “Red Notice”, its most successful film. Disney+ is doing far better than the company ever dreamed—but it is costing more, too.
The combination of rising costs and slowing revenue growth “calls into question the end-state economics of these businesses”, argues MoffettNathanson, a firm of analysts. Netflix, the most successful of the bunch, expects its operating margin to shrink in 2022, for the first time in at least six years, to 19%; it has attributed its compressed margins to higher spending on programming. MoffettNathanson adds that these figures flatter the firm’s performance.
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