Streaming Platforms Are Losing Even When They’re Winning

Last week, Comcast reported their Q1 earnings for 2023, which included some insight into how the Peacock streaming service is performing. Much of the news was positive. Peacock has now hit 22 million subscribers, a 60% boost from the same period just one year ago. Revenue was also up to $685 million, a 45% jump over last year.

Surprisingly, this still wasn’t enough to fully put the streaming service in the black. Higher content costs at Peacock led to a 25.5% drop in EBITDA for its entire division. We can’t know exactly how much of that relates specifically to Peacock content – Comcast doesn’t break down the numbers that way – but it’s a considerable chunk.

Even considerable success might not actually be good enough to turn a profit.

By all accounts, Comcast and NBCUniversal appear to be doing most things right. Beyond just Peacock – which received a boost this year from the critical favorite series “Poker Face” – Universal’s film studio has had a pretty solid recent run, with the box office hits “Puss in Boots: The Last Wish” and “M3GAN” boosting revenues. Theme park revenue was up as well, by 25%.

But launching, promoting and maintaining these bespoke streaming platforms has proven so expensive, even relatively successful growth campaigns just might not be enough. Comcast’s far from the only company that’s drawing an audience with high-profile content, yet somehow failing to reliably turn a profit.

Disney underwent a major round of layoffs last week, its second of the year thus far, losing a number of long-time, highly-visible staffers. Included in this latest cull was Cornelia Frame, a legendary Disney casting executive who started her career at teh company 18 years ago at Disney Channel. During her tenure, she helped kickstart the careers of Miley Cyrus, Zac Efron, Selena Gomez, Vanessa Hudgens, The Jonas Brothers, Zendaya, and Olivia Rodrigo, among many others.

Amazon, too, is laying off some creative and development executives; about 100 Amazon Studios and Prime Video staffers are expected to lose their jobs, out of 7,000 employees total. This comes just weeks after a Hollywood Reporter article about creative chaos behind-the-scenes at Amazon Studios, which is sinking huge amounts of cash into very high-profile TV projects but with seemingly “no sense of what the philosophy is” and “no vision for what an Amazon Prime show is.”

The streamer’s massively expensive original spy series “Citadel” – a troubled production from “Avengers: Endgame” helmers Joe and Anthony Russo – debuted over the weekend on Prime Video. The $200 million series is among the most expensive ever produced. Reviews so far have been middling.

A similar story is unfolding at Paramount. The company has managed to attract 56 million subscribers to its flagship Paramount+ service, and has a total of 77 million to all of its international subscription services. (The free Pluto TV service has also grown considerably.) But the company’s profits continue to be dragged down by massive investments in its streaming services.

A cost cutting strategy for hiring recurring actors on sitcoms

In February, CEO Bob Bakish vowed to respond by cutting costs, and we now have one dramatic example for how he plans to go about this. The hit CBS sitcom “Bob Hearts Abishola” has been renewed for a fifth season, but 11 of the show’s 13 cast members have been demoted from “series regulars” to “recurring actors.” This means that, rather than appearing in all or most Season 5 episodes, they’re only guaranteed to make five total appearances. That’s a significant pay cut, but also means no more exclusivity, meaning the actors can pursue other roles while still appearing on the sitcom. NBC’s “Law & Order” franchise will employ a similar strategy this year to reign in its budget for talent.

Why didn’t the streamers and their parent companies see this coming?

Spiraling costs on over-budget shows are one thing, but it wouldn’t be that hard to project how much revenue you could theoretically earn from new streaming subscribers, after all. Why weren’t the costs reigned in more strictly from Day One?

To be certain, the last few years – particularly after the pandemic and lockdown massively boosted the visibility and utility of streaming services – were witness to a massive and sometimes perhaps ill-conceived arms race by Hollywood studios and the tech and media conglomerates that own them.

How the Netflix model broke the industry

Once it became clear that other companies were going to pursue the “Netflix Strategy” of launching their own streaming platforms, suddenly mega-deals became commonplace, as teams focused on boosting subscriber numbers at (literally) any cost. This trend only really came to a close last year, following Netflix’s significant subscriber drop of July 2022, which once more injected a bit more focus on curbing costs and profitability.

Netflix’s subscriber drop roughly coincided with a plunge in the TV advertising market, particularly for cable networks. Overall TV advertising dropped by around 5% last year. This is part of an overall downward trend in advertising across the board, but in some ways, these companies are victims of their own success. Streaming became such an attractive entertainment option so quickly, American viewers largely abandoned cable TV, making advertising on cable networks a much less attractive option.

The problem is that these companies were largely counting on legacy businesses like cable TV advertising and theatrical box office to “cover” their increased spending on streaming services. When the pandemic, inflation, recession concerns, and a bevy of other factors causing the ad market and box office grosses to simultaneously drop, the extra money to pay for all these big expensive streaming shows was suddenly no longer there.

Which brings us to the present moment, where even belt-tightening might not be enough to save every nascent platform. AMC Networks – particularly struggling from the loss of cable advertising revenue – hope to boost AMC+ by offering it with ads for less money. It’s not entirely clear what else they could even do; most of their shows only have a few series regulars anyway.