The merger of Warner Bros. Discovery (WBD) for 2022 marks a significant shift in the streaming service market. When the company was not only abolished, but removed altogether westworld From Max, the home audience got its first taste of a trend that continues to resonate throughout the industry. From Max to Disney+ to Paramount+ and more, streaming companies are dropping series left and right, destroying creators and frustrating fans.
There was a point where streaming services seemed about to change the industry permanently; But now, given the number of unexpected cancellations and other extreme cost-cutting measures, the industry seems to have changed it. Amid shifting content, price hikes, and Hollywood’s eye-catching designs, consumers are looking at these companies with more scrutiny.
Why would a company get rid of the programming that was once the driver of their service, especially when they spent so much to create that programming in the first place? Surprisingly, the answer is that removing content is more profitable, but why? In 2023, what, if any, are streaming services profitable?
Do streaming services make money?
Starting and maintaining a streaming service is expensive. From content creation to licensing and more, new streaming services require significant investments even to get off the ground. At the beginning of the broadcast boom, this didn’t matter. Companies like Hulu and HBO wanted a piece of the Netflix pie and thus spent millions of dollars on prestige content to attract customers.
This changed in the spring of 2022 when Netflix announced the shocking news that the streaming giant was losing subscribers for the first time in a decade. The repercussions on Netflix were huge, but the repercussions throughout the streaming industry were massive. Previously, companies measured success by subscriber growth, not revenue; Now, Banners is getting tighter with its portfolio strings as CEOs look to boost revenue and stock prices.
None of this means that streaming services don’t make money: they do, but that doesn’t mean they make money. According to IndieWire, Netflix and Hulu are the only major streaming services that will be profitable by the end of 2022. By contrast, Peacock, Disney+, Max (formerly HBO Max), and Paramount+ have reported billions of dollars in losses in EBITDA (earnings before interest, taxes, depreciation, and amortization). And these images are not completely accurate, since only some of these metrics are shared with the public. Services like Apple TV+ and Prime Video don’t even do that, which makes it impossible to know their profits and losses.
How do broadcast services compensate for their losses?
Streaming services are not profitable from subscribers alone simply because their operating costs are too high. Once Wall Street decided that streaming companies should focus on revenue rather than exponential growth, stock prices plummeted and consumers began to see an unsettling and unexpected change in the industry.
It started with WBD’s cancellation bat girl Although the movie is near completion. Reports surrounding the cancellation cited several possible reasons for this, including negative test screenings that implied the film threatened the DCEU’s reputation – the latter seems questionable given the company’s continued work with Ezra Miller.
No, what probably happened bat girl That’s what’s happening throughout the streaming industry: companies see it as profitable to cut taxes on these projects because it’s a safer financial bet. Just look at the slew of content removed from Disney+ and Hulu in May 2023 that amounted to roughly $1.5 to $1.8 billion in writedowns. Removing the content also means that companies no longer have to pay royalties and royalties for those shows and movies, saving them more money at the expense of content creators.
Aside from tax cuts and write-offs, streaming services have found other creative ways to reduce and offset their losses. Hulu began as ad-supported, with the company adding an ad-free tier in 2015. More recently, companies like Disney+ and Max have started offering these cheaper alternatives to boost subscriber numbers. This works twofold for them, as it not only brings them new customers, but also gives the companies the advertising revenue that has been the lifeblood of the cable industry. Once Netflix added the ad-supported tier, the company found that these subscribers made $8.50 more per month than regular customers. The lesson these streamers seem to be learning is that making a profit requires a multi-arms approach.
The future is fast
The infamous content purges that continue to plague streaming services are linked to the advent of FAST and AVOD. FAST stands for Free Ad-supported TV and refers to always-on services that reverse the old broadcasting model. AVOD, or Video Advertising On Demand, works just like the ad-supported layer on a service like Hulu or Netflix. Among the top players in this market are Tubi, Roku, and PlutoTV. With these services, people can listen to their favorite shows and movies for free. You don’t even have to sign up with an email address if you don’t want to. With costs rising all around, consumers can cut back on spending by relying on FAST channels.
Their libraries are growing thanks to other services that sell their content to them. At the beginning of 2023, WBD announced that they would move content removed from Max to Roku and Tubi: this includes the aforementioned westworldAnd raised by wolvesAnd NeversAnd The time traveler’s wife. For the most part, content companies choose to go FAST channels are shows and movies that don’t get enough attention in their home apps. Instead of letting these sit in the library collecting digital dust and notably not attracting subscribers, companies can make more money by moving them to ad-based services.
As broadcasters discover that subscriptions alone can’t pay for the kind of prestige content audiences crave, they’re moving more and more to a multi-arm model that generates revenue from multiple sources, just like cable before it.