Amid slowing growth and heightened competition, streaming video services will focus on profitability in 2023, Wall Street analysts say. That's likely to mean reduced spending on content, an increased emphasis on advertising-supported services and possibly consolidation.
"Direct-to-consumer streaming is entering a new phase: rationalization and consolidation," Morgan Stanley analyst Benjamin Swinburne said in a recent note to clients. "Long term, this should improve returns."
While streaming video services have gained viewers as traditional pay-TV services lose subscribers, they will face recession headwinds in 2023, he said.
Swinburne sees a "reckoning" in the year ahead for streaming video services. He estimates that Walt Disney, Warner Bros. Discovery, Paramount Global and Comcast's Peacock will lose a combined $10.4 billion on their streaming video services in 2022. Meanwhile, industry leader Netflix will earn $5.5 billion.
Challenging Year For Streaming Video
"With the promise of peak losses in '22 or '23, media streamers are raising prices and cutting costs," Swinburne said. If these moves do not deliver meaningful streaming profits, they have two options: get out of the business or consolidate, he says.
Wells Fargo analyst Steven Cahall sees limited media mergers and acquisitions in 2023. The most likely transaction in the year ahead will involve Hulu, he says. Majority owner Disney and minority owner Comcast both have expressed interest in taking full control of Hulu.
"The year of consolidation could be 2024," Cahall said in a recent note. "We think 2023 is setting up to be a challenging year for media, and challenges force companies into each other's arms."
Smaller Players Could Get Urge To Merge
Subscale players are most likely to consolidate, Cahall said. They include Paramount, Peacock, Lions Gate Entertainment and AMC Networks. Those companies need bigger scale to take on Netflix, Disney, Amazon and Apple in streaming video, he said.
Needham analyst Laura Martin says she believes Paramount will be acquired. The entertainment company has large film and TV libraries and an inexpensive valuation, she said in a recent note to clients.
At the same time, Martin is skeptical that any media company can displace today's leaders in streaming video.
"The Streaming Wars are essentially over," she said. Disney and Amazon are the winners in subscription video on demand because they offer service bundles, she said. And Alphabet's YouTube is the winner in ad-supported video on demand.
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