After 146 days, WGA has reached a tentative deal with Hollywood studios, which is one of the steps need to get film and television production going again.
Needham & Co. Senior Analyst Laura Martin explains how strikes could impact the volume of content that streaming services produce. “Wall Street is demanding they.. move to profitability faster,” Martin says. For streamers, this could mean cutting down seasons by filming fewer episodes—“less content spending”, as Martin notes. Martin expects consolidation in the industry, which will help “get rid of duplicative costs.”
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- Laura, how well are we able to measure the correlation between new programming and subscriber growth? And have we already started to see-- it's probably a little early. Have we started to see any kind of uptick or indication that there are some cancelations coming because, oh, people are saying my new show is not going to come for a while?
LAURA MARTIN: So, I think, what we heard from Disney last week, because we were in Orlando with Bob Iger, the CEO, and what he said was, look, we're going to make lower cost, fewer episodes, for our streaming platform, and actually, also films. He's like, we're going to do more sequels, and we're going to have fewer numbers of Marvel and "Star Wars" and princesses. So I do think all of these companies that have been losing money in streaming, I think Wall Street is demanding they start-- they move to profitability faster, which means we're going to have less content spending.
To their credit, writers got minimum numbers of credit per series, but the number of series is about to go down because all these streamers need to make money. Because now they're raising capital at a 7% cost, and it used to be, two years ago, 0% cost. So Wall Street's screaming, they have to have a return on capital higher than 7% now. So they're going to make fewer shows.
- I go back five years in time, I remember when Disney, for instance-- I don't know if it was five years ago, but we had all these new players in the market. And people started talking about peak content. It seems that moment has passed. And then we're in this new phase where there's a lot more competition for those production dollars. Who do you see as the winners emerging here? And do you see any kind of-- any more kind of a consolidation?
LAURA MARTIN: Yes, I do see I think we have to consolidate because, basically, growth is zero. And the only way to grow earnings per share is you have to buy something and then you have to sort of get rid of duplicative costs, and that grows your earnings per share for 2 or 3 years while you get rid of positions that are duplicated in a consolidation. So I do see more consolidation.
And I also see the big get bigger, and the small are disadvantaged. If you look at the like the public companies in streaming, like Curiosity Stream, Chicken Soup for the Soul, Fubo, there's no competitive advantage to being smaller when you're going up to-- when you're competing against Netflix, and Disney, and Comcast, and Amazon, and Apple. Like there's just no advantage to being small anymore. This has become a land of giants. And so you sort of need to merge or get the heck out of the way because you're going to get stomped on.