After the initial boom of new platforms and subscriber growth, the digital streaming industry has cooled — and Wall Street has turned up the heat.
The stream had to be forever. That was the promise of a digital library of movies and TV shows.
Consumers were used to Netflix cycling through titles, knowing that as Hollywood studios launched their own streaming services, proprietary content would be transferred to a new platform.
Even when Warner Bros. Discovery pulled content as part of planned tax write-offs tied to its merger, a move consumers appeared to accept as the cost of doing business.
But as Disney prepares to pull dozens of shows and movies from Disney+ and Hulu, including “Willow,” “The Mighty Ducks: Game Changers” and “The Mysterious Benedict Society,” subscribers are suddenly faced with a new reality.
“At first I expected that any show that was on a streaming platform would stay on that platform,” said Conrad Burton, 35, an account manager at a transportation company in Raleigh, North Carolina. “But then I started noticing that things were running out.”
After an initial boom in new platforms and subscriber growth, aided by pandemic lockdowns and a wave of fresh content, the digital streaming industry has cooled. And Wall Street has turned up the heat on media companies, now focusing on whether and when streaming will be profitable versus whether those providers build large numbers of subscribers. The change came last year after Netflix reported its first subscriber loss in a decade.
“What’s hurting their income statements is the amortization of content that’s already been made and released,” said Michael Nathanson, an analyst at SVB MoffettNathanson. “Warner Bros. Discovery was the first to figure this out, so we have to give credit where it’s due. They said they need to increase their profits, so they started doing demos from the app. Disney is now doing this, and we should expect Paramount to follow suit. And one day Netflix may do the same thing.”
It has been difficult for consumers to understand why content created specifically for streaming platforms has been removed, especially when Netflix originals remain untouched in its library.
“From a consumer perspective, what they want is to always be able to access their content,” said Dan Rayburn, media and streaming analyst.
“The part that really confuses consumers is because they don’t understand how content is licensed,” he said. “They get really confused when one day the content is on a service and then it’s gone, or the content is still on the service but it’s only X number of seasons.”
Removing content from platforms is a way for streamers to avoid residual payments and licensing fees.
“Like the Hollywood syndicate of yesteryear, streaming services must pay for the right to host a title,” explained Brandon Katz, an industry strategist at Parrot Analytics.
He noted that if a title is not owned by the streamer, then a licensing fee must be paid to the studio that owns that content. For example, Hulu licenses “The Handmaid’s Tale” from MGM Television.
Even internally held securities must be licensed. That’s why NBCUniversal (the parent company of CNBC and NBC News) had to pay $500 million to air Universal TV’s “The Office” on the Peacock, and Warner Bros. Discovery paid $425 million for streaming rights to WBTV’s “Friends.”
“The balance sheet needs to reflect that,” Katz said.
By removing content specifically designed for streaming rather than licensed shows and movies, Warner Bros. Discovery and Disney can immediately cut costs. Warner Bros. Discovery saved “tens of millions of dollars” after eliminating content, CNBC previously reported.
The studio’s removal of movies and TV shows began last summer, initially with titles like “Sesame Street” spinoff “The Not-Too-Late Show with Elmo” and teen drama “Generation.”
But over the next few months, more and more original HBO and Max content was removed. Most notably, the sci-fi dramas “Westworld” and “Raised By Wolves” disappeared.
“In my opinion, it discourages subscribers from checking out future original content,” said Matt Cartelli, 33, of Hudson Valley, New York. “Streaming was considered a safe haven for consumers who were sick and tired of seeing shows canceled on traditional TV. Now streamers are following suit by canceling their own underperformers.”
Cartelli was particularly disappointed to learn that Disney+ originally planned to remove “Howard,” about a songwriter whose work has been heard in Disney films such as the animated “The Little Mermaid.” Disney reversed its decision on this title after backlash on social media.
And streamers have a fine line to walk.
“The danger is the writers’ strike,” Nathanson said. “If it goes on for a while, then they will rely on the contents of the library. If there’s nothing there, the rollover will get worse.”
Streaming services are strategic about what sticks and what leaves their platforms. Major hits like Max’s “Peacemaker” or Disney’s “The Mandalorian” are unlikely to be pulled from their respective apps.
Meanwhile, underperforming shows and movies could be in limbo.
In the first quarter of the year, demand for the dozens of shows and movies cut from Disney+ accounted for just 1.9% of Disney+’s total catalog, according to data from Parrot Analytics. For comparison, “The Mandalorian” accounted for 1.3% of total demand during the same period.
Similarly, titles removed for Hulu accounted for just 0.4% of demand on the streaming service.
And those titles aren’t lost forever.
Immediately after Max’s program interruption, Warner Bros. Discovery has begun licensing content to Fox Corp.’s Tubi and Roku, which are free, ad-supported TV streaming platforms — also known as FAST — that allow it to introduce a new revenue stream for content.
As media companies desperately try to make streaming profitable, businesses are increasingly turning to new advertising strategies, from cheaper ad-supported offerings to placing content on FAST channels.
“My main takeaway is that nothing is guaranteed to stay streaming forever. You’re paying for a convenient way to watch content, but it’s no substitute for buying a movie or TV show on home video,” Cartelli said.
