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Traditional media faces two challenges. TV networks are in decline as a poor advertising environment drags down profits. Meanwhile, streaming remains unprofitable for the majority of players as costs rise and subscriber growth stagnates.
Just recently, Paramount (PARA) reported a 15% year-over-year drop in linear ad revenue in the fourth quarter. This was larger than his 12% decline that analysts had expected, and worse than the 14% drop seen in the third quarter.
Warner Bros. Discovery (WBD), Disney (DIS), and Comcast (CMCSA) also experienced slumps in advertising revenue from their traditional broadcast and cable businesses this fiscal year.
The exodus of pay-TV consumers is making things tough for media companies that have invested in expensive streaming businesses.
Before the cord-cutting phenomenon, linear advertising and cable affiliate fees consistently drove revenue. However, as ad buyers increasingly opt for digital options such as streaming from traditional TV channels, companies are realizing that they may not see the same level of returns.
Paramount was recently placed on CreditWatch Negative by rating agency S&P Global due to weak operating free cash flow trends amid deterioration in linear TV and subsequent shift to streaming.
S&P said the streaming business, which replaces the linear TV segment, would generate comparatively lower margins and cash flow due to “required higher content spending, higher technology investments, and higher marketing and subscriber acquisition costs.” I argued that it would be.
Jawad Hussein, a director at S&P Global Ratings, said Paramount’s cash flow decline was “worsier than its peers due to its smaller size, less diversified business, and slower expansion of direct-to-consumer transactions.” “
But Hussein also emphasized that this is an industry-wide problem, writing that “Paramount is not the only media company to experience a decline in free cash flow as streaming services launch and grow.”
More financial pressures? The streaming boom may be over.
“It’s hard to avoid headlines suggesting that the boom days are over and streaming video has entered a new phase of moderation,” subscription analytics platform Antenna said in its quarterly “State of Subscriptions” report published Tuesday. There wasn’t.”
Antenna revealed that subscribers to its premium subscription service grew at the slowest pace since before the pandemic began, increasing by just 10.1% compared to 21.6% in 2022.
In addition to slowing growth, churn (subscribers canceling their streaming plans) has nearly tripled since 2019, with 140.5 million cancellations in 2023, the largest subscriber decline in five years. It became.
As consumer sign-ups slow, the pressure to increase profits increases.
Media giants have implemented mass layoffs and cut costs worth billions of dollars. They rolled out ad-supported tiers, bundled services, and increased monthly prices for their respective subscription plans.
Recently, new “skinny bundles” have emerged as competitors work together to gain greater scale, signaling further disruption to the industry status quo.
Despite all these efforts, monetization of streaming still has a long way to go. With the exception of Netflix and most recently Warner Bros. Discovery, virtually every media company continues to lose money in its operations.
However, even WBD’s streaming playback was not enough to boost fourth-quarter profits, further highlighting the company’s struggle to balance legacy media. The company still reported shortfalls in both revenue and bottom line, dragged down by declining network revenue and a sharp decline in the advertising market. The company’s stock price has fallen more than 25% since the beginning of the year.
alexandra canal I’m a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, Email alexandra.canal@yahoofinance.com.
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