Variety: 2023 Will Be a Year of Trial and Error for Streaming Companies

Story from Variety:

Welcome to streaming’s year of uncertainty.

After a paradigm-shifting 2022, the subscription video on demand (SVOD) business has entered a messy transitional phase as investors demand better margins on companies’ direct-to-consumer operations.

The traditional studios are now scrambling to turn a profit in streaming by next year, which will require significant cost-cutting and downsizing after the expansive past decade — hence the wave of layoffs and restructuring currently underway in the media sector.

But that will likely not be enough to get those DTC segments into the black. Streaming has a long, long way to go to become the reliable profit generator linear pay TV has been for decades, and losses will continue to mount this year while streamers keep working to build subscriber scale. NBCUniversal, for instance, reported a $2.5 billion loss for its Peacock service in 2022 and currently expects losses to peak this year at $3 billion.

At the same time, streamers are contending with slower subscriber growth and heightened churn amid an overcrowded market. The major U.S.-based SVOD platforms added less than 100 million subscribers last year, down from about 133 million in 2021, and consensus Wall Street forecasts project about 65 million net additions for 2023.

With challenges facing Hollywood on top of that — namely ad-market headwinds and the accelerating decline of the lucrative linear TV business — there is no clear path to success at the moment.

As such, no strategy for trimming costs and boosting revenue is currently off the table. Both Disney and Warner Bros. Discovery have recently raised prices on their flagship streaming services; Disney CEO Bob Iger has hinted another hike may follow. The Mouse House chief is also weighing whether to sell off Hulu or buy out Comcast’s 33% stake in the service, which has become a key component of the “Disney Bundle” proposition in the U.S.

Meanwhile, Disney is reportedly considering a return to licensing out its content, while Paramount has begun pulling titles from its Showtime streaming platform (both pages from the Warner Bros. Discovery playbook) and is essentially downsizing the Showtime cable network into a promotional tool for Paramount+, a once-unthinkable move in the peak TV era.

But that era is now coming to a definitive close, with companies pulling back on their ballooning content expenses and reevaluating their spending strategies. The recent trend of unrenewing TV shows that, in some cases, were already in production on new seasons is yet another sign of the fraught state of the business.

The studios’ looming Q1 earnings reports should help clarify whether these moves will actually put them on track to hit their profitability goals. Until then, all that’s clear for the moment is that 2023 will be a year of trial and error as streamers look for a winning strategy.