How much money have streaming services lost?
Analysis
Broadcasters are losing billions as they invest in the future of TV. Our analysis shows that real losses are likely to be even larger than the companies have reported thus far.
In Warner Bros Discovery’s earnings release last week, the company was sure to note that losses in its direct-to-consumer (DTC) segment, which includes streaming services like HBO Max and Discovery+, only lost $217m in adjusted Ebitda, the company’s measure of profit, in the fourth quarter of last year.
While the near-quarter-billion loss was spun as a positive—after all, Warner Bros Discovery lost $728m in Q4 2021—it’s still a large figure for a company facing high debt.
The investment required to get streaming services like HBO Max and Discovery+ off the ground with licensing deals and exclusive content has yet to be offset by revenues from subscriptions or advertising.
On the whole, major streaming services from Disney (Disney+), NBCUniversal (Peacock), Paramount (Paramount+), and Warner Bros Discovery (HBO Max and Discovery+) have reported total combined losses in excess of $18bn since 2020.
Those figures don’t paint a picture of the full story, as Warner Bros Discovery did not report separate profit figures for its DTC segment until Q2 2022, the first quarter it reported full results as a merged company.
Losses for directly comparable segments were also not reported in 2020 for NBCUniversal and Paramount. NBCUniversal’s Peacock did not launch until April 2020, while CBS All Access, the predecessor to Paramount+ before it was rebranded in 2021, did not have losses directly reported beyond its inclusion as a listed factor in bringing down broader profits in Paramount’s TV & Entertainment section.
Other competitors such as Amazon (Amazon Prime Video) and Apple (Apple TV+) do not report profits from their streaming services either, but it has been suspected that both companies run their content offerings as loss leaders. “We don’t make purely financial decisions about the content [on Apple TV+],” said Apple CEO Tim Cook in January of 2022. “We try to find great content that has a reason for being.”
In other words, real losses of streaming services are likely to be considerably larger than the reported figures thus far.
As these companies’ CEO’s regularly mention in their financial earnings calls, the current lack of profit for streaming services was anticipated as the necessary cost of transitioning from primarily traditional linear experiences to streaming. Such a transition was widely considered an imperative as audiences, particularly high-value younger audiences, consume content via streaming at increasingly high clips.
However, it is unclear whether the bet will pay off for every streaming service. Whereas big companies with diverse revenue streams like Apple, Amazon, and even Disney through its parks and merchandise, may be able to support the cost of transitioning to streaming, other companies only have their linear or theatrical audiences to fall back upon.
Even so, streamers like Disney and Netflix have taken to creating an ad tier for its streaming services as a way to generate additional revenue.
The rush to increase revenue has been admittedly bumpy thus far for Netflix. “The way we launched the business is not representative of what we want the future of the business to be,” Netflix ads chief Jerami Gorman told a December crowd at Adwanted Events’ The Future of TV Advertising Global. The company is also juggling how to price its various subscription tiers in parts of the world with more elastic demand that have reacted negatively to its crackdown on password sharing.
Given its stark reduction in losses in Q4—especially compared to competitors like Peacock, which reported losses roughly four times as large—it appears Warner Bros Discovery is seeking a quicker turn toward profitability for its streaming services. But taking such a shortcut comes with different costs: risking brand capital by removing content from its own services and striking licensing deals with FAST channels to watch content elsewhere.