How media giants' streaming pivot is impacting margins

The media landscape's shift toward streaming has not been without its challenges. Pursuing profitability in the streaming realm has created negative ripple effects across other avenues of these media giants' operations, such as traditional linear television.

Yahoo Finance's Alexandra Canal discusses the headwinds of the industry-wide transformation.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video Transcript

All right.

Well, media giants making more headway on the path to streaming profitability this earnings season, thanks to initiatives like password sharing crackdowns and also ad supported tiers.

But there's still a lot more work to be done.

Alexandra Canal has been digging into this for us and Ali where do things stand today?

Yeah, so I thought it was very interesting this past earnings season that investors didn't necessarily reward companies that turned a profit in their streaming or at least made more strides towards streaming profitability.

And Disney was one clear example here they did turn a surprise profit for their DTC entertainment division.

Now this includes Hulu and Disney Plus.

The catch though is that they said the segment would be in the red for the current quarter.

And it also doesn't include all of their platforms if you include ESPN plus total streaming is still a money loser.

So there is this fear among investors that profits just can't be sustained.

It's also a big complicated, especially for these legacy players since these companies are getting into profitability in a business that is disrupting their initial business, right, which is legacy television.

So there's this double edged sword that these companies are facing because the more successful streaming is, the more it's going to have profits on the linear side in the traditional side of the business.

So that's where we stand right now.

Again, we did make strides really across the board.

But there's this lump, this bumpiness that is giving investors some pause right now.

How does that work for a company like Netflix?

This comes to mind for me because last night I finally had to upgrade to the ad free too.

I've been hanging on for so long.

But the show I wanted to watch, I had to say what prompted you to make it but you is that I heard anyone but you, you can only do it with the ad free plan.

Well, that's interesting.

Yeah, interesting.

So they are blocking that they were blocking certain shows and only showing that on high pay plans.

Is that the strategy moving forward or in a way, does that prevent them?

Like you've from getting these broadcast, like margins because ads are good for sales overall, right?

I think advertising is very important.

Certainly when it comes to profitability.

That's why we're seeing all of these platforms get into the ad supported game.

However, analysts I spoke with said it's pretty much impossible.

We're not really ever going to see streaming reach those broadcasts like Martin, I mean, these are margins that were around 40% and just to put it in perspective, Netflix reported full year margins for 2023 at 21%.

And this is a company that turned a profit of 2.6 billion in the first quarter.

And then you have all these other players that aren't even close to, to reaching those profits.

So this is something that's going to be a difficult journey.

That's why you're seeing a different initiatives like bundling as well, obviously, for the consumer, that's a head scratching phenomenon since it's hard to pick where and when you can watch certain types of programs.

But the fact that we are seeing increased bundling the that we are seeing password sharing crackdowns at supported tears.

This is all in a play to increase revenue and therefore increase profitability.

But I don't think we are going to see those linear like TV margins and that's going to be a problem area down the line for a lot of these legacy companies that have relied on that business to really survive.

So what really comes into play there that can help bridge the gap?

That's the big question mark and how they're able to walk that line, right?

Alexandra Canal.

All, thanks so much.

Thank you guys.