Hollywood executives are bracing for a brutal “year of turmoil” as the entertainment business faces the combined threat of an economic recession, slower streaming growth, a cinema industry on life support and a potential writers’ strike.
“People are worried across the board,” said Steve Kram, chief executive of investment group Content Partners, LLC, and former chief operating officer of William Morris Agency.
“You’re seeing cost-cutting throughout the entertainment business,” he added. “You’re seeing pressure from the financial institutions to bring down debt levels and not provide additional debt capital. Next year is going to be a difficult year.”
The media sector has been among the hardest hit as investors have soured on once high-flying technology groups that have failed to deliver significant profits.
In 2022 the stock market wiped more than a half a trillion dollars in value from the largest entertainment groups as investors lost patience with the streaming revolution that propelled Netflix to the top of Hollywood.
Executives and analysts say they do not expect any relief from the bloodbath in the coming year. “[2023] will be bad,” said the chief executive of a major media group. “Some companies are going to have a really, really hard time.”
Morgan Stanley analysts anticipate that the industry will add half as many streaming subscribers next year as it did in 2021, as streaming “enters a new phase” of slower growth and higher costs.
This comes after the largest US media companies — Disney, Warner Bros Discovery, Paramount and NBCUniversal — collectively lost more than $10bn in operating income in 2022 because of their push into streaming, Morgan Stanley’s Benjamin Swinburne estimates.
Warner Bros Discovery, the owner of HBO, has laid off hundreds of staff in the past few months as it grapples with nearly $50bn in net debt. The company has also removed dozens of shows from its HBO Max streaming service to cut costs.
Disney, the other traditional media giant, abruptly replaced its chief executive in November, shortly after the company revealed that it was losing billions of dollars on streaming.
The large cinema chains are also suffering as audiences have not returned to their pre-pandemic habits, and movie studios have been reluctant to release films in theatres. Cineworld, the second-largest cinema owner, filed for bankruptcy in September.
Adding to the uncertainty of 2023 is a potential writers’ strike, which would halt work at the largest Hollywood studios for the first time in 15 years. The major Hollywood unions — the Writers Guild, the Directors Guild, and the Screen Actors Guild — are all preparing for contract talks early in the new year.
Warner chief David Zaslav, who has come to embody the return of budget discipline following a spendthrift era in Hollywood, in November told an investor conference that “things got a lot worse” in the past few months.
The renowned Hollywood company is going through a “messy” restructuring at the same time that the advertising market has declined, making it “hard” to meet his goal of $12bn in underlying profit for 2023, Zaslav warned.
He summarised the situation by saying: “We’re painting a mural on the side of a building, and all kinds of stuff is falling off.”