Media barons have long acknowledged that the future will be streamed.
Over the coming weeks, as the world’s largest media and tech conglomerates report earnings for the July-September quarter, it will become increasingly clear how well entertainment companies are handling the pivot away from cable bundles and theatrical releases, and toward streaming services. Investors expect to hear entertainment executives finally explain not only how they plan to compete in an ecosystem that’s historically been dominated by Netflix, but also to learn about the ways their companies will do business long after the COVID-19 pandemic subsides.
“There’s no question shelter-in-place has changed how people consume,” Wedbush Securities analyst Michael Pachter says. “This earnings season will be the first when we ask: ‘How permanent is this?’”
Put another way: How quickly do entertainment companies have to shift resources to streaming — a business that’s growing, but highly competitive and largely unprofitable — and away from shrinking cash generators led by ad-supported TV networks and tentpole movies?
“You’ve got to be all in — or do you?” MoffettNathanson Research’s Michael Nathanson says. “What is the cost of being all in? They have to provide insight to get us through the uncertainty.”
Wall Street will probably be more interested in CEO commentary than in the Q3 financial numbers. In a quarter deflated by the recession and pandemic, analysts expect to see significant drops in revenues and earnings vs. the period last year at AT&T, Comcast, Discovery, Disney, Fox, Lionsgate and ViacomCBS.
Netflix is the only company in the group analyzed here that’s expected to report strong growth in revenue and earnings.
Comcast’s NBCUniversal, AT&T’s WarnerMedia and Disney will have to explain the thinking behind their recent reorganizations to promote streaming. AT&T and NBCU also are expected to provide updates for fledgling streaming services HBO Max (launched in May) and Peacock (launched in July), respectively.
In addition, investors want to know more about ViacomCBS’ plans to repackage its streaming services as Paramount Plus and Discovery’s proposed app to join the bandwagon of offering an aggregated streaming option for programming from its suite of lifestyle and factual networks. Many also have questions about Disney’s Star-branded product for overseas markets, although they might wait for the company’s Investor Day presentations on Dec. 10.
Stock buyers could warm to digital plans, especially for ad-supported streaming services, if executives make a strong case for the value of their movie and TV libraries.
“New content is what everybody thinks moves the needle,” Pachter says. “But there isn’t going to be that much” following months of pandemic-related production halts.
All eyes will be on cord cutting numbers. Analysts estimate that the most widely distributed TV networks lost a little under 1 million subscribers in the quarter, based on the rate of subscriber losses at the largest MVPDs. One question now is whether the pace of disconnects will slow as the economy improves — or accelerate with the reductions in federal unemployment benefits and pandemic relief efforts, and as cable operators pull back marketing support for TV in favor of selling broadband connections.
The advertising picture will be more complicated. Combined national and local TV ad sales likely fell about 14% in Q3 vs. the period last year, despite the additional spending for political campaigns. Investors want to know if that’s a blip or evidence that advertisers are accelerating the shift in their spending to digital.
Entertainment companies have a lot riding on how well they spin their stories. Investors value companies with promising digital businesses more highly than those without. BMO Capital Markets’ Daniel Salmon, for one, figures Disney’s streaming offerings account for more than half of the company’s total value.
For others to get there, “we’ll have to see that they can get big enough revenues to matter,” Nathanson says. “We’re all waiting to see the evidence of these pivots.”
Q3 earnings released: Oct. 21
Investors figure that Netflix had a great Q3, projecting it added 3.6 million global subscribers — ahead of the company forecast for 2.5 million — for a total of almost 197 million. If they’re right, then many will want to know: Was this a pandemic-related blip — possibly leading to unusually high cancellations? One clue will be Netflix’s subscriber projection for Q4. The Street expects an increase of 6.4 million, and might be alarmed if the company lowers the bar. Netflix’s announcements are carefully scrutinized: It has about $15.3 billion in long-term debt — and its fans are betting that it can keep growing and raise prices even as competition intensifies. Its share price is up 64% this year, and analysts believe Q3 revenues rose nearly 22% to $6.4 billion. They’ll want to know whether U.S. consumers might see a price increase following the recent $1 boost to the price of its standard plan in Canada. Another question: How much cash does Netflix expect to burn when the shows it ordered go back into production?
Q3 earnings released: Oct. 21
CEO David Zaslav said in August that Discovery would unveil its streaming plans “very soon” — and investors are ready for him to make good on that promise. A new platform could add a lot: The company owns almost all of its content, and licenses little. Discovery also could use encouraging news. Its shares are down 36% so far this year. The drop in Q3 ad sales and in total subscriptions will be offset somewhat by price increases in contract renewals with Comcast, Charter and Cox. Wall Street expects Discovery to report Q3 revenues of $2.5 billion, down more than 7%.
Q3 earnings released: Oct. 22
Analysts expect Q3 revenues to dip nearly 7% to $41.6 billion — and CEO John Stankey to renew his commitment to keep paying a dividend. That’s important to shareholders, who have driven AT&T’s stock price down by 30% so far this year. But that promise grows increasingly hard to keep for a company with $152 billion in net debt. WarnerMedia just slashed its workforce costs by 20%. AT&T may have to accept a fire sale price for DirecTV, the satellite giant it bought in 2015 for about $67 billion including debt. Having warned that ad sales will be soft while sports costs rise in Q3, Stankey will want to focus on HBOMax, introduced in May. But it remains dark on Roku and Amazon’s Fire TV, which link streaming services to about 70% of connected TVs.
Q3 earnings released: Oct. 29
With ad sales down, and movie theaters and theme parks largely closed, NBCUniversal will lean on the otherwise strong performance of Comcast’s cable systems. The company’s stock is up a little more than 1% in 2020, and analysts expect Q3 revenues to drop nearly 8% to $24.7 billion. CEO Brian Roberts will probably crow about Peacock; Comcast recently disclosed that it has 15 million subscribers — up from 10 million in July. The streaming service was helped last month when Roku agreed to offer it and other NBCU services to smart TV viewers. Comcast also may be quizzed about its deal with AMC Entertainment to share revenues on Universal films shown on premium VOD after just 17 days in theaters. Universal is one of the few studios planning year-end theatrical releases, including “The Croods: A New Age,” “Freaky” and “News of the World.”
Q3 earnings (fiscal Q1 2021) released: Nov. 3
The slimmed-down Fox Corp. doesn’t have a compelling digital story just yet, but it does have Fox News. The Trump-friendly operation’s strong election year ad sales and steady revenues from pay TV subscribers should offset weakness at the sports and broadcast networks and TV stations. Even so, the stock is down nearly 28% in 2020; analysts expect to see the September quarter revenues fall 4% to $2.6 billion. Investors are eager to hear about Fox’s plans for Tubi, the ad-supported streaming service it bought in April. CEO Lachlan Murdoch told investors in August that it “underscores our long-term strategic initiative to broaden and enhance direct-to-consumer digital reach and engagement, while providing advertising partners with more opportunities to engage audiences at scale.”
Q3 earnings (fiscal Q2 2021) released: Nov. 5
With the movie business stuck on pause, analysts expect to hear Lionsgate talk up the prospects for Starz. It’s close to having more digital subscribers than cable ones. That’s partly due to a renewed carriage deal with Comcast that enabled the cable giant to offer fewer Starz channels. But digital subscriptions soared in September with the release of the drama “Power Book II: Ghost,” a spinoff of its long-running drama “Power.” Company shares are down about 22% so far this year, and analysts believe that revenues in the September quarter fell near 22% to $768 million.
Q3 earnings released: Nov. 6
Is ViacomCBS a combatant in the streaming wars or an arms dealer? The company’s expected to clarify that soon with its plan to introduce Paramount Plus as a brand that will house streaming services, including CBS All Access — but not Showtime. It’s still unclear whether the company will save new productions for that platform, or license to others like it recently did by sharing “Evil” and “The Unicorn” with Netflix. It’s also been busy offloading movies to digital players, selling the likes of “Coming 2 America,” “The Trial of the Chicago 7” and “Without Remorse” to Netflix and Amazon. The stock price is down about 33% in 2020, and some analysts believe it’s been battered enough. Although the company hasn’t been able to crank out lots of new shows, it also hasn’t had to pay for them. Carriage renewals this year with Comcast, Dish, Fios and YouTube TV should provide a lift to Q3 revenues. Analysts will probably want updates on plans to sell Simon & Schuster and the company’s historic Black Rock headquarters in Manhattan. Its $500 million deal to sell CNET should close by year-end.
Q3 earnings (fiscal Q4 2020) released: Nov. 12
Tinkerbell’s fairy dust seems to have landed on Disney Plus. The streaming platform’s subscriptions are years ahead of schedule. It was helped in Q3 by expansion to Belgium, Portugal, Indonesia and Nordic countries, as well as by its savvy marketing of “Hamilton” over the July 4 holiday period. That kept the drop in Disney’s stock price this year to 12% even though — with movies and theme parks dormant — analysts anticipate a 25% drop in Q3 revenues to $14.4 billion. Analysts will probably want more insight into the implications of the recent melding of the TV networks, studio and direct-to-consumer businesses into two groups: Content Creation, and Media and Entertainment Distribution. Executives may face tougher questions about Disney’s dividend. Activist investor Daniel Loeb wants to divert the cash to streaming. He may have an unlikely ally in that persuasion campaign. Sen. Elizabeth Warren (D-Mass.) has been vocal about questioning why the company continues to pay shareholders at a time when it has laid off 28,000 workers.
David Lieberman is an associate professor in the graduate Media Management program at The New School.
Xinran Qi contributed to this report.
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