Here’s how studio chiefs score going into 2022’s second half and what’s at stake with second-quarter earnings
Hollywood’s biggest entertainment companies are set to report second-quarter financials, setting the tone for what could be a tumultuous back half of the the year amid streaming uncertainties and a looming recession.
And the nation’s top studio chiefs barely made it through the first two quarters of the year.
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Netflix upended Wall Street three months ago when it warned of massive subscriber losses that triggered industry-wide panic about the future of streaming strategies. The earnings shocker translated into stock sell-offs and analyst downgrades for major players like Disney, Warner Bros. Discovery and Paramount.
The chief executives running major film and television studios also faced deteriorating economic conditions during the first half as the nation inches toward an inflation-induced recession. There’s already been some indication that advertising has begun to dry up and more belt-tightening by streaming subscribers unwilling to pay for multiple services.
Here’s how the the CEOs of the top publicly-traded entertainment companies stacked up in TheWrap’s Midyear CEO Report Card — graded on dealmaking, performance, streaming and their own public images.
Dealmaking: Bob Bakish already oversaw the company’s biggest deal with the re-combination of CBS and Viacom, which was named Paramount Global earlier this year. The company has made some niche acquisitions that included buying a majority stake in Fox TeleColombia & Estudios TeleMexico from Disney. But a major deal hasn’t been in the cards — at least not yet. He’s dropped some hints this year that he’s open to the idea of selling the company, which has a stock valuation of $17 billion. That’s pocket change for tech giants like Apple ($3 trillion market cap) or Amazon ($1.2 trillion). Fox Business reporter Charlie Gasparino reported the company was up for sale, with Comcast as the most likely buyer. However, Comcast would need to dump NBC or CBS as part of the transaction since federal law prevents one company from owning two national broadcast networks. B
Performance: Paramount has been the Hollywood stock to watch. The stock is down 19.6% year to date, besting steeper drops for Netflix (68%), Disney (38.9%) and Warner Bros. Discovery (45%). Paramount has even outperformed the broader Nasdaq composite, which declined by 26.7%. Bakish has taken a careful approach to embrace Paramount’s film strategy as national theater chains opened back up for business after COVID-related shutdowns. He tested the market with four films that draw different audiences. “Scream” and “Jackass Forever” skew younger, “Sonic the Hedgehog 2” reels in families and date-night fare with “The Lost City.” All hit No. 1 in the box office counts, and paved the way to finally release “Top Gun: Maverick,” which is approaching $1.2 billion in worldwide box office receipts. A
Streaming: Paramount’s CBS is America’s most-watched traditional television network for the 14th consecutive season. This is more than just bragging rights. More eyeballs on CBS programs is a huge revenue driver, but has an add-on effect to promote its film and streaming businesses. Paramount+ revenue during the last quarter grew eight times faster than Netflix and four times faster than Disney+ — relying on ad-supported tiers to show up the industry’s bigger platforms. Rivals (except for Fox) seem to be backing away from legacy media like television to go all-in on streaming, but Bakish doesn’t see it that way: “Our deep expertise and expansive reach across theatrical, broadcast, cable and streaming gives us multiple advantages the legacy streamers don’t have, strong promotional platforms to market and launch content and multiple revenue streams to generate return on every dollar of content investment.” But can the ad market remain robust as the economy slides into a recession? B+
Public image: Bakish isn’t exactly the most Hollywood of Hollywood CEOs. He got his start at the company as a buttoned-down management consultant when Sumner Redstone was building his empire. He’s suit and tie, not the flashy creative type. He’s described as an affable, easy-to-talk-to leader with a knack for solving problems. And he doesn’t need to be anything else with Shari Redstone in charge. One thing: Less is more. He took a nearly $20 million pay cut in 2021, which — even though the pay is still exorbitant — at least showed he’s in tune with the times. A-
Dealmaking: Bob Chapek wasn’t hired to make deals happen. He was given the CEO job to maximize Bob Iger’s nearly $86 billion shopping spree of Pixar, Marvel, Lucasfilm and 20th Century Fox.
“Iger knew that his acquisition period, especially after Fox, was over and there were no large targets left,” Tom Nunan, a former president of NBC Studios and UPN who’s now a continuing lecturer at the UCLA School of Theater, Film and Television, told TheWrap. “Someone needed to manage and monetize them, and Chapek is perfect because of his parks and consumer products experience. He’s an executor, not an innovator.”
There are still a few acquisitions he can take on that would go down as legend — and neither of them are exactly original. There’s longstanding buzz about buying Netflix in a deal that would instantly transform the combined company into the undisputed streaming king. Or, there’s a “merger of equals” with Apple, which is Wall Street-speak for “we’re selling, just don’t want to admit it.” A sale is doubtful because – who wants to be grilled by Walt in an afterlife board meeting about why you sold his company? Jury is still out even on what he plans to do with Hulu. C+
Performance: There’s only so many times someone can say “but he kept the trains running” about Chapek’s performance leading the company through the pandemic and now into a looming recession. Yes, earnings have been for the most part solid given the circumstances and how many consumer-related business lines Disney relies on. But the publicity missteps, lack of corporate vision, and projected sluggish second-half financials are taking a toll. Disney’s stock price is down nearly by half in the last 52-weeks — and that’s well below peers with the exception of Netflix. There will come a time, soon, where Wall Street analysts and institutional investors will stop saying “if he could just get the stock price higher.” They’ll quietly just give up on the Dow Jones industrial average component with the same kind of bitter resolve as getting in line for Space Mountain on a summer weekend. B-
Streaming: Chapek and Comcast CEO Brian Roberts might well have sat down at Sun Valley to discuss what they want to do with Hulu. Comcast has agreed to hold its 33% stake in Hulu until January 2024, then Disney buys the cable giant out for a minimum of $27.5 billion. Disney+ is already the “Netflix Killer” of the industry, and presumably doesn’t even need Hulu any longer (at one point there was discussion the streamer could be the PG-13 brand alongside the more family-focused Disney+). Chapek has not tipped anyone off about its future. Incomplete.
Public image: Paging, Zenia Mucha, the former head of comms at Disney. Paging Ms. Zenia Mucha, please pick up the white courtesy phone. D+ (Yes, we did that on purpose).
Dealmaking: Roku? That was the transformative deal floated for the past month that was going to turn Netflix’s fortunes around now that they want to introduce an ad-supported tier to help make ends meet. Face it, the streaming giant’s co-CEOs Reed Hastings and Ted Sarandos have no game when it comes to mergers, acquisitions, combinations, a sale, whatever a banker wants to call it. Netflix has made about seven deals in the past few years, most of them in the gaming space buying such luminaries as Boss Fight Studios and Next Games. In a letter to shareholders, Hastings bragged they were “examples of the ongoing industry consolidation as firms adapt to a world where streaming supplants linear TV.” Now that they passed over a $13 billion-plus Roku acquisition, an advertising partnership with Microsoft seems to be the immediate answer to their problems. The streamer can hook into the 100 million active monthly users for Xbox. (Someone please email TheWrap if you’re actually playing video games via Netflix). That’s not what investors are clamoring for. Wall Street once dreamed Netflix could dominate the world in a combination with a Silicon Valley stalwart or a Disney combination. This is the upside down world, and the co-CEOs have become way too confident and need to think bigger. D+
Performance: Netflix says it’ll spend around $18 billion this year on TV shows and movies (up from $17 billion last year). New subscribers don’t think they’re getting their money’s worth and dropping the streamer in the first month at a faster clip than rivals, according to a report from Antenna, a research provider that tracks consumer spending on subscription services. This is one big reason investors are backing away from the stock — it’s so low even Chapek is feeling superior. F+
Streaming: Netflix lost 200,000 subscribers during their first quarter, the first time it lost paying customers in more than a decade. Don’t panic, they say, there’s another 2 million projected to be lost during second-quarter results set to be announced on Tuesday. All of Hollywood was playing such a fierce game of follow the leader that every strategic decision made was focused on building out their streaming businesses. Then Netflix’s unexpected subscriber losses sent every Hollywood chief (except the Australian one) ducking for cover. The earnings warning sent Wall Street heading for the exits, wiping out $55 billion from Netflix market value in 24 hours. Disney lost $900 million and Paramount shed about $650 million during the same time span. If Netflix blows past the 2 million subscriber loss projection? “Chaos,” said one Wall Street analyst. C+
Public image: Somehow the co-CEOs remain the most respected administrative chiefs (Hastings) and creative minds (Sarandos) in the business. And writers, producers, actors, directors and key grips won’t say otherwise. B+
Dealmaking: David Zaslav’s Discovery Media made its marks with hit shows like “1000-lb Sisters” and “Naked and Afraid.” The cable content juggernaut’s net worth hovered at $14 billion, making it the nation’s 271st most valuable company. Armed with the best bankers in the world, Zaslav orchestrated the $43 billion acquisition of WarnerMedia known for classics like “North by Northwest” to present-day hits like the “Harry Potter” franchise. The creation of Warner Bros. Discovery, which closed on April 8, puts Zaslav head of the class as a dealmaking king. (Even Iger’s got to be a little jealous.) A+
Performance: The good news for Zaslav is that WBD’s stock price is cheap compared to earnings potential and projected sales for 2023 (the stock is at eight times the $1.62 earnings estimate for next year). He’s making some definitive moves to remake the new entertainment conglomerate (even removing well-liked Toby Emmerich as film chief). Zaslav is also doubling down on big tentpole fare, promising more wizards and a total reimagining of the DC Universe. (Emmerich will be replaced by former MGM bosses Michael De Luca and Pam Abdy at the end of the summer). Stock traders are energized, just don’t talk to a Wall Street bond trader. The world’s second-largest media giant after Disney is straddling a massive $43 billion in debt — much of it Zaslav deployed to buy Warner Bros. By comparison, Disney — an almost 100-year-old company which hasn’t changed hands since Walt and Roy founded it — has $46.6 billion in long-term debt. The smart money seems to be treading delicately into buying WBD stock, down about 45% from the start of the year. You get what you pay for. B-
Streaming: Zaz+? Speculation is mounting about what Zaslav will name (and do with) Discovery+ and the HBO Max streaming operations, which together are a formidable rival to Netflix and Disney+. Warner Bros. Discovery is reporting strong subscriber growth, and the company hasn’t even factored in what this will look like once packaged together with CNN programming (there is life after CNN+). The second half of the year will be make or break. C+
Public image: Hollywood needs the swashbuckling studio chief that’s flashy yet also whip-smart running a business. The Wall Street stock pickers seem to think Zaslav is the real deal – and having famous friends like Oprah Winfrey and Bono makes him the perfect L.A. operator. But he’s walking a tightrope by drawing attention to himself by taking a $246 million pay package in 2021, more than sextupling what he earned the year before. Great persona (A+), horrible compensation optics (F). C+
And the rest:
Most folks in Hollywood were definitely Team James, the polished Murdoch who seemed to fit in so naturally with the pace of Hollywood. Corporate politics and family dynamics changed the plotline of this real-life “Succession.” Lachlan Murdoch seemed a little slow at the start. But, he was running the company’s last earnings call in May like a boss — and seemed to relish announcing NFL star Tom Brady would be taking a color commentary gig upon retirement. He seemed even more pleased the television company steered clear of the streaming race to focus on bread-and-butter legacy TV and news operations by being “happily on the sidelines watching this bloodbath in the SVOD market.” B
Roberts missed out on buying Fox, came close to snapping up WarnerMedia from AT&T, and may be sniffing around Netflix. There’s also the potential of making a play for Hulu or being in the hunt for Paramount. Either way, it’s apparent Brian Roberts needs to do something to cement his tenure leading the family business launched by his father in the 1960s. He’s young enough at 63 years old to get a deal or two done comfortably. But, if the future is indeed streaming, the cable titan better get moving. The second half of the year is his best shot with $9 billion in cash on hand and market valuations low. B-
Remember when Lionsgate was a high-flying mini-major with a string of box office hits like “The Hunger Games,” “Twilight,” “Divergent,” “John Wick,” and “Madea”? The stock topped $35 in 2018 (today it’s about $8.40). Jon Feltheimer remembers the glory days too, which is why he’s reviving the “Twilight” and “Hunger Games” franchises. “The Ballad of Songbirds & Snakes,” a “Hunger Games” prequel, arrives next Christmas. But will Lionsgate still be around? The company most likely will end up selling out to a rival, at least according to Wall Street analysts. Meanwhile, Feltheimer is in the midst of deal talks that should see its Starz business sold somewhere in the next few months.
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