Streaming continued to be a mostly unprofitable business model in 2023. But London-based research firm Ampere Analysis predicts that the industry could finally turn a corner within the next 18 months.
While some studios’ streaming operations have already started reporting small profits, Ampere’s study looks at the timelines for consistent profitability, taking into account income from subscription and advertising against content costs, staff and marketing costs, depreciation and amortization to predict the point that businesses reach consistently positive earnings before income and taxes (EBIT). The study excludes sports streaming operations.
Disney is likely to reach profitability as early as the first quarter of 2024, according to the firm — two quarters earlier than the entertainment giant itself has predicted. Following closely behind will be Warner Bros Discovery by the third quarter of 2024. Both Paramount and NBCUniversal are expected to achieve the goal by the first quarter of 2025.
By 2028, Ampere expects that the studios will earn between $1 billion and $2 billion EBIT per year from streaming based on their current market footprint alone. Additional geographic expansion would lead to even more upside.
Ampere says the shift will be primarily driven by studios’ cost-cutting efforts, particularly related to content and staff, and the move to embrace advertising. The latter has the opportunity to provide significantly more growth and profit than currently predicted by the models, Ampere notes, which are based on known existing operations.
“A confluence of factors as varied as the end of Covid-19 lockdowns, geopolitics and the cost-of-living crisis created the environment that forced the studios to reassess the return on investment of the streaming direct model. The cost rationalization of the last 12 months has now positioned the industry for genuine streaming profitability in relatively short order,” Ampere Analysis executive director Guy Bisson said in a statement.
“Passing that milestone will impact multiple windows within the entertainment value chain,” Bisson added. “It will enable a return to flexibility and experimentation and a realization that existing models are already in place to fully exploit studio output when streaming direct takes its rightful place as one window in the broader value chain.”
Profitability of the streaming direct model could also lead to an acceleration of free streaming, including free ad-supported streaming television (FAST) channels.
Disney, which narrowed losses in its streaming division by 70% year over year to $420 million in its fourth quarter of 2023, has said its streaming business is on track to reach profitability by September 2024.
Meanwhile, Warner Bros. Discovery turned a $111 million profit in its direct to consumer division during its third quarter of 2023 — a $745 million year-over-year improvement and its second profitable quarter in a row.
NBCUniversal’s Peacock, which narrowed its losses to $565 million in the third quarter of 2023, compared to 614 million a year ago, said it expects peak losses of $2.8 billion in 2023 down from previous guidance of peak losses of $3 billion, and “meaningful EBITDA improvement” in 2024.
Paramount Global, which saw its direct to consumer division’s losses narrow 31% year over year to $238 million in the third quarter of 2023, expects full-year streaming losses for 2023 to be lower than in 2022, with fourth quarter 2023 losses similar to the fourth quarter of 2022. The segment remains on track to drive “significant earnings improvement” in 2024.
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