Is Streaming Actually Profitable?
The 2022 merger between Warner Bros. and Discovery (WBD) shook up the streaming service market, as the cancellation and removal of Westworld from Max signaled a trend that has since permeated throughout the industry. From Max to Disney+ to Paramount+, streaming companies are dropping series, leaving creators devastated and fans disappointed. The industry is undergoing significant changes due to shifting content, increased prices, and Hollywood strikes, leading consumers to scrutinize these companies more closely.
Surprisingly, companies find it more profitable to remove programming that was once a driving force for their service, even after spending millions to create it. Starting and maintaining a streaming service is expensive, requiring significant investment in content creation, licensing, and more. In the past, companies like Hulu and HBO spent millions of dollars on prestige content to attract customers, but this changed when Netflix lost subscribers for the first time in a decade in Spring 2022, causing the streaming industry to reevaluate success metrics.
While streaming services generate revenue, it is not the same as turning a profit. According to IndieWire, only Netflix and Hulu made a profit by the end of 2022, while Peacock, Disney+, Max, and Paramount+ reported billions of dollars in losses. Services like Apple TV+ and Prime Video do not disclose their profits and losses, making it impossible to evaluate their performance.
To recoup their losses, streaming services have resorted to tax write-downs and write-offs, as well as offering cheaper ad-supported tiers to drive up subscriber numbers and generate ad revenue. However, removing content also means that companies no longer have to pay royalties and residuals for those shows and movies, saving them even more money at the expense of content creators.
The rise of Free Ad-supported Streaming Television (FAST) and Advertising Video on Demand (AVOD) is also changing the industry, as consumers can rely on always-on services that mirror the broadcasting model of old, such as Tubi, Roku, and PlutoTV. Companies can move content that is not generating enough attention on their home apps to these services, earning more money through ad-based revenue.
As streaming services move towards a multi-armed model that generates revenue from multiple sources, they are learning that subscriptions alone cannot pay for the type of prestige content that audiences crave. The industry is undergoing significant changes, and consumers are watching these companies more closely than ever before.
The 2022 Warner Bros. Discovery (WBD) Merger marked a significant shift in the streaming service market. When the company not only canceled but entirely removed Westworld from Max, home audiences got their first taste of a trend that continues to reverberate throughout the industry. From Max to Disney+ to Paramount+ and more, streaming companies are dropping series left and right, devastating creators and disappointing fans.
There was a point where streaming services seemed poised to permanently change the industry; but now, given the slew of unexpected cancelations and other extreme cost-cutting measures, it seems the industry has changed them. Amid shifting content, higher prices, and striking creatives in Hollywood, consumers are looking at these companies with greater scrutiny.
Why would a company get rid of programming that was once a driver to their service, especially when they’ve spent so much to make that programming in the first place? Surprisingly, the answer is that it’s more profitable to remove the content, but why? In 2023, which, if any, streaming services are profitable?
Do Streaming Services Make Money?
Starting and maintaining a streaming service is expensive. From content creation to licensing and more, new streaming services require significant investment to even get off the ground. At the start of the streaming boom, this didn’t matter. Companies like Hulu and HBO wanted a piece of the Netflix pie and thus spent millions of dollars on prestige content to bring in customers.
This changed in Spring 2022 when Netflix announced the shocking news that, for the first time in a decade, the streaming giant lost subscribers. The fallout at Netflix was huge, but the fallout throughout the streaming industry is colossal. Before, companies measured success via subscriber growth, not revenue; now, streamers are tighter with their purse strings as executives look to increase revenue and stock prices.
None of this is to say streaming services don’t bring in money: they do, but that’s not the same as turning a profit. According to IndieWireNetflix and Hulu are the only two major streaming services that made a profit by the end of 2022. By contrast, Peacock, Disney+, Max (formerly HBO Max), and Paramount+ reported billions of dollars in losses in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). And these pictures aren’t completely accurate, given that only some of these metrics are shared with the public. Services like Apple TV+ and Prime Video don’t even do that, making it impossible to know their profits and losses.
How Do Streaming Services Recoup Their Losses?
Streaming services are not profitable from subscribers alone simply because operating costs are way too high. Once Wall Street decided streamers should focus on revenue instead of exponential growth, stock prices dipped and consumers started to see a troubling and unexpected change in the industry.
It started with WBD’s cancellation of Batgirl despite the film being near complete. Reports surrounding the cancelation cited several possible reasons for this, including negative test screenings that implied the film threatened the DCEU’s reputation — the latter of which seems suspect considering the company’s continued work with Ezra Miller.
No, what likely happened to Batgirl is what’s been happening throughout the streaming industry: companies see it as more profitable to take tax write-downs on these projects because it’s a safer financial bet. Just look at the slew of content Disney removed from Disney+ and Hulu in May 2023 to the tune of approximately $1.5 to $1.8 billion in write-downs. Removing content also means companies no longer have to pay out royalties and residuals for those shows and movies, saving them even more money at content creators’ expense.
Aside from tax write-downs and write-offs, streaming services have found other creative ways to reduce and recoup their losses. Hulu started as ad-supported, with the company adding an ad-free tier in 2015. More recently, companies like Disney+ and Max have begun offering these cheaper alternatives to drive up subscriber numbers. This works for them two-fold, as it not only brings it new customers but also gives companies the ad revenue that was the lifeblood of the cable industry. Once Netflix added its ad-supported tierthe company found that these subscribers earn $8.50 more per month than standard customers. The lesson these streamers are learning, it seems, is that making a profit requires a multi-armed approach.
The Future Is FAST
The infamous purges of content that continue to plague streaming services are tied to the rise of FAST and AVOD. FAST stands for Free Ad-supported Streaming Television and refers to always-on services that mirror the broadcasting model of old. AVOD, or Advertising Video on Demand, works just like an ad-supported tier on a service like Hulu or Netflix. Among the top players in this market are Tubi, Roku, and PlutoTV. With these services, people can tune in to their favorite shows and movies for free. You don’t even have to sign up with an email address if you don’t want to. With rising costs everywhere, consumers can cut spending by relying on FAST channels.
And the libraries of these channels are growing thanks to other services selling them their content. At the beginning of 2023, WBD announced they’d be moving content removed from Max to Roku and Tubi: this includes the aforementioned Westworld, Raised by Wolves, The Neversand The Time Traveler’s Wife. For the most part, the content companies choose to move to FAST channels are shows and movies that aren’t garnering enough attention on their home apps. Instead of letting these sit in the library gathering digital dust and notably not bring in subscribers, companies can earn way more money by moving them to ad-based services.
As streamers come to discover that subscriptions alone can’t pay for the type of prestige content audiences crave, they’re moving more and more to a multi-armed model that brings in revenue from multiple sources, just like cable before it.