Behind the scenes, Hollywood is looking at a rocky road in 2023. With the fear of economic recession looming, a potential writer's strike, and viewership declining in streaming and the traditional cinema industry, executives and analysts are expressing apprehension about the new year, according to the Financial Times. The outlook of one chief executive of a major media group is, “[2023] will be bad, some companies are going to have a really, really hard time.”
This less-than-rosy outlook comes after a financially tumultuous year in 2022 when investors became fed-up with the streaming-era that previously rocketed Netflix to the top, losing the largest entertainment groups over half a trillion dollars in the stock market. Benjamin Swinburn from Morgan Stanley estimates that the continued streaming advance in 2022 by Disney, Paramount, NBCUniversal, and Warner Bros Discovery, who owns HBO, collectively cost the entertainment companies more than 10 billion dollars in operating income.
With investors turning their back and the media sector taking a brunt of the financial hits, Steve Kram, former chief operating officer of William Morris Agency and current chief executive of investment group Content Partners, LLC, echoes the anxiety felt by his peers, "People are worried across the board, you’re seeing cost-cutting throughout the entertainment business, you’re seeing pressure from the financial institutions to bring down debt levels and not provide additional debt capital. [2023] is going to be a difficult year.”
Decline in Viewership Across the Industry Remains a Crux in Hollywood's Financial Woes, and a Potential Writer's Strike Increases Uncertainty
Decline in viewership across cinema as well as streaming has forced companies to cut costs in any way they can. Disney replaced its CEO shortly after announcing a 1.5 billion dollar loss for its streaming platform Disney+ in the last quarter of 2022, which looms big compared to the 630 million dollar loss reported for the same quarter in 2021. And Disney isn't alone; Warner Bros. Discovery has pulled dozens of shows from HBO Max and laid off hundreds of its staff as it faces a whopping net debt of 50 billion dollars.
According to Morgan Stanley analysts, don't expect light at the end of the tunnel anytime soon. The analysts anticipate that 2023 will only bring half the amount of streaming subscribers to the industry as 2021. They attribute the decline to the 'new phase' that the streaming industry in entering- slower growth combined with higher costs.
Viewership remains troublesome for traditional movie theater chains as well. They grapple with the aftermath of the pandemic as audiences have not returned to their pre-2020 theater-attending habits. This problem forced the second-largest cinema owner, Cineworld to file for bankruptcy in September of last year. Additionally, it has caused other cinema chains to take on an exceedingly risk-adverse mentality towards releasing films in theaters.
As if to add salt to the wound, potential for the first writer's strike in 15 years takes shape as the Writers Guild, the Director's Guild, and the Screen Actors Guild all draw up contract negotiations for early this year. If the writer's strike materializes, work would come to a standstill at Hollywood's largest studios.
David Zaslav, who serves as the President and CEO of Warner Bros Discovery and holds a reputation for his firm hand in budgetary matters, discussed the company's current 'messy' restructuring at an investor conference last November. He warned of the difficulty ahead in meeting his 2023 profit goal, while underpinning that "the advertising market is very weak."
Zaslav used an analogy to round out the situation, "We're building a mural. We're painting a mural on the side of a building, and all kinds of stuff is falling off. And it looks messy, and it is messy. And it's really hard. And it's really challenging." He elaborated his point, but wrapped up on an optimistic note by reiterating the necessity for messiness in order to grow. With Hollywood sitting on the brink of a daunting year, only time will tell how adaptable it really is.