Forecast: Studio SVoDs profitable within 18 months
December 21, 2023
A significant turnaround for studio direct streaming is just around the corner with all major studio streaming divisions (excluding sports operations) set to turn a consistent profit within 18 months, the latest research from Ampere Analysis suggests. The shift to profitability has wide-ranging implications for content production and the wider entertainment landscape with a reversal of investor negativity likely to come sooner than previously predicted.
Who will achieve profitability first?
After investor sentiment towards direct streaming soured and studios implemented a series of cost rationalisation measures, the scene is now set for the streaming businesses of Disney, Warner Bros Discovery, Paramount and NBCUniversal to head achieve consistent quarter-on-quarter profitability with the narrative switching from ‘when will studio streaming make money?’ to ‘who will get there first?’ While some studio streaming operations have already reported small profits, the analysis looks at timelines for consistent profitability, taking into account income from subscription and advertising against content costs, staff and marketing costs, depreciation and amortisation to predict the point that businesses reach consistently positive EBIT.
Ampere predicts that Disney is likely to get there first, as early as calendar Q1 2024 (two quarters earlier than the company itself has predicted). Warner Bros Discovery will be a close second, reaching consistent profitability by calendar Q3 2024 with both Paramount and NBCU not far behind, achieving the goal by Q1 2025.
Not only have all the major studio streamers now laid the groundwork for profitability in relatively short order, but they all also look likely to turn streaming direct into significant sources of profit. By 2028, studios will earn between $1 billion and $2 billion EBIT a year from streaming based on current market footprint alone. Additional geographic expansion would lead to even more upside.
Cost rationalisation and advertising revenue deliver results
The shift in fortunes has been driven by two major factors: cost rationalisation (particularly the two major cost centres of content and staff) and the move to embrace advertising dollars. Advertising also provides a wild card opportunity for significantly more growth and profit than currently predicted by the models, which are based on known existing operations.
“The analysis shows that streaming direct is not a broken business model but an important revamp of an existing content exploitation window,” explains Guy Bisson, Executive Director at Ampere Analysis. “Understanding that this model is on the point of consistent and notable profitability is crucial as the ability of streaming to continue driving content origination and investment has wide implications for the creative sector. Additionally, with studios now able to position streaming correctly as a profit-making direct subscription window that is complimentary to theatrical exhibition, transactional and free television, sectors that had previously been deprioritised should also see a boost. The rationalisation of streaming is already seeing renewed support among studios for the theatrical window and revisiting of the content licensing model.”
Profitability of the streaming direct model (much of the growth in which will be driven by advertising) will also see an acceleration of free streaming, including Free Ad-supported Streaming Television (FAST) channels.
“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,” adds Bisson. “The cost rationalisation of the last 12 months has now positioned the industry for genuine streaming profitability in relatively short order. Passing that milestone will impact multiple windows within the entertainment value chain. It will enable a return to flexibility and experimentation and a realisation 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.”