Hollywood strikes to dampen Big Media’s holiday expectations

Big media firms are expected to warn starting this week that studio revenues will slow in the coming quarters as dual Hollywood strikes left them with a thin release slate.

Walt Disney, Warner Bros Discovery and Paramount - which together account for nearly half of Hollywood revenues - have delayed the release of films, including ‘Dune: Part 2.’

That leaves the studios with little to follow the third-quarter success of ‘Barbenheimer’, with TD Cowen predicting that box-office revenue in the last three months of the year could be roughly a third lower than pre-pandemic levels.

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After a strong November line up with ‘The Marvels,’ ‘Trolls Band Together’ and a ‘Hunger Games’ prequel, big Christmas releases are few.

There is no obvious December blockbuster on the scale of ‘Avatar: The Way of Water,’ the highest-grossing film in 2022, or the 2021 hit ‘Spider-Man: No Way Home.’

The first dual work stoppage of writers and actors in 63 years has halted most productions since May. While the scribes began returning to work following a 148-day strike after reaching a deal with producers, it remains unclear when the actors would return.

Even if a deal is reached with the actors soon, Wall Street does not expect a quick respite for the studios as it could take weeks for productions to resume.

Analysts expect studio revenues at Disney and Warner Bros Discovery to slow to 2.9% and 4.7% between October and December, while Paramount will likely post a drop of 1.9%, according to LSEG data.

That compares with third-quarter estimates for a rise of 4.4% at Disney, 12.5% at Warner Bros Discovery and 16.2% at Paramount.

“With the major media companies trying very hard to turn the direction of margins back in a positive direction, in part by raising price on OTT services, the potential for an extended dry period for new content carries serious risks,” TD Cowen said.

The companies as well as Netflix have raised prices of their streaming services this year, betting that consumers will pay more or opt for cheaper, ad-supported services that are more lucrative for the business.

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Netflix, which makes many of its shows and movies overseas, reported earlier this month 9 million estimate-smashing subscriber additions in the September quarter and said it expected similar additions in the holiday period.

Higher fees powered growth in streaming revenue - likely 6.9% at Warner Bros Discovery, 14.2% at Disney and 33% at Paramount - in the September quarter, potentially reducing losses at the money-losing Disney+ and Paramount+ services.

Cable TV pressure

Media companies have long been grappling with a decline in cable TV. This has forced Disney to consider the sale of the assets that had long helped subsidize its streaming losses.

“The only bright spot is ESPN, which is the linchpin that holds the bundle together and viewership has stabilized over the last few years despite accelerated cord-cutting,” said Bernstein analyst Laurent Yoon of Disney, which he said has the largest exposure to traditional cable TV among the major media companies.

Disney has said it will break out sports programming revenue from the holiday quarter, and earlier this month disclosed declining sales and profit at ESPN, for which CEO Bob Iger has signaled he wants to find a partner to help create a streaming service.

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Disney is expected to report its fifth straight quarterly decline in linear TV revenue, a fall of 3.8%. Warner Bros Discovery and Paramount are expected to see declines of 5.4% each in their cable TV businesses.

Overall revenue at Disney is expected to rise 6%, Warner Bros Discovery to inch 2.1% higher and Paramount to grow 2.8%.

Paramount will report quarterly earnings on Nov. 2, while Disney and Warner Bros Discovery are slated for Nov. 8.