Biggest Global TV Players Ride Blockbuster TV Shows but Can It Last?

Call it media’s butterfly effect.

The entertainment industry’s global pipelines for TV and film have grown exponentially over the past two decades. The streaming revolution has created a truly global marketplace for the biggest shows to play around the world on a day-and-date binge basis. The playing field is bigger than ever for global hits on the scale of “House of the Dragon,” “Stranger Things,” “Squid Game,” “The White Lotus” and “The Mandalorian.”

So at this moment of heady opportunity, why has Hollywood seemingly been in a state of turmoil for many years? The gloomy clouds over the long-term business potential of TV began to gather before the pandemic, but the COVID-19 disruption coupled with the writers’ and actors’ strikes last year forced the industry to confront difficult issues that are no longer far down the road.

No less an industry veteran than John Malone, chairman of Liberty Media and architect of the U.S. cable business, summarized the grim mood among senior leaders in an interview this month with media analyst Craig Moffett of MoffettNathanson.

“The media companies are scared to death that they’re seeing nothing in the future but a struggle,” Malone told Moffett in a report published Sept. 25.

By contrast, as industry insiders prepare for the annual trek to Cannes for Mipcom, Europe’s largest legacy media companies have held up better, but headwinds are gathering.

Hollywood’s traditional studio giants have seen their profit models turned inside out by the rise of streaming. Nobody saw the level of disruption that was to come as consumers quickly — and fervently — embraced the ease and convenience of having so much content on-demand at their fingertips. But that unfettered access to new and vintage content comes at a price for Hollywood.

The ripple effect from Netflix, Amazon, Apple and now Disney and Warner Bros. Discovery swinging for the fences to draw subscribers from around the world to broad-based streaming platforms has upended the money-making equation. That’s one reason why Paramount Global endured a nearly year-long sale process that stirred up a number of low-end bidders, but few bankable offers beyond the Skydance Media deal valued at a lowball $8 billion to merge with the parent company of CBS, Paramount Pictures, MTV, Nickelodeon, Comedy Central and BET Networks.

So far, the streaming marketplace has been unforgiving to all but the largest companies with the deepest vaults and biggest checkbooks.

“It seems as though streaming has become a good business after all,” wrote analyst Robert Fishman of MoffettNathanson Research. “At least, it has for Netflix, and should become one for Disney. Yet, unlike the world of linear it replaced, it is a winner takes all/winner takes most game. After the spoils directed to those two platforms, it is hard to see there being much left for the rest.”

In the U.S., linear cable TV is suffering through a drought of viewers and low levels of investment. The money in cable is now going into linear sports, which is not the kind of TV program that can be sold in markets around the world for a high price, the way “ER,” “Seinfeld,” “Law & Order,” “CSI,” and “Grey’s Anatomy” and their ilk have been for decades. Even at the most local level, TV stations are not spending the kind of millions of dollars that they once did to acquire rerun rights to successful shows coming off ABC, CBS, NBC and Fox.

The collapse of the domestic syndication marketplace raises a chicken-and-egg quandary. The supply of successful sitcoms — which were a key driver of revenue for local TV stations — dried up as the viewing audience fragmented with the proliferation of cable and streaming outlets. That meant fewer hits on the scale of “Friends,” “Home Improvement” and “Modern Family” — the kind of mammoth, era-defining shows that sparked bidding wars among local stations.

“We went from a period of growth to maturity,” says Rose Oberman, media and entertainment director for S&P Global Ratings, which offers credit ratings and analysis for business sectors around the globe. “We’re expecting a decline with revenue and cash flow. We still think these are viable businesses. We’re not seeing any cliffs coming over the next several years. The decline should be gradual.”

Nonetheless, that melting ice cube effect is the essence of the financial crunch for Hollywood. New sources of revenue from subscription and advertising-supported streaming are not growing fast enough to offset the slow but steady decline of the advertising and licensing revenue that once paid for Malibu beach houses, private planes and other luxuries that were once taken for granted as byproduct of Hollywood success.

Moreover, as Netflix and other subscription streaming platforms have planted roots, the supply of shows available for second (or even third) monetization windows in syndication and international licensing has truly evaporated. Most of the biggest properties coming out of Disney, Warner Bros. and NBCUniversal are bound for streaming platforms that rely on retaining rights to their shows for years to come.

Malone, in his interview with Moffett, noted that Europe’s largest TV players have held up against the same trends that are bedeviling the U.S. majors.

As paraphrased by Moffett, Malone observed that the big Euro broadcasters — think the U.K.’s BBC and ITV, Germany’s RTL and Pro Sieben, France’s TF1, Italy’s RAI and Spain’s Antena 3 — “are still reasonably strong and cord-cutting is much slower,” Moffett wrote. “Most of the old media companies have presumably learned their lesson about direct-to-consumer, in Dr. Malone’s view, so there should be flexibility now to experiment and try things that, particularly internationally, require a wholesale/retail distribution system to be stable and long-term.”

In fact, that dynamic will greatly help Warner Bros. Discovery as it tries to find the balance between streaming investment in the Max platform and working the traditional levers of making money. Max is available as a standalone platform as well as in a bundle through other cable and satellite distributors. In the U.S., those deals have been much harder to come by for Disney and Warner Bros. Discovery as cable operators see streaming outlets as the enemy cannibalizing their video subscriber base. But that too is changing, in part through deals like the pact that WBD just reached with cable giant Charter Spectrum (in which Malone is also an investor).

The fact that WBD only generates about 10% to 15% of its revenue to date from markets outside the U.S. and Canada gives them some all-important wiggle room.

“They’ve got a long way to go in terms of monetizing international and they’ve got great creative talent,” Malone told Moffett.

Despite dire predictions, WBD is working from a position of strength, Malone insisted. Yes, Discovery’s 2022 merger with WarnerMedia left the company with more than $50 billion in debt (now down to about $40 billion). But the company has enough strength to weather the current storm. The balance sheet is “pretty bulletproof,” Malone said. “They’re not going to run out of cash anytime soon. So they don’t have to do anything while they sit and watch this consolidation in the industry move forward.”

In other words, the increasingly global business of TV is becoming a true “Game of Thrones” where only the strongest will be able to survive. Others may have to settle for what Malone called “the arms merchant” role of producing shows for a handful of top global buyers — most of them backed by giant tech firms a la Amazon and Apple.

“You can’t monetize your own distribution if you don’t have [worldwide] scale,” Malone told Moffett. “So then you go back to being an arms merchant. And you know, I mean, there’s a good business in being an arms merchant, but it’s not big enough to meet the ambitions of the [WBD] management.”