With the upfront presentations to marketers completed, up next comes the upfront negotiations in which billions of dollars of ad time are transacted between buyers and sellers over the upcoming weeks and/or months. These negotiations come at a time when several traditional media companies are facing financial challenges as consumer behavior toward media consumption is rapidly changing. According to Media Dynamics, last year’s TV/cable upfront negotiations generated $19.1 billion in ad dollars, a -5% drop-off from the 2022 upfront.
A look at three legacy media companies Paramount
After years of revenue losses, however, there is an indication that streaming video is slowly and finally becoming profitable. Streaming has benefited from the launch of ad supported tiers, crackdowns on password sharing, continued rate hikes and bundling opportunities among other initiatives. Nonetheless, despite the growth of streaming video, traditional media companies are competing for audiences and ad dollars with the likes of Apple
Also impacting the revenue of legacy media companies is the rapid growth of various ad supported digital media platforms. For example, eMarketer projects social media ad spending in the U.S. to reach $82.9 billion this year, a year-over-year increase of 13.5%. GWI, an audience research company, reports this year, daily time spent with social media will total 152 minutes, up 50% from the 95 minutes recorded in 2014. Retail media is also expected to grow substantially this year, eMarketer forecast U.S. ad spending will total $55.3 billion, an increase of 22.5% from 2023.
On the other hand, ad dollars for linear TV are expected to decline from $63.1 billion in 2023 to $56.8 billion in 2027. Over the next four years the ad spend for CTV will increase from $25.1 billion to $40.9 billion. Cord cutting which impacts two revenue streams, carriage fees and ad dollars is continuing unabated. According to Leichtman Research in 2023, prominent pay-TV distributors lost 5.04 million subscribers, a net loss of 6.6%. This is an increase from 2022 when there were 4.6 million cord-cutters.
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In addition, due in part to the two Hollywood strikes in 2023, another revenue headache this year has been a disappointing box office for movie studios. Through Memorial Day weekend movie ticket sales are running -22.6% below last year. Its forecast at year end 2024 domestic box office will be $800 million lower than in 2023.
Here is a quick look at Paramount Global, Disney and Warner Bros. Discovery based on the latest quarterly earnings report.
Paramount Global: For months there have been reports the sale of Paramount Global is imminent. Among the prospective buyers mentioned are Skydance, a combined offer from Sony/Apollo Global Management
In February, Paramount Global laid off 800 workers, 3% of its entire workforce. In late April, with buyout discussions ongoing, Bob Bakish stepped down as CEO, replaced with a three-person front office George Cheeks, president and CEO of CBS; Chris McCarthy, president and CEO of Showtime/MTV Entertainment Studios and Paramount Media Networks; and Brian Robbins, president and CEO of Paramount Pictures and Nickelodeon. With a potential buyout, the stated goal of threesome is to "materially streamline operations.”
In its latest earnings report, Paramount Global TV revenue grew +1% to $5.2 billion, led by a 14% increase in ad dollars. The growth was driven by the record audience of Super Bowl LVIII on CBS. (Next year the Super Bowl will air on Fox.) On the other hand, with cord-cutting, affiliate and subscription sales dropped by -3%. For the quarter, subscribers to Paramount+ grew by 3.7 million and now number over 71 million. Year-over-year revenue losses for streaming dropped by 44% from -$511 million to -$286 million.
As of May 21, 2024, Paramount Global had a market cap of $8.06 billion. In March 2024, the media company's total debt was nearly twice the amount at $15.8 billion.
Walt Disney
After years of revenue losses, in Disney’s latest earnings report its streaming unit is nearing profitability. Collectively, the three Disney’s streaming services Disney+, Hulu and ESPN+ (a.k.a. “The Disney Bundle”) reported a loss of only $18 million. Also, in a first, with just Disney+ and Hulu, revenue increased by $47 million, compared to a loss of $587 million one year ago.
In the latest earnings report, revenue of Disney’s linear television division (excluding ESPN) dropped by 8% totaling $2.77 billion. The revenue of ESPN increased year-over-year by 43% totaling $4.21 billion. The sports network’s operating income however, dropped by 9% to $799. Disney cited cord-cutting and increased rights fees of sports as the primary reasons for the falloff. (At $2.6 to $2.8 billion a year, ESPN is reportedly more than doubling the renewal rights to televise the NBA’s “A package” of games.)
Soon after Iger’s return, Disney announced a series of layoffs eliminating over 7,000 positions. (Disney has about 220,000 global employees.) The layoffs are expected to save over $7 billion in costs. Disney has a market cap of $185 billion with a debt load of $46 billion
Time Warner Discovery: In WBD’s most recent earnings report covering first quarter 2024, total revenue was $9.96 billion, a 7% decline from the previous year.
With a number of cable networks, in first quarter 2024, WBD’s TV ad sales dropped year-over-year by -11%, totaling $1.99 billion. Also, with cord cutting continuing, the distribution revenue declined by 7%. Overall, the division generated $5.1 billion, a falloff of 8%.
WBD reported 99.6 million paid streaming subscribers (Max, Discovery+ and HBO), an increase from 97.7 million in the previous quarter. Year-over-year revenue from the streaming unit held at $2.5 billion. In 2023 WBD’s streaming unit generated $103 million in becoming the first traditional media company to be profitable for an entire year. In first quarter 2024 growth continued as ad sales for the streaming unit grew year-over-year reached $175 million. In 2022 WBD’s streaming unit lost $2.1 billion.
Of late, the biggest news coming from WBD is they could potentially lose the media rights to the NBA, one of the crown jewels of televised sports. The current media rights expire after the 2024-25 season. While no announcements have been made, it is widely reported the NBA has already reached agreements with Disney and Amazon
CEO David Zaslav, has been criticized for bungling the negotiations. In November 2022 Zaslav infamously said, “We don’t have to have the NBA”, irritating commissioner Adam Silver. With questions about whether WBD will retain the NBA, the stock price this month had been dropping. WBD which is partnering with Disney and Fox in launching a sports streaming app has the right to match the offer of NBC and Amazon. Renewal rights could reach about $2.5 billion a year, doubling what WBD is currently paying.
WBD continues to look for cost-cutting measures which could include further layoffs in 2024. In the past year 2,000 positions had been eliminated. Similar to Paramount Global, WBD has a sizable debt load. At present, WBD’s market cap is $33.1 billion with a debt load of $55 billion.
Digital: For YouTube and Amazon, two digital companies that had advertising presentations during TV upfront week, their earnings reports were stronger. For example, in their latest quarterly earnings report ad revenue for YouTube grew year-over-year by 21% reaching $8.1 billion. The ad revenue for Amazon also reported year-over-year, percent double-digit growth. In first quarter of 2024 Amazon generated $11.8 billion, compared to $9.5 billion in first quarter 2023.
Meanwhile, Netflix, the third nontraditional company presenting during the TV upfronts, forecasts ad revenue to grow by 50% this year reaching $1 billion. Netflix launched its less expensive ad supported platform in November 2022.
