The Coming Streaming Collapse

The Coming Streaming Collapse

Streaming has become a bubble economy.  And bubbles always go pop.

The Warner Brother’s Discovery quarterly earnings report was, believe it or not, interesting.  In places anyway.

The biggest place was reserved for WBD CEO David Zaslav’s little speech where he demolished the entire business model for the 2022 entertainment industry.

The Unfallen Darklings who read this blog on the regular know all about my spiel on studios chasing the Twenty Billion Dollar Dragon, so skip the next couple of paragraphs.  

A few years ago, the studio moguls did something rather touching in its childlike naivete.  They believed another entertainment company’s earnings report.  Netflix’s, to be precise. Netflix claimed with perfect conviction, that it was making $20 Billion a year off of its streaming subscriptions.  The Moguls looked over Netflix’s business model and it appeared that Netflix was doing it on the Mogul’s own content. AAARRRGGGGHHHH!!!

When they calmed down again, the solution seemed simple enough.  If we want to make $20 billion a year of our very own, then forget about the theatrical distribution model.  The answer is to build a streaming service, pull all of our own content off of Netflix, then stream it on said service and finally roll around naked in the billions of dollars we will be keeping in our Scrooge McDuck vault squealing, “w-h-e-e-e-e-e!!!”  Clearly, streaming is the way of the future!

Well, it’s 2022 and a few things are becoming clear. The clearest being Netflix might be a pretty dodgy outfit.  

They have a history of it.  I started a Netflix subscription in the early 2000s back when it was solely DVD by mail, and they were shifty back then. Their whole “no late fees ever” policy was based on the fact that they wanted you to return their DVDs late.  If you forgot to mail back a DVD for a month, then you had just bought Netflix a new DVD.  Blockbuster Video made money when you returned a rental and then rented a new DVD. Netflix lost money when you returned a DVD and they had to mail you the next one on your rental list (because mail ain’t free).  If you had a fast turnaround time, meaning you frequently mailed back your DVD the day after you got it, Netflix would sit on your next DVD for a few days.  Netflix had what amounted to a secret anti-late fee.

They made their business practices obvious enough when they put Susan Rice on the board of directors and gave the Obamas a major production deal. You only made warm cuddles with the Obamas if you were getting mega-big-super government handouts.  Netflix is very much an international company and the various things that have to be done with exchange rates and foreign bank accounts all lend themselves to bookkeeping legerdemain. 

When Netflix started producing its own content it used outside financing and lots of it.  Despite supposedly making $20 billion a year, they didn’t seem to be producing much with their own funds.  Sure, there are arguments for doing it that way, but it does muddy the waters a lot when you have huge amounts of money constantly coming and going.

This was easy to do in the days of cheap debt.   But the days of microscopic interest rates are gone now.  Money is about to get very expensive.

The first time Netflix had a downturn they started swinging the layoff ax. And they aren’t done yet. 

The Big Four studios all have their own streaming services now and they aren’t making anywhere near $20 billion a year.   Worse still, streaming their own movies has cost them a lot of money.  Warner was easily the hardest hit, during the plague they opted to pull all of their content out of the theaters and stream it on HBOmax in the hope it would be the new Netflix.   The only thing it did was squander capital and did it so egregiously Warner’s parent company spun them off.

At the earnings call, Zaslav treated Hollywood to a lesson in the bloody obvious. When you send a movie to the theaters first it makes money and creates public interest.  Then sell it on DVD/Blu-Ray, plus sell streaming “copies” on Amazon Prime/Apple TV/YouTube.  Then you can rent it to another streaming service.  Last, you rent it to broadcast TV.  But when all you do is send it straight to your own platform, you just lose hundreds of millions.

Although, what really horrified Hollywood is David Zaslav’s plans for HBOmax.  Right now, Discovery is skewed towards women, this market is already established.  And HBOmax is skewing itself toward men.  Zaslav caused heart attacks by announcing that since HBOmax doesn’t have an established audience yet, it would be smarter to deliberately skew it toward males.  Just mentioning that men exist is a major thought crime.  That they should be catered to is revolting horror the likes of which has not been seen since 2015.

David Zaslav is demanding that Warner Brothers Discovery become that thing that SJWs dread with an icy terror:  A for-profit business.

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