When the media titans Brian Roberts, John Malone and Barry Diller cast off in early February on Mr. Diller’s 156-foot, two-masted yacht, named Arriva, the waters off the coast of Jupiter, Fla., were placid.
The same could not be said for their sprawling entertainment businesses.
The three men meet occasionally to discuss the state of the industry, and lively disagreements have a been a staple of their discussions. But by the time they met on the yacht, they had all agreed that the money-losing status quo in the streaming business was unsustainable. The old cable model was a melting ice cube.
But what will take its place?
“There was peace in the valley for a period of time,” Mr. Malone mused in a rare recent interview, recalling the days before video-streaming upended the lucrative cable business. “Now, it’s quite chaotic.”
That is likely an understatement: The once-mighty Paramount, which owns the famed Paramount studio, CBS and a bevy of cable channels, recently replaced its chief executive and failed to sell itself after months of negotiations. Warner Bros. Discovery is frantically paying down its $43 billion in debt. Disney laid off thousands of workers and pushed out its chief executive as streaming losses mounted, and had to fend off a proxy contest from the activist investor Nelson Peltz.
The stocks of legacy media companies are a fraction of their former highs: Paramount is near $10 a share and Warner Bros. Discovery is hovering around $7, both down drastically from levels reached during the past year. Even Disney, at about $102, is down more than 16 percent from the price reached in March.
No wonder: Paramount, the media empire controlled by Shari Redstone, lost $1.6 billion on streaming last year. Comcast lost $2.7 billion on its Peacock streaming service. Disney lost about $2.6 billion on its services, which include Disney+, Hulu and ESPN+. Warner Bros. Discovery says its Max streaming service eked out a profit last year, but only by including HBO sales through cable distributors.
At the same time, shares of the disrupters — Netflix and Amazon — are close to record highs.
Mr. Malone, Mr. Roberts, and Mr. Diller all came of age during the golden era of television. Mr. Malone, 83, clawed his way to a multibillion dollar fortune by building a cable empire, and is an influential shareholder in Warner Bros. Discovery and a longtime mentor to its chief executive, David Zaslav. Mr. Roberts, 64, succeeded his father as chairman, chief executive and the most influential shareholder of Comcast. Since then, he has transformed Comcast into a broadband giant and, by acquiring NBCUniversal, into a media powerhouse. Mr. Diller, 82, is chairman of IAC, the digital media company, and a veteran TV and movie executive. His long and successful tenure in entertainment and media has earned him a position as one of the industry’s most sought-after senior statesman.
By comparison, the heads of the disrupters, Netflix and Amazon, are younger, brash newcomers, with little attachment to Hollywood’s golden age.
Ted Sarandos, 59, co-chief executive of Netflix, worked his way up through the now-defunct DVD industry before going straight to Netflix when the company was still renting DVDs by mail. Mike Hopkins, 55, head of Prime Video and Amazon MGM Studios, was steeped in digital as chief executive of Hulu, the pioneering streaming service owned by Disney, Fox and NBCU, before joining Sony as head of its television unit in 2017. He came to Amazon in 2020 and reports to the company’s chief executive, Andy Jassy, 56, who has no professional background in entertainment.
Over the past five months, The New York Times interviewed those three older executives, and the two younger ones, as well as numerous other owners and senior executives of major media companies to assess the problems facing the industry and what the future landscape could look like.
Rarely do these executives speak so candidly, on the record, about the challenge in front of them. And the meetings on the yacht aside, rarely do executives in that stratosphere get together to discuss strategy. Not only are many of them fierce rivals — Mr. Roberts famously drove up the cost of Disney’s 2019 acquisition of 21st Century Fox’s entertainment assets by bidding against Disney’s chief executive, Bob Iger — but meetings among direct competitors might attract unwelcome attention from antitrust regulators.
In our conversations, there were still plenty of disagreements, but some consistent themes emerged as well — all with major implications for investors, advertisers and audiences.
The Magic Subscriber Number
Streaming has long been hailed as a promising business, because companies like Netflix can add additional subscribers at little extra cost. The more paying subscribers a service has, the more the company’s costs can be spread out over a large base, lowering the cost per subscriber.
But those subscribers want lots of options, and the costs of making enough programming can be enormous. As a result, a streaming service’s profitability depends in large part on how many paying subscribers are needed before those TV shows and movies become cost-effective.
There was a time when industry executives hoped that number might be as low as 100 million.
But now the consensus among many of the executives interviewed is that the number is at least 200 million, and possibly more.
“If you’re going to be a full entertainment service with live sports and tent-pole blockbusters today, 200 million is a number that can give you the scale with the hope for growth over time,” Mr. Hopkins of Amazon said.
Bob Chapek, Disney’s chief executive until 2022, also agreed that 200 million was the number that meant “you’re big enough to compete.”
Netflix has reached that, and then some, with about 270 million paying subscribers. Moreover, those subscribers pay an industry-leading average of more than $11 per month.
Netflix is highly profitable, with operating margins of 28 percent. In the first quarter of 2024, Netflix reported revenue of $9.4 billion, and $2.3 billion in net income. No one else comes close.
Disney and Amazon are the only other streaming services with more than 200 million subscribers. While Amazon doesn’t disclose the number of its Prime Video subscribers, Mr. Hopkins said the number was well above 200 million and growing. Disney+ and Hulu, which is also owned by Disney, have just over 200 million subscribers combined.
In May, Disney said its entertainment streaming services eked out a small profit. Amazon doesn’t disclose profit margins or losses, and streaming is embedded in a package of Prime services. But Amazon’s chief executive, Andy Jassy, has said that Prime Video will be “a large and profitable business” on its own.
$50 Million an Episode, Over and Over
The costs of attracting — and keeping — those millions of customers is no cheap feat.
Overall, Netflix has said it will spend about $17 billion this year on programming, about what it did before last year’s Hollywood strikes depressed production. That level of spending has produced a golden age for A-list writers and actors, many of whom are flocking to the company. A new series, “3 Body Problem,” debuted a few months ago on Netflix at a reported cost of about $20 million per episode. It spent more than $200 million on “The Gray Man,” starring Ryan Gosling.
“It’s a tall order to entertain the world,” Mr. Sarandos of Netflix said. “You have to do it with regularity and dependably.”
For Netflix, $17 billion represents only about half of its total revenue. But almost no competitor can match that spending level, the executives said, except for maybe Amazon. Amazon spent $300 million for six episodes of the spy thriller “Citadel,” or $50 million per episode — one of several major bets it has made.
Not all of those pay off. But when they do, the impact can be huge, like wildcatters when they hit a gusher. Amazon paid $153 million for one season of “Fallout,” a series based on the popular post apocalyptic video game. In April, “Fallout” was the top streaming title, racking up over seven billion viewing minutes, according to Amazon.
Mr. Sarandos held out the company’s recent “Baby Reindeer” series as a prime example of why companies have to keep spending: because viewers expect a nearly endless supply of options, or they will hit the unsubscribe button.
“When you finish ‘Baby Reindeer,’ there’s something else just as good,” he said. “I worry that this notion of these other services, that they have nothing to watch problem, and that once you do a show and then you drag it out over 10 weeks or doing one episode at a time, you still end up in the same place, which is there’s nothing to watch after it.”
The data appear to bear him out. When cable TV was in its heyday, 1.5 to 2 percent of subscribers churned monthly, abandoning or suspending their service. The average churn across all streaming services is more than double that, according to data from analytics firm Antenna, with the churn rate of some smaller streaming services, like Paramount+, as high as 7 percent. Only Netflix has a churn rate below 4 percent.
Some executives who oversee rivals to Netflix and Amazon say their companies can reduce spending by only producing hits. But that’s been the holy grail ever since Hollywood was created, and no one has succeeded over the long term. Even Disney’s Marvel franchise has stumbled at the box office lately.
That means streaming services need the resources to invest in a wide variety of projects, knowing there will be some, even many, relative failures for every hit. (“Citadel” is a case in point — it never made Nielsen’s top 10 streaming shows.)
“It’s still more art than science,” Mr. Sarandos said.
Play Ball
Adding to the cost pressure, the executives said, is the soaring cost of sports programming. Even in the bygone era of traditional television, the broad appeal of sports was obvious. The big networks paid billions for must-see events like the Super Bowl and the N.B.A. Finals and much of what was left over went to Disney and Hearst-owned ESPN, one of the most lucrative cable franchises ever created.
But that was before streaming and the arrival of the deep-pocketed tech giants. Amazon now offers football games from the National Football League, NASCAR races, the W.N.B.A. with its newly minted star Caitlin Clark, the National Hockey League in Canada and Champions League soccer in Germany, Italy and Britain.
Apple TV+ also features Major League Baseball, as well as Major League Soccer.
Alphabet’s YouTube offers N.F.L. Sunday Ticket, a lineup of out-of-market football games. Even Netflix, which long shunned live sports, announced in May that it would stream N.F.L. games on Christmas Day for the next three years.
The appeal of live sports is both unique and twofold: They attract new streaming subscribers and reduce churn since viewers want to watch sports live. It is also a big draw for advertisers as streaming services look to grow their ad businesses.
It may not be an overstatement, the executives said, to say that a streaming service can’t survive as a stand-alone business without sports.
Comcast’s Peacock scored a huge success in January with its exclusive N.F.L. playoff game between Kansas City and Miami. The game was the biggest livestreaming event ever, with nearly 28 million viewers. (Comcast’s NBC network pays $2 billion annually for a package of N.F.L. broadcast rights.)
“Sports seems like the simplest and most interesting thing,” Mr. Malone said.
The result is bidding wars unlike anything experienced before in the media industry, currently on display during the protracted negotiations for a new 10-year N.B.A. rights contract. The rights, which are now shared by ESPN and Warner Bros. Discovery’s Turner cable network, are being chased by NBC and Amazon, as well as ESPN and Warner Bros. Discovery.
While ESPN, Amazon and NBC are finalizing deals for their packages, Warner Bros. Discovery is seen at risk of being outbid, though executives at Warner Bros. believe they have the legal rights to match Amazon’s bid. Many in the industry expect that the final deal will be more than triple the last N.B.A. contract.Which raises questions that executives didn’t have a clear answers to:
As the cost of rights soars, will the streaming services actually make money on them? Or will marquee sports events function as loss leaders, drawing viewers to other fare, as they once did for the old broadcast networks?
Advertising to the Rescue?
Wall Street analysts and investors in streaming once fixated entirely on the number of subscribers, ignoring losses, in the belief that prices would someday rise substantially. That changed with dizzying speed in early 2022, when Netflix announced it had lost subscribers for the first time in a decade.
It’s now clear that price increases won’t be the answer to streaming profitability for most services, the executives said. Netflix is the industry price leader and has pushed its monthly fee in the United States to $15.49 a month without ads. Few believe the monthly fee can get much above $20 a month for the foreseeable future.
After years of championing an ad-free consumer experience, Netflix introduced an ad-supported subscription in 2022 at a steep discount of $6.99 a month. Disney+, Hulu, Amazon, Warner Bros. Discovery’s Max, Peacock and Paramount+ all offer cheaper, ad-supported subscriptions.
“It’s a nice way to get price-sensitive consumers,” said Mr. Chapek, who introduced an ad-supported tier while running Disney. “Heavy users will still come and pay the higher monthly fee.”
Mr. Chapek acknowledged that advertisers covet — and will pay more for — mass audiences. As a result, the streaming services have a strong incentive to produce programs with broad appeal instead of more niche content, including some of the kind that generates critical acclaim.
Netflix shocked many in the industry last year when for the first time it revealed its most-watched programs over the prior six months. At the top were “The Night Agent,” an action-thriller, and “Ginny and Georgia,” a comedy-drama about a mother and daughter trying to forge a new life. Both shows were snubbed by Emmy voters, with a lone nomination for a song from “Ginny and Georgia.” (“Squid Game,” developed in Korea, is Netflix’s most-watched program ever.)
Advertisers, the executives say, also like that streaming services can target ads to specific users and demographics.
The results have been explosive. Netflix is on pace to generate roughly $1 billion in advertising revenue this year, according to estimates from eMarketer, and Disney has already generated $1.7 billion this fiscal year.
That kind of success suggests that streaming ads are here to stay. And some of the executives said streaming services predicted that companies would raise prices aggressively on ad-free tiers in an effort to drive consumers to ad-supported versions.
Who Will Survive?
How many streaming services will consumers support? That was one of the great mysteries of the nascent streaming world, and the answer is coming into focus: not very many.
“Can your current business be a successful player and have long-term wealth generation, or are you going to be roadkill?” Mr. Malone mused. “I think all the small players will have to shrink down or go away.”
A recent Deloitte study found that American households paid an average of $61 a month for four streaming services, but that many didn’t think the expense was worth it.
That suggests the once-unthinkable possibility, many of the executives said, that there will be only three or four streaming survivors: Netflix and Amazon, almost certainly. Probably some combination of Disney and Hulu. Apple remains a niche participant, but appears to be feeling its way into a long-term, albeit money-losing, presence, which it can afford to do. That leaves big question marks over Peacock, Warner Bros. Discovery’s Max, and Paramount+.
Peacock, with just 34 million subscribers, isn’t trying to be another Netflix. By focusing on North America, and not trying to be all things to all customers, Mr. Roberts believes Peacock can achieve success on its own terms.
Peacock also has the advantage to being embedded in the much larger Comcast, with its steady cash flow.
“We all have a different calculus to define success in streaming,” Mr. Roberts said. “As online viewing increases and internet usage skyrockets, I believe we have a special set of assets that put us in position to continue to monetize and more importantly innovate as this transition happens.”
The Bundling Conundrum
After years of go-it-alone strategies, “bundling” — offering consumers a package of streaming services for a single fee — has become the latest strategy for reaching profitability among the smaller services.
In May, Comcast announced it would offer its broadband customers a bundle of Peacock, Netflix and Apple TV+ for $15 a month. Disney has bundled Disney+ and Hulu, with Max to be added this summer at an as-yet undisclosed price. Venu, a new sports streaming joint venture from Disney, Fox and Warner Bros. Discovery, is planning its release this fall.
However innovative the arrangements, the executives said, the economics of bundling are complicated. Participants need to attract consumers who wouldn’t already subscribe to their individual channels at full price. They must also puzzle through how revenue should be divided among bundling participants of unequal stature.
It’s also unclear that bundling will achieve the scale that participants may be hoping for. Many customers already subscribe to one or more of the bundle options. So it’s not a matter of simply adding up subscribers. And if multiple subscriptions are offered at a discount to attract customers, the average revenue per user declines.
Jason Kilar, the founding Hulu chief executive and former chief executive of WarnerMedia, has called for an even more radical approach than bundling: a new company that would license movies and TV shows from the major studios and pay back close to 70 percent of the revenue to those studios.
“I’ll call it the ‘Spotify for Hollywood’ path, where a large number of suppliers and studios contribute to a singular experience that delights fans,” Mr. Kilar said. “The studios would be the ones that would be taking the majority of the economic returns from such a structure.”
Media companies have started to embrace licensing deals after a period of avoiding them. During AT&T’s ill-fated ownership of WarnerMedia, the company insisted that its content be shown exclusively on its Max streaming service. Disney pulled back on licensing deals when it started Disney+ in an effort to force fans to subscribe. Before he returned to Disney, in 2022, Mr. Iger compared licensing the company’s franchises to selling nuclear weapons to “third-world countries.”
But AT&T subsequently abandoned streaming, merging WarnerMedia into Discovery, and Mr. Iger has since embraced the nuclear option. Both Disney and Warner Bros. Discovery are again licensing their content to rivals Netflix and Amazon Prime.
Sony Goes Another Way
One company embodies the embrace of the licensing strategy: Sony Pictures Entertainment.
Sony, the studio behind “Spider Man” and “Men in Black,” rejected general entertainment streaming services years ago. Tony Vinciquerra, the company’s chief executive, instead adopted what he has called an “arms dealer” strategy, selling movies and TV shows to companies like Disney and Netflix.
The exception is that Sony operates a niche streamer, Crunchyroll, that focuses on anime, Japanese-style hand-dawn animation. Its success suggests that a small (more than 14 million subscribers worldwide) and low-cost operation can be profitable without going up against Netflix.
Mr. Vinciquerra pointed out that Sony’s rivals running big streaming businesses were losing money on those services while at the same time seeing their traditional cable networks in decline.
“I’m still scratching my head wondering what these companies will do here,” Mr. Vinciquerra said, referring to the declining cable networks. “They all have these massive albatrosses around their neck that they can’t do anything about right now.”
So far, Sony’s strategy appears to be working. Sony’s Pictures Entertainment generated almost $11 billion of revenue in 2023, a 2 percent increase from the same period a year earlier, according to filings. In 2021, Sony struck deals to license movies to both Netflix and Disney worth an estimated $3 billion annually. Profits were roughly $1.2 billion, 10 percent lower than the previous year because of the actors’ and writers’ strikes.
Unlike Paramount or Disney, Sony Pictures is part of a sprawling global consumer electronics conglomerate. Sony recently teamed up with the private-equity giant Apollo Global Management to make a $26 billion bid for Paramount. But Sony is interested only in Paramount’s film library and characters like SpongeBob SquarePants and has contemplated selling the rest of it — including the Paramount+ streaming service. But Sony has since backed away from its offer.
That’s just the latest indication that expectations for merger deals have faded. Paramount is still looking for a buyer after months of tortured negotiations. So far as is known, no one is pursuing Warner Bros. Discovery, free since April, to buy or be sold under the terms of its separation from AT&T. Potential buyers like Comcast are understandably wary of their decaying revenue bases in cable. And Disney is shackled with its own cable issues and is loaded with debt from buying 21st Century Fox.
The End of a Golden Age
All of these changes have had a big upside for viewers.
“It’s been a golden age, even with prices rising,” Mr. Chapek said. “You get entire libraries built over decades plus all this new content, and you watch at your leisure.”
But a change is underway, he said: “Now we just have to make it viable for shareholders.”
That will necessarily mean higher prices for customers, more advertising, and less — and less expensive — content. That’s already happening. On average, consumers spend 41 percent more on streaming than they did a year ago, according to the recent Deloitte study, while satisfaction has declined. While some of that may be because of the limited new content offered last year during the Hollywood strikes, Disney and pretty much everyone except Netflix and Amazon have vowed to reduce spending and produce less new content.
The rise of advertising may be a windfall for streaming services, but the quest for the mass audiences that advertisers seek risks turning the streaming landscape into a sea of police procedurals and hospital dramas punctuated by major sports events and blockbuster concerts. Ironically, that’s pretty much the old model once dominated by the four ad-supported broadcast networks.
Netflix and Amazon executives acknowledge the risks to high-quality programming but promise that won’t happen on their watch. They contend they have enough scale that their prestige programs can be profitable and reach a vast audience — even if it’s a small percentage of their overall subscriber base.
“We can do prestige TV at scale,” Mr. Sarandos said. “But we don’t only do prestige,” he added, citing popular shows like “Night Agent.”
Mr. Hopkins of Amazon said “procedurals and other tried and true formats do well for us, but we also need big swings that have customers saying ‘Wow, I can’t believe that just happened’ and will have people telling their friends.”
“We want rabid fans,” he said.
Bryan Lourd, chief executive and co-chairman of the powerful Creative Artists Agency, said media executives needed to put aside financial engineering and remember that creativity — and entertaining customers — was the only way to win in the long run.
“The task at hand is to keep the customer at the front of your brain,” Mr. Lourd said. “When people stop doing that is when things start to go wrong.”
And Yet, Continued Optimism
On Mr. Diller’s yacht that day in February, Mr. Malone’s advice to Mr. Roberts was simple: In light of the challenges facing the industry, Comcast should continue its current strategy of investing in other areas like theme parks.
“Now, are they large enough to be the biggest?” said Mr. Diller, speaking generally about streaming services besides Netflix. “No, that game was lost some years ago. Netflix commands not all the territory, but they command the leading territory right now. They essentially are in a position of dictating policy.”
But Mr. Diller, like many of the other executives interviewed for this article, see a path forward for streaming companies once they stop trying to be Netflix. (That’s the strategy already adopted by Mr. Roberts of Comcast.)
The focus, according to Mr. Diller, needs to be on what “has been true since the beginning of time.”
The business, he said, “is based on hit programming, making a program, a movie, a something that people want to see.”
