The Year the Streaming Bubble Burst

AMC Networks, a company that has been in business for just a few months, announced its intention to lay off Christina Spade, its CEO, and her departure in late November. This was not an unusual move given the economic uncertainty. In November, Meta, a tech giant, had already eliminated over 11,000 jobs. However, AMC's executive chairman James Dolan sent a memo explaining the decision to employees. It struck a chord across entertainment. Dolan wrote, 'It was our belief in cord cutting losses being offset by streaming gains. This has not been true. We are a content company, and the mechanisms to monetize that content are not working properly.

Dolan summarized the situation in corporate-jargon terms: Streaming is the future, but it's not making the money. The Streaming Wars' subtext has always been that the era of unlimited spending would end soon. The battle between giants like Apple, Amazon, Disney, and Disney, as well as smaller companies like AMC that operate niche services such AMC+, Shudder and ALLBLK, was to be a few remaining players, not to create a rising tide which lifts all boats. However, 2022 was a year that challenged some of the fundamental assumptions behind Hollywood's digital revolution. It was also a year that proved the streaming days of streaming are over in tangible ways to consumers, not only professionals who read Deadline comments during lunch breaks. In anticipation of Westworld's next season, HBO Max was offering Westworld streaming at the start of the year. Westworld has been canceled. It's also gone from HBO Max. This allows the catalog to be sold to an unknown third party. Many months ago, home-cookers like me who are millennials could enjoy streaming Alison Roman's new show via CNN+. The project was halted after the entire platform was scrapped. In January, ads were not available anywhere near Netflix's interface. You can now trade a few minutes for a lower subscription rate. This is a violation to one of Netflix's most important principles.

This principle can be summarized as follows: The future entertainment industry is one that uses traditional income sources--the box office and syndication fees--to create a revenue model that allows consumers easy access and accelerates growth for the company. Netflix looked like it was able to fulfill its promise for much of the last decade, thanks to subscriptions, debt and investors. Netflix spent a lot of money creating movies and shows that were appealing to a global audience. Then it attracted enough customers to justify the cost. It changed how we watch TV. It was expected that entire seasons would be released at once. Users became used to watching hours-long episodes with no breaks and were able to accept subtitles from imports.

Soon, other entertainment companies followed their lead. These included Disney, which launched Disney+ late 2019 and WarnerMedia, which was the original parent company for HBO Max. The merger of the two companies with Discovery Networks was officially announced in April 2019, almost one year after their original announcement. It has become a symbol of the limitations of streaming dependency for both businesses and viewers of their output. This is partly because CEO David Zaslav has become a spokesperson for the idea of not putting all your eggs in one basket. He was faced with corporate debts totalling tens to billions. He declared that the grand experiment of creating anything at all costs was over. This came after he dismissed his predecessors' strategy of spending money recklessly and getting a fraction back.

This pivot is not all that difficult to support. For example, the increased focus on theatrical releases after the previous administration put its entire 2021 slate both on HBO Max and in theaters simultaneously. This tactic was a success, but it also alienated long-time collaborators such as Christopher Nolan who described Max as 'the worst streaming platform' before he left for Universal. It has also brought about some very unpopular decisions. HBO Max started the first of many purges this summer: cancelling shows (Los Espookys), removing them completely (Vinyl), and/or both (Gordita Chronicles/Love Life, Raised by Wolves and others). The most shocking thing was that the service cancelled entire series of TV shows (the previously renewed Minx) and even cancelled complete films (Batgirl).

These drastic measures can partly be attributed to tax writeoffs that were made in the wake of a merger. They also reflect a return to TV's old ways of working - a restoration of old rules and the breaking of new ones that a whole generation has grown to love. The complete archive of a show could not always be accessed by the viewer, and it was not always possible for its original distributor to keep it forever. To make additional money for their studios, shows like Raised by Wolves and FBoy Island would be leased. Discovery has plans for them. You could either buy a box set or watch a rerun on channel surfing if you want to see them after they are over. Many of the former HBO Max series are headed towards their modern counterpart: free, ad supported services such as Pluto and Tubi.

Even the entertainment industry's greatest disruptor has begun to move towards a more traditional model. Two weeks after Warner Bros. was founded, Netflix announced its first subscriber loss in over a decade. Netflix's first subscriber loss in more than a decade was announced less than two weeks after Discovery was launched. The next quarter saw a steeper decline. Its share price plunged by half, still less than half what it was at the beginning of the year. This had a ripple effect across the industry with other peers such as Paramount Global and Disney also sinking. Netflix responded by launching the advertising tier and minor experiments such as a Chris Rock special that will stream live, another inversion of an internal rule once considered sacred.

Batch releases like the two-part Harry & Meghan rollout have become more popular in recent years on Netflix and other platforms. They split the difference between weekly and binge viewing. The Knives Out sequel Glass Onion will soon be available on Netflix. If it does well, it could lead to more trial balloons, such as the one-week, $15 million, run around Thanksgiving. This was only 700 theaters' worth. Netflix could be doing more experiments down the line despite all the criticisms that it was cutting corners by not extending the window. However, there may be evidence that Glass Onion performed better on the platform than expected. This is according to Zaslav who said that this has been the case with titles such as The Batman on HBO Max.

Common joke is that media has innovated itself back to its roots. We're rediscovering the virtues of commercials, movie theatres, and secondary markets. It's not as simple as turning a switch and restoring the old way of doing business. While pay cable continues to fall, the box office is still behind pre-pandemic levels by about a third. This drop can partly be attributed to a lack of supply but also to a general reluctance of people to go to multiplexes for the genres they've been taught to consider home viewing. Even Netflix's ad-free tier is not a panacea. The Wall Street Journal reported that only 9 percent of U.S. new subscribers opted for ads last month. This is slightly lower than the half who were already paying for ad-free plans. Digiday previously reported that Netflix is not achieving the promised viewership, even offering refunds. It is difficult for the company to fulfill the promise of uninterrupted entertainment it created in the first instance.

Companies are left in a difficult spot or, as Dolan would say, in chaos. Take Disney. Their shocking CEO shuffle was caused by a loss of streaming revenue that cost the company a billion dollars. Although there were other factors that contributed to the dissatisfaction of Bob Chapek's board, this was the most important. Once the excitement of Bob Iger's comeback wears off, Disney will face the same hard facts as everyone else. While pre-streaming profits and unlimited growth have been revealed to be fantasies, other paths to sustainable production are crumbling before our eyes. This is a sad way to end the year, but it's better to look forward to 2023 with an open mind.