Maybe Rupert Murdoch and AT&T knew what they were doing all along. In recent years, the two have scaled back their Hollywood ambitions. The pair have been selling entertainment assets to buyers eager to fight in the content streaming wars. So far this year, Fox and AT&T stocks have held up against falling stock indices. Other media giants have found that the direct-to-consumer content business is not only expensive, but also a smaller market than expected.
Late Wednesday, Disney, which acquired the studio assets from Fox, announced that it had signed 14.4 million new streaming subscribers to its Disney Plus service, more than expected. The next day, shares rose 6% in response. But this growth has come at a cost. Disney Plus posted a quarterly operating loss of $1.1 billion on $5.1 billion in revenue. The group also admitted that it will not reach its long-term outlook of 260 million subscribers by 2024.
An even bigger media act is the recently dubbed Warner Bros. Discovery, the result of Discovery’s acquisition of Warner Media from AT&T for $43 billion in 2021. The midrange Discovery and highbrow Warner don’t did not naturally adapt. Discovery’s net debt to EBITDA ratio is five times higher.
It looks precarious. The new company admits to some painful integration issues, particularly over how new shows and movies come out. Shares of Warner Bros Discovery have already lost 42% this year. Still, it looks better than Netflix, the worst performer of the bunch in 2022.
Meanwhile, sellers have returned to their roots. AT&T has retreated into its cash-flow-rich mobile and broadband services businesses. Fox focused on its traditional linear pay-TV networks in the areas of news and sports. While sports rights remain expensive, affiliate fees and advertising have proven surprisingly resilient.
For Disney and Discovery, standing still has never been an option. But the streaming battles they’ve been in may make them think twice about the cost of the expansion.