Movie studios and streaming (Disney, Netflix, Warner Bros, Paramount)

Stocks
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I’m posting this in this thread, as Viaplay certainly falls under the same category. A profit warning was issued this morning. And the CEO is being replaced.

Viaplay Group (“the Group”) today announced a downgrade of its short-term outlook for 2023 following an accelerated deterioration in the operating environment and longer than expected realisation of its cost savings programme. The Group has also withdrawn its long term operational and financial guidance. An update on the medium term outlook is expected to be provided in conjunction with the publication of the Group’s Q2 results on 20 July 2023. Group CEO Anders Jensen has today offered his resignation. The Board of Directors has accepted Anders’s resignation, and is pleased to announce the appointment of Jorgen Madsen Lindemann as the new CEO of Viaplay Group with immediate effect.

Viaplay has been catching a lot of flak, especially for its steep price hikes for sports packages and viewing restrictions.

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22

Yeah. It has to be a pretty solid service to withstand 100 percent price hikes. Especially since it was already at the high end of streaming services to begin with. The new CEO has some work to do on productization.

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23

In addition to the ongoing Hollywood screenwriters’ strike, actors may also go on strike at the end of this month. This would bring all series and film production to a halt if it were to happen. Directors, on the other hand, reached a tentative agreement over the weekend, and that strike will likely be avoided.

Actors represented by the Hollywood union Sag-Aftra have overwhelmingly voted to strike if they don’t agree on a new contract with major studios, streamers and production companies by 30 June.

If Sag-Aftra ultimately moves forward with the strike, it would be limited to television and film productions; news and broadcast work would not be directly affected.

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This is an extremely difficult and over-competitive industry nowadays, where even large companies find it hard to sustainably generate profits, with the exception of a few individual blockbuster hits and the impact they bring. For me, it falls into the same category as airlines—meaning “don’t invest, even if the industry is sexy.”

Disney, for example, certainly still has very valuable and “milkable” IPs, but it is clear that even they need new success stories over time. In today’s competitive environment of massive content flood, creating them is simply nowhere near as easy as it was in the golden years of the past.

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Here is Sijoittaja.fi’s analysis of Viaplay, which can be read in a few minutes. :slight_smile:

Netflix’s positive turnaround shows that anything is possible. Netflix’s share price has risen 143 percent from its May 2022 lows. Viaplay’s weakening strengthens Netflix, and the stock will likely continue its positive momentum. Viaplay’s stock is a risky investment. Granted, the sharp drop in the share price offers the potential for a significant rally, but there are still too many question marks in the air.

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Those sijoittaja.fi articles are always absolute garbage. Facts and news are combined with some weirdly fuzzy logic, and they present views that make no sense at all.

e.g.
“To cover the decrease in demand, Viaplay has, among other things, raised the price of its services.”

This sentence makes no sense. These are two completely different things, and raising service prices decreases demand even further. They probably mean profitability, and that demand has decreased because prices were raised.

“Viaplay’s weakening strengthens Netflix, and the stock will likely continue its positive momentum.”
Not so! Viaplay’s share price has no impact on Netflix or its stock. They also don’t provide any reasoning for why the positive momentum would continue.

And then there’s this: “Viaplay Group issued a profit warning on 5.6.2023 and the share price collapsed. This happened to Netflix a year ago, whose share price has already risen over 100%. Will the same happen to Viaplay?”

It’s hinted that Viaplay could rise 100%. A question is posed that ultimately isn’t answered.

“Of course, a sharp drop in share price offers the potential for a big rise, but there are still too many question marks in the air.”

So it might rise significantly, or it might not. It might also perhaps fall.

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27

HS Visio journalist Emil Elo has written a quick-read piece on Viaplay’s struggles. No paywall.

It is indeed easy to draw a line between price increases and the decline in subscription numbers.

However, the REASON for Viaplay’s slump may not be so straightforward; instead, there are several layers to it. The first is the price hikes mentioned by Viaplay itself.

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28

The first estimates for the latest Indy’s box office are not very promising. If the opening weekend really falls below 80 million, this will end up in the Guinness World Records. Advance sales might still pick up, but competition is fierce this summer and things don’t look good right now.
I think I’ll open my Disney shorts again..

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29

If you make bad movies, they perform poorly. Disney/Lucasfilm is in need of a senior management overhaul. It feels like when the budget taps were opened with the streaming boom, production quality suffered heavily and all sorts of garbage cleared the bar… well, the market economy will fix this problem too, but in Disney’s case, the process takes a while and a staggering amount of shareholder money is burned along the way.

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30

Warner Bros.’ likely most important premiere of the year is tomorrow when The Flash hits theaters. The studio has been touting it all spring as the best superhero movie of all time, but critics haven’t quite agreed. Shazam 2 was a major disappointment and Blue Beetle also seems to have one foot in the grave, so WB’s success this year rests on The Flash, Barbie, Aquaman, and Dune 2. A relatively modest $70 million in ticket sales is expected from The Flash’s domestic box office, but a better haul is expected internationally.

A while ago, I did a quick visualization of how the US box office top ten has been split among the major studios during the last and current decade. For me, at least, WB’s drop almost entirely off the list after the pandemic stands out, even though they have had major releases. This is likely due to the day-and-date release model favored by the company’s previous management. Can this trend be turned around this year?

Screenshot 2023-06-15 at 16.51.56
Screenshot 2023-06-15 at 16.51.56681×237 26.1 KB

By the way, that second half of the 2010s was quite a dominant run for Disney, which has also quieted down since then.

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31

Disney’s situation is apparently even weaker than suspected, as the CFO just got the boot—or rather, is taking a leave of absence for family reasons.

https://www.cnbc.com/2023/06/15/disney-finance-chief-christine-mccarthy-to-step-down.html

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32

In my opinion, Disney’s problem is starting to be that they try to please everyone with their content. It lacks an edge.

I went to see Top Gun 2 when it hit theaters. The hall was full and the movie was damn good. It didn’t have any “social message,” superheroes, or jokes; just honest screaming engines, traditional three-act storytelling, and a believable hetero romance. Curiously, even a 1,000-year-old formula like that still works.

When you watch hit movies from the 1990s, it almost makes you sweat. “You can’t say that,” you find yourself thinking in many places. The humor is really sharp, and they don’t calculate everything—like which group of people might get offended now, or whether we’ve taken this specific Latino target audience into account well enough.

I’m not saying that movies should generally descend into some crude “locker-room” humor or chauvinism, but occasionally there could be something other than social commentary. For example, I hate the worldview of the Mad Men series, but I consider it the best production ever made, a world I want to immerse myself in over and over again.

Marvel’s stuff is also starting to feel really tedious. Soon they’ll have churned out something like 50 superhero movies, all with roughly the same plot. The last high-level surprise was probably in Infinity War, and quite a while has passed since then.

Hopefully, Iger shakes things up and manages to steer the ship into better waters.

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33

This doesn’t strictly relate to the topic, but Kaunohammas’s post reminded me of how Disney has been criticized for “woke-ifying” its remakes.

According to this article, Disney and Pixar have produced different versions of their animations for different regions. What if, as AI develops, you could watch Cinderella with a different ethnicity? This doesn’t have any major business significance, but it’s an interesting thought I’ve been pondering while following the news.

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That’s not what will sink it; it’s the fact that these new woke versions are usually garbage in terms of storytelling. In other words, the entire justification for the production’s existence is just to be able to say, “Look, we changed the protagonist’s race,” or “look, we changed the protagonist from a man to a woman”—as if that alone could carry the whole thing.

But hey, that’s the free market; a company is free to produce whatever entertainment it sees fit. Consumers can then decide what they consume. If box office revenues and viewership numbers start emulating Voxtur’s stock chart, it will eventually correlate with the entertainment company’s own stock price and operating profit. This will then fix the problem over time, one way or another.

And hey, Disney shareholders are also free to decide for themselves whether this is a good investment or not!

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35

The Flash looks set to land at a rather pathetic $60 million for its opening weekend, or even slightly under. The Monday holiday helps a bit, but it’s falling quite far short of the $85 million some analysts were expecting. Inevitably a big disappointment for WB and will likely be reflected in the stock price next week.

The studio has indeed been hyping for a long time that this is the best superhero movie of all time. This narrative was dampened by the fact that Across the Spider-Verse was released two weeks earlier, which everyone seems to think is clearly better and is even exactly the same kind of multiverse adventure. Unfortunate timing, but perhaps also poorly handled management of critic and audience expectations.

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36

The weekend figures are out and The Flash is stalling at $55 million, which is a really weak performance. International sales also remained lackluster.

Flash opened to $75.0M overseas and $139.0M globally.

  • -51% below Guardians of the Galaxy Vol. 3 ($289.3M)
  • -2% below Black Adam ($142.9M)

https://www.boxofficepro.com/weekend-box-office-the-flash-elemental-blackening-asteroid-city/

The marketing hype promised the world’s best comic book movie, but based on reviews, it’s unfortunately an okay work coated in poor CGI mush. You’d think Warner’s stock would take a hit from this, but Zaslav can always claim that the responsibility lies with the previous management, who have already been fired.

Disney is quite lucky that Flash is stealing all the headlines, as Elemental is yet another absolute disaster.
US Box office only 29.5M, $15.0M overseas and $44.5M globally.

  • -48% below Lightyear ($85.6M)

This is the worst opening in Pixar’s history and at this rate, it will easily result in a 100 million loss. They need to look in the mirror and heads must roll, as at the same time Super Mario and the animated Spider-Man are raking in money.

Disney has kicked out Pixar’s old creative leads and it shows in the quality. I wouldn’t be surprised if the entire Pixar was shut down next and merged into other studios.

The Little Mermaid, on the other hand, is stalling at around 500 million globally (at least 100 million in losses). Following these two, the newest Indy will also join the flop list in a couple of weeks, so the year has gone badly off the rails.

In addition, Disney needs to scrounge up that 10 billion in half a year for the Hulu purchase. There’s already too much debt, the coffers are empty, so at this rate, something must be sold off. The Chinese theme parks are probably first on the list, but I wouldn’t be surprised at all if Disney actually had to sell Lucasfilm or Marvel, at least partially, to fund the Hulu acquisition.

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37

Here is a quick read by Henri Huovinen about WeightWatchers and Warner Bros. :slight_smile:

Stronger cash flow generated through savings better enables the company to repay its debts. It is a positive share price driver, as the company is currently indebted. Goldman Sachs predicts that WBD’s valuation multiples will rise from their current levels. The company’s EV/EBITDA ratio is 6.5, which is on par with Comcast and Fox, even though WBD’s earnings growth outlook is better. The stock is trading at 0.7 times relative to projected revenue. The multiple is in the lowest 10 percent relative to the last 10 years.

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38

Disney has indeed had a weak year, but they aren’t the only one. Now WB’s The Flash looks to be flopping, and earlier a couple of other “sure” winners built on strong IPs, Transformers: Rise of the Beasts and Fast X, have clearly underperformed. Let’s look studio by studio at what has already come out this year and what relatively big-budget productions are still in the pipeline. I might have missed some.

Disney:
Ant-Man and the Wasp (miss), Guardians of the Galaxy 3 (ok performance), Little Mermaid (probably a miss), Elemental (disaster)
Remaining: Indiana Jones, Haunted Mansion, The Marvels

Warner Bros:
Shazam 2 (disaster), The Flash (at least a miss, possibly a disaster)
Remaining: Barbie, Blue Beetle (can we call it a miss already?), Dune Part 2, Wonka, Aquaman 2

Universal:
Super Mario Bros (massive hit), Fast X (miss)
Remaining: Oppenheimer

Paramount:
Transformers: Rise of the Beasts (miss)
Remaining: Mission: Impossible 7, Teenage Mutant Ninja Turtles

Sony:
Across the Spider-Verse (hit)
Remaining: Gran Turismo, some Ghostbusters movie

I wouldn’t say Disney has done particularly worse than the other major studios, but it’s true that compared to Warner Bros, for example, they have very few shots left for the rest of the year, especially after Indiana Jones. Surprises can always happen, of course, but almost all studios seem to be having a rather dry year again. As you said before, budgets need to be dialed down because the box office just doesn’t seem to be recovering to pre-pandemic levels.

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39

This was a good summary, and it’s not easy for others either; the industry is in need of a major upheaval, which is now unfolding during the writers’ strike.

As an investor, I have specifically focused on the undervaluation of Warner and the valuation of Disney, as the current valuation level is not sustainable and ideological errors are still not properly priced into the share price.

Others have said out loud that operating models must change, but Disney is still driving toward the iceberg and continuing on its chosen path.

Warner’s Zaslav cut budgets and shut down everything he could. The share price is turning, but slowly. Blue Beetle falls into the “sent out to die” category, and Aquaman 2 screenings are promising a flop. Barbie and Dune 2 might still save the year. New, financially more sensible projects will start next year once the strike is over and as long as debt can be reduced at the same time; the share price will certainly correct and the future looks bright, but it takes time.

Sony already stated that it makes no sense for them to join the streaming competition, so they are focusing on content production.

Universal has its own Nintendo Connected Universe in development, the future of theme parks looks bright, and operational risks are at a reasonable level despite the challenges.

Paramount has Buffett’s support, but it’s in a very tight spot, being too small in market value to fight others and simultaneously too large to be sold to anyone else.

And then there’s Disney… The biggest problem is that mistakes aren’t admitted and there’s a refusal to accept the challenges of the current situation. Iger has the wrong record playing and isn’t addressing the real problems. Disney’s strength has been a strong IP portfolio and the support of its customer base, which is now on the line. In the background lurks a large debt load, the upcoming Hulu acquisition, and legal issues in Florida.

In all these flops, I see a couple of common factors:

  • Oversized budget / Useless CGI sludge
  • Weak script
  • Quality issues / weak direction

It’s no secret that, for example, nearly half of Marvel movies are already in production before a single frame of live action is shot. Committees decide what is created and the result is trivial fluff; the productions must meet certain norms and every box must be checked in a “modern” way so that everyone is satisfied. Creativity has vanished.

It used to be different: the movie was filmed, and after that, the implementation of effects was started along with the editing. Of course, special effects (practical) were partly prepared during filming under the director’s close supervision.

Nowadays, half of the movie is already in CGI sludge production before a) a director has been chosen and b) the script is finished.

→ Scenes are created and an insane amount of time and money is spent on productions that might not even be used or that don’t fit the whole.

→ They often try to fix the whole with reshoots, after which the special effects wizards have to get back to work.

This makes no sense. Disney is the worst example among the studios, and with this production model and these budgets, there is no chance of succeeding in the future or making a profit.

Budget

  • The production budget for Super Mario was 100 million; how on earth can Little Mermaid cost 250 million and Elemental 200M?

  • Top Gun Maverick was produced for 170 million. Why does Indy 5 cost 350+ million?

  • How on earth can Everything Everywhere All At Once, produced for 25 million, be a higher-quality movie than Doctor Strange in the Multiverse of Madness, produced for 200+ million?

  • And Finland must also be mentioned. How does the movie Sisu, produced for 6 million, look better than 200+ million productions, even though it’s an indie film?

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40

Disney’s problem is that when Disney+ was launched, production budgets were set to “uuuuuuunlimiiiiteeed money” mode. They produced movies, Disney+ series, and all sorts of filler for the Disney+ service with absolutely absurd budgets. At no point did anyone ask if this was financially sound, because streaming market shares were being divvied up and Disney+ charged in at full steam. They certainly gained a decent number of subscribers, but not enough to justify those budgets. Furthermore, as money was being thrown in every direction, all kinds of garbage got the green light—content whose scripts should never have made it past the bar set by the production bosses’ wastebaskets. Examples that come to mind include Willow, She-Hulk, and Obi-Wan. But these were put into production before scripts were even finished, because they needed to get a massive amount of “big-name” content onto the service quickly…

It will be interesting to see what kind of drastic “slimming down” Disney goes through as they try to right this ship. Rumors are circulating that the sale of Lucasfilm is being considered (or more accurately, that Bob Iger has reportedly initiated an evaluation into what kind of deal Lucasfilm could be sold for, and in connection with this, all projects that haven’t started filming yet have been put on hold).

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