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

Stocks
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Great post, for the most part I completely agree! A few comments below.

I’ve found it interesting that Warner Bros took a lot of heat in the media last year when they announced various measures to get their cost structure in order. Especially the content removal and the cancellation of ongoing projects sparked strong negative reactions in newspapers and on discussion forums. Now, however, everyone else is doing exactly the same thing. Even Disney just took a $1.5 billion accounting charge when they removed redundant bulk content from Hulu and Disney+. WB was brave and took the flak first, and now everyone else is following suit in silence.

Otherwise, Disney seems, at least at the level of rhetoric, to be following WB’s model in its streaming strategy. There was talk about merging Disney+, ESPN+, and Hulu, saying it would become a package for the whole family that would reduce churn. That’s WB’s Max strategy to the letter. In addition, there’s talk about rationalizing the cost structure and removing unnecessary bulk from the library. Everything is like a copy of Zaslav’s speeches from last year.

Along the same lines, I also have confidence in Warner Bros over the long term. I just hope the management understands the importance of quality in film production. Since they at Discovery are mostly used to producing complete crap on the cheap. Based on their talk, however, they seem to have understood HBO’s quality-based brand, for example, and hopefully they intend to take the WB brand in the same direction.

As a side note, slightly exaggerating, this Zaslav seems like a bit of a clown in my opinion. In calls, he repeats memorized mantras, and in the Q&A section, he always tosses out a couple of mantras before letting someone else actually answer the question. Have you listened to the interview from May 18th at the SVB MoffettNathanson conference? Zaslav was interviewed there alone, and I don’t know if he answered a single question the interviewer asked. There was a lot of talk, but completely off-topic and again those memorized mantras. It feels like Zaslav doesn’t even know the business very well but is a very hands-off type of leader. CFO Gunnar Wiedenfels, on the other hand, seems to be extremely on the ball and his interviews are great, for instance, the Morgan Stanley conference on May 8th.

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42

Did Viaplay make a profit or a loss last year? Because a layman doesn’t really understand financial statements! The “operating income” was 413 million kronor!

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Box office estimates are out, and it’s looking bad for everyone.

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The Flash revenue dropped -72%, so things are definitely looking tough for Warner. Having seen the movie, I’m not at all surprised it’s failing to find an audience, as most of the entertainment is a total CGI mess, and I don’t understand the pre-release marketing hype at all. Not great, not terrible.

Spider-Man is performing strongly, but otherwise, it’s one of the weakest weekends in years. Next week, the focus will be on the Indy 5 flop…

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The writers’ strike continues, and with these box office numbers, studios will surely want to trigger Force Majeure clauses in contracts and kill off unnecessary projects before they agree to any new deals.

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46

A couple of fresh news items…

Indy looks like it’s going to flop :bomb:

New Superman cast, some unknown younger version of Henry Cavill.

Comic-Con in trouble, as almost all studios have pulled out. The reason is most likely the impending actors’ strike, which also restricts appearances at public events.

The actors’ strike is likely to start on Friday, which would effectively mean that all of Hollywood and its productions would grind to a halt. The writers’ strike continues, with no end in sight.

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47

I went to see that Indiana Jones movie. As a shareholder, I can’t be very satisfied with the overall package.

In itself, there’s nothing particularly wrong with the movie, and it’s clearly better than the previous Indy film. But it’s not a particularly good movie either. The film could be described as being like something created by AI: everything looks good, the plot progresses as it should, the actors do their jobs, and the special effects are in order. Nothing is radically wrong.

However, the problem with these big franchise movies is that they keep playing the same record over and over again and don’t bring anything new to the table. Just like this movie. The mandatory checklist is ticked off, and that’s it. No risks have been taken; instead, the plot feels like it was written by ChatGPT. The nearly three-hour runtime is in no way justified, as there isn’t even enough plot for a couple of hours.

What stood out here is the absolutely senseless waste of money. The movie constantly jumps from one location to another, and the scenes are each bigger than the last. There are enough chase scenes alone for several Bond movies. However, the massive special effects scenes leave you feeling like, couldn’t this spectacle be scaled down a bit? All humanity is lost when you’re constantly catapulting out of burning cars with a triple somersault onto a motorcycle and the journey continues. It’s been a while since I’ve watched those old Indy movies, but from what I remember, a single snake in the desert was an “exciting scene” in those. Here, things go over the top in the usual way, which makes the viewer feel bloated rather than satisfied.

It reflects Disney’s activities over the last couple of years perfectly. Money is burned and they try to please everyone, but the end result is a bit like the Puuhamaa amusement park (Tervakosken Puuhamaa). I’m not saying this movie is crap, but I wouldn’t particularly recommend it to anyone other than fans of the franchise or lovers of light summer entertainment. Apparently, the audience felt the same way, because I didn’t hear any kind of reaction from anyone during the movie.

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48

“But Disney spent a mind-boggling $295 million to bring the action-adventure to life. That’s not including marketing costs, such as a no-expense-spared premiere and afterparty at the Cannes Film Festival where much champagne was tippled.”

No wonder it’s hard to turn a profit with costs like these. That is an eye-watering price for a movie. Indy is a big name, of course, but is it big enough to justify spending that much money? 13th most expensive movie ever.

I sold my Disney shares a few months ago, and based on the current outlook, I’m in no hurry to become an owner again. Despite all its holdings, the over-expensive productions, general streaming issues (and its poor profitability), Marvel and Star Wars fatigue, the amount of debt, and the Hulu challenge pushed this into the “sell” category for me. The battle with Florida’s little Trump is also a bad thing.

Disney has all the building blocks ready, but the execution is lacking. I’m a long-time Marvel fan myself, but those movies are being released at such a pace that it’s starting to get tiresome. The latest Spider-Man animation was indeed very good, but that is a Sony production.

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50

It’s possible that Hollywood has finally realized that this “wokeism” went too far, as box office results and viewership numbers are falling and feedback is quite negative.

Within a week, Netflix, Warner, and Disney have ousted their “woke” executives. It is likely no coincidence that these happened at the same time.

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I’ve also watched the latest Indiana Jones, and I was left with feelings similar to those after The Last Jedi. A childhood hero is an old, cynical man who ends up as a side character in his own movie. Even his will to live is gone. The main focus is on a young British brunette who succeeds at everything and is extremely unlikable throughout. And in the film’s climax, the sidekick punches the iconic hero in the face and knocks him out cold.

Indy 5 is on track to make quite significant losses, and once again, Kathleen Kennedy’s job as the head of Lucasfilm is rumored to be under threat. I would welcome this news quite happily. It feels a bit like Disney has managed to ruin Star Wars, Pixar, and Indiana Jones in recent years. And two of these have been Kennedy’s responsibility. Of course, Indy is coming to an end with Harrison Ford regardless, but I would have hoped for a slightly more honorable conclusion for the series.

In Indy 4 (which was terrible), it’s revealed that Indiana Jones has a son, played by Shia LaBeouf. I think a much more effective movie could have been built around the old Indiana Jones trying to rebuild his relationship with his son. And then some adventure wrapped around that, like Atlantis or something else. In other words, a bit like in The Last Crusade, where Indy’s own father was played by Sean Connery. They could have also taken inspiration from the last Rocky movie, which followed the same formula and restored the old legend’s honor:

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53

Well, that went well again… :bomb:

The previous Indiana Jones was released 15 years ago and it raked in 100M at the box office on its opening weekend, 145M inflation-adjusted. This new Indiana Jones, tailored for a “modern audience,” grossed only 60 million. Not good.

The viewership for Crystal Skull on its opening weekend 15 years ago was ~14 million, while the new Indy’s was only 4.6 million. :face_with_open_eyes_and_hand_over_mouth:

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Estimates for the film’s budget and marketing costs vary, but Deadline slipped up over the weekend, reporting that the film’s budget was 329M. They quickly erased this information and corrected it to “over 300+”, but let’s go with this number since they accidentally shared it.

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Deadline also claimed that the film’s marketing costs were only 100M, which simply can’t be true given that ads were seen at the Super Bowl, in the New York subway, and the film’s release was celebrated spectacularly in Cannes. At least to my eyes, ads have been popping up constantly across all media.

If The Little Mermaid’s marketing costs were 140M, then the new Indy’s are certainly significantly higher.

Based on the opening weekend, box office revenues will likely land somewhere around 400 million.

If official figures are used in the profit calculation, the loss looks quite bad.

Boxoffice total US BO INT BO Disney US income 60% Disney INT income 40% Production Marketing P/L
500 225 275 135 110 300 100 -155
450 202,5 247,5 121,5 99 300 100 -179,5
400 180 220 108 88 300 100 -204
350 157,5 192,5 94,5 77 300 100 -228,5

If more realistic figures are used in the calculation, we see even more drastic losses

Boxoffice total US BO INT BO Disney US income 60% Disney INT income 40% Production Marketing P/L
500 225 275 135 110 329 150 -234
450 202,5 247,5 121,5 99 329 150 -258,5
400 180 220 108 88 329 150 -283
350 157,5 192,5 94,5 77 329 150 -307,5

In any case, the movie will make at least a $200M loss. Now we are repeatedly hitting numbers that you’d think would interest analysts and Wall Street as well.

Disney’s strength has been its cash-flow-generating theme parks, but if the so-called Core IPs don’t sell in theaters and merchandise doesn’t sell like it used to, then this will inevitably also affect theme park attendance in the long run.

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54

Making bad movies from big IPs sure is a costly hobby. :grimacing:

You’d think this cash burn would eventually lead to heads rolling in Disney’s management. It also likely means we have a struggling turnaround company on our hands whose journey is still waiting for that turn, so I should probably put it on my watchlist and try to guess how far down it’ll tumble before the turnaround…

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Disney’s problem is that successful IPs are becoming outdated. That is why they are trying to renew them and bring them to the present day, which some might then perceive as mere “wokeism.”

Creating new successful IPs, on the other hand, is extremely difficult in such a competitive market where content is still being pushed to the audience at an enormous pace. Back when Disney’s initial success was established, the market situation and the entire industry were completely different. With the streaming service boom, big studios are certainly not the winners. Disney is no exception here.

The only winners in the industry today are small production companies that have been able to sell their productions due to increased demand and/or have been acquired by larger studios.

The situation in this industry is so difficult at the moment that I cannot find any companies on the stock exchange that I would even consider investing in. If/when the market situation normalizes at some point and the major problems related to the industry are resolved, I might reconsider. AI is currently a very big topic in the industry, which partly led to these strikes by writers and actors, as well as other possible strikes that have already been hinted at by the industry’s labor unions.

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Here are some estimates for the sales of the remaining summer releases. These are, of course, very early estimates, but I for one was surprised by how high Barbie’s domestic sales are being projected. With those figures, it would be quite a major success.

https://www.boxofficepro.com/long-range-box-office-forecast-ninja-turtles-mutant-mayhem-and-meg-2-early-prospects-barbie-tracking-soars/

Mission Impossible 7 (Paramount): opening weekend $65-75M, domestic total $250-301M
Barbie (Warner Bros): opening weekend $85-115M, domestic total $215-319M
Oppenheimer (Universal): opening weekend $45-57M, domestic total $154-194M

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57

The Emmy nominations were announced a moment ago and this year as well, the majority of the most important nominations went to HBO.

Succession holds this year’s top spot with 27 Emmy nominations followed by The Last of Us (24), The White Lotus (23) and Ted Lasso (21).

BEST DRAMA SERIES
Andor (Disney+)
Better Call Saul (AMC)
The Crown (Netflix)
House of the Dragon (HBO/Max)
The Last of Us (HBO/Max)
Succession (HBO/Max)
The White Lotus (HBO/Max)
Yellowjackets (Showtime)

BEST COMEDY SERIES
Abbott Elementary (ABC)
Barry (HBO/Max)
The Bear (FX)
Jury Duty (Freevee)
The Marvelous Mrs. Maisel (Prime Video)
Only Murders in the Building (Hulu)
Ted Lasso (Apple TV+)
Wednesday (Netflix)

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75th Emmy Awards Nominations Press Release

75th Emmy Nominations Per Network/Platform

75th Emmy Awards Complete Nominations List

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HBO received a total of 127 nominations, while Netflix, with the next highest count, received 103. If you also consider that Ted Lasso (Apple TV, 21 nominations) and Abbott Elementary (ABC, 8 nominations) are Warner Bros. Television productions, and that Discovery, CNN, and Adult Swim also received a few nominations, WBD as a producer received 169 nominations. Warner Bros. is dominating TV entertainment right now.

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59

Iger’s contract has been extended by two years. Iger is being interviewed on CNBC today and will surely try to soften up shareholders ahead of the upcoming earnings report.

https://thewaltdisneycompany.com/the-walt-disney-company-board-of-directors-extends-robert-a-igers-contract-as-ceo-through-2026/

Confirmation for the rumors, now the theme parks are also in trouble:

https://www.wsj.com/articles/disney-world-crowds-universal-studios-florida-36b0a579

Indy 5 continues to perform in such a way that it is almost certainly the biggest Hollywood flop of all time, and Disney’s own John Carter will have to vacate the top spot.

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They’re planning to save on content and lay off staff. I don’t know if it’s worth it or not, but that company has no chance of surviving without sports content. It will be interesting to see if they might even withdraw from some countries entirely.

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Hollywood actors’ negotiations with studios ended without a resolution, and the actors are also going on strike. It is the first time in over 60 years that the entire film industry is at risk of coming to a standstill, as both actors and writers are on strike at the same time.

This will likely directly affect, for example, the organizing of the Emmy Awards as well as the releases of films coming out in the coming weeks. Films will certainly be released, but actors are unlikely to participate in marketing in any way.

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Instead, Iger pulled a rabbit out of his hat and hinted that Disney is considering selling its TV channels.

https://www.cnbc.com/2023/07/13/disney-ceo-iger-opens-door-to-unloading-tv-assets.html

So that’s where the money for the Hulu acquisition would come from. It sounds sensible if you believe in Disney’s streaming strategy. On the other hand, TV channels are a business that generates very good cash flow, even if it is constantly shrinking. In the short term, this would show in the results, and significantly.

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Maybe rather this way, though, instead of starting to sell Marvel, Pixar, or Lucasfilm. There is enough IP in that pile that it should be possible to create quality content easily for decades to come.

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Iger was talking fluff again, and reading between the lines, I interpreted that the situation on several fronts is weaker than what is actually being disclosed.

Selling off traditional TV channels would strengthen the cash position and ease pressures, but it wouldn’t solve all the problems.

By “transformation” in the interview, he meant that some business operations will be sold. Iger repeatedly mentioned the words “opportunity” and “growth,” meaning the aim is to focus on the future rather than the current situation, which is truly worrying.

He mentioned that ESPN is raking in money hand over fist. It’s just a shame that ad revenues in the industry have dropped nearly 70% in a year, and in the viewers’ opinion, ESPN’s content has become quite political.

Disney’s current contracts do not currently allow for streaming all sports broadcasts, but in the future, once the contracts are renewed, ESPN+/pay-per-view events will certainly rake in money, though this will take several years.

Iger believes they can acquire Hulu easily and for less than its market value. Comcast surely has a different opinion and will definitely try to drive up the price in every possible way.

He claimed that the reason behind the declining viewership numbers is the quantity of releases, not the quality. Budgets are being cut and the number of releases reduced. You would think this would also have an impact on revenue and future forecasts.

He commented briefly on the Florida situation and still appealed to the “freedom of speech” argument; and of course, the company has the right to be as woke as it wants, but that’s not what the lawsuits are actually about. Rather, it’s about Disney having a special status compared to others, which has given it far too broad powers to operate in its own area, and this special status has now been dismantled.

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