Streaming technology has allowed people to spend much more time watching entertainment than they did in the past. They can binge entire shows if they enjoy the first episode. They can watch almost any movie on an airplane flight or a subway ride.
Normally, a big increase in the use of a product also increases the profits of the companies that make that product. But something strange has happened in Hollywood lately: Even as Americans spend more time watching movies and television shows, the studios that produce this entertainment are struggling.
Disney’s stock price has fallen more than half from its 2021 peak, and the company fired its C.E.O. last year. Shares of Paramount Pictures’ parent company are worth less than they were 25 years ago. Warren Buffett recently described streaming as a particularly difficult environment in which to make money.
How could this be?
I asked my colleague Jonathan Mahler — the co-author of a new Times Magazine article about the problems at Warner Brothers — how Hollywood could simultaneously be booming and suffering. I found his explanation clarifying, and I’m devoting today’s newsletter to it.
As Jonathan pointed out, streaming has both expanded the entertainment business and undermined its old model.
Perhaps the most important disruption has been the decline of cable television. For years, studios made large profits through cable television. They licensed their old movies and shows for rebroadcast, and the studios’ parent companies, like Disney and Paramount, owned cable networks themselves.
“These networks were bundled into expensive packages, forcing consumers to pay for dozens of channels they didn’t watch,” Jonathan notes. Families paid hundreds of dollars a year for their cable bundle, and the entertainment companies made additional money from advertising.
But then came Netflix. When it started a streaming service in 2007, Hollywood failed to recognize how much of a threat the service would be, and the studios sold Netflix the right to broadcast movies and shows at a relatively low price. Netflix used its new library of content to attract millions of subscribers.
“What these legacy companies didn’t realize until it was too late was that streaming wasn’t just going to become the dominant mode by which people watched movies, replacing DVDs,” Jonathan said. “It was also going to replace cable TV.” This cord-cutting revolution has led to a 40 percent decline in cable subscribers since 2014. As Clare Malone wrote in The New Yorker, “The advent of streaming video has demolished old business models.”
Studios have since started their own streaming services, and some have attracted a large number of subscribers. But in an effort to catch up to Netflix, other services have often charged less. Buffett, speaking at the most recent annual meeting of Berkshire Hathaway, his investment firm, said that this low-price model “doesn’t work.”
Adding to the financial pressures on the studios, all of them — including newer players like Netflix and Amazon — are spending money to create new content that can woo and retain subscribers. The movie theater business has also shrunk, because of both streaming and Covid. And the recent settlements of the actors’ and writers’ strikes mean that many of Hollywood’s workers are no longer as low-paid as they had been.
Eventually, a few successful companies will probably emerge. Americans spend more than enough money on movies and TV shows to create healthy profits. But not all the companies that thrived in the past are likely to do so in the future. The current turmoil is in many ways a fight for survival.
David Zaslav, the C.E.O. of Warner Bros. Discovery, has described the situation as a “generational disruption.”
Zaslav is the subject of the Times Magazine article by Jonathan, James B. Stewart and Benjamin Mullin. In the article, you will read about Zaslav’s enormous compensation, the renovation of his Beverly Hills home, his recent cuts to the studio’s budget, his role in the success of “Barbie” and his attempts to reverse the sharp decline in his company’s stock. It’s an entertaining Hollywood yarn.
Lives Lived: Maj. Gen. Roland Lajoie helped coordinate U.S.-Soviet relations in the last decade of the Cold War, then oversaw the destruction of nuclear weapons from former Soviet republics. He died at 87.
Soccer: Emma Hayes, a multi-championship-winning coach in the English Women’s Super League, will become the head coach of the U.S. women’s national soccer team.
N.B.A.: The Minnesota Timberwolves beat the Golden State Warriors, 104-101. The Warriors’ forward Draymond Green was ejected from the game after putting the Timberwolves’ Rudy Gobert in a chokehold.
Golf: Rory McIlroy resigned from the PGA Tour’s board, five months after the tour’s deal with the Saudi sovereign wealth fund.
In her own words: The former first lady Lady Bird Johnson embodied contradiction. Even her name — a childhood nickname — belied her grit, intellect and ambition. “The Lady Bird Diaries,” a new Hulu documentary based on private tapes, tells her story without outside perspectives or critiques. What emerges is a picture of a loving wife — and a trusted adviser who had surprising influence.
“In an era when a woman’s power could generally find expression only through her husband,” the Times columnist Rhonda Garelick writes, “she found herself married to the most powerful man in the world. She seized the opportunity.”
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