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It’s hard to believe, but at the beginning of this year Bob Iger retired from Disney, Netflix seems to be the unstoppable juggernaut of the entertainment industry, and ViacomCBS is still a thing (hello, Paramount!). For the entertainment industry, 2022 is a year of change and transformation in corporate names, executive leadership and strategy. Recession fears and subscription slowdowns are forcing a turn to familiar game plans in an “everything trades in” moment. In one key area, macroeconomics doesn’t appear to be an issue either. At least the premise is that you are an A-list star.
Saddest Trend: Layoffs Everywhere
Warner Bros. Discovery said it could spend as much as $1.1 billion on restructuring charges. AMC Networks said it would lay off 20% of its workforce. NBCUniversal is offering an early retirement plan in response to layoffs in the coming months. Paramount has already begun laying off key departments such as ad sales and TV studios. Under new (old) CEO Bob Iger, Disney is restructuring its Distribution Division (DMED), with additional layoffs likely to follow. “Restructuring and changes in business strategy, once identified, could result in impairment charges,” the company warned investors in November.
As the media and entertainment industry begins to feel the pain of a potential recession, it’s hard to find a media company that can no Distribute dismissal notices. After years of explosive growth fueled by streaming, the industry appears to be in contraction mode once again. The layoffs and layoffs come as every major player in the entertainment industry seeks to reposition itself for profit, ditching the scale-at-all-costs strategy that has dominated the industry for years, all in the name of catching up to Netflix (which is also laid off hundreds of employees). Advertising-supported businesses (see chart left) are feeling the pinch in particular as marketers cut budgets pre-emptively (ad spending is always the canary in a recession’s coal mine). The question on every executive’s mind right now is whether 2023 will bring stability or more turmoil — and even deeper cuts.
Least Popular Comeback: Commercial
As Netflix transformed the entertainment business with streaming and binge-watching, it also made a key decision: It wouldn’t have ads. The company’s executives attribute this to a premium consumer experience. Fifteen years later, however, the company has changed course and introduced an ad-supported tier.
“You’re right, I don’t believe in our ad-supported strategy. I was wrong,” CEO Reed Hastings said on Nov. New York Times DealBook Summit. “Hulu really proved that you can do this at scale and at lower prices for consumers. That’s a better model.”
But Netflix is not alone. Disney+ also launched without ads and was added in early December. HBO, like Netflix, never has commercials…until HBO Max adds them in 2021. Ad-free is likely to live on as an option, but completely ad-free streaming services may soon be the dodo bird (or, soon, the peacock?).
“I think in the long run, people will want to really focus on extending the relationship with consumers,” said Jana Arbanas, head of technology, media and entertainment at consultancy Deloitte. “A free, ad-supported service that enables someone to maintain that service for years rather than months…you’re extending the life of the relationship with the consumer, you’re learning more about that consumer, and therefore being able to offer relevant ads.”
It’s a back-to-the-future moment of entertainment that’s been proudly supported by Bulova Watch Company since it ran a 10-second ad during the Brooklyn Dodgers-Phillies game in 1941.
Most Likely to Succeed: Any celebrity willing to take private equity investment
The economy may be collapsing, but private equity’s desire to invest in celebrity entertainment centers remains hot. Think Ben Affleck and Matt Damon. The Oscar winner and A-list star partnered with Gerry Cardinale’s RedBird Capital in November to launch a production company called Artists Equity.
In a jargon-filled presentation at the MBA, Cardinale said New York Times DealBook Summit, “It’s more of an entrepreneurial, founder conversation about how we can build a long-term value business, take advantage of the ongoing technology disintermediation in content monetization, and create the next new thing.”
While the people associated with the company will always tout the larger meaning behind the move (“I want to use my second act of life to create a meaningful, strong company, develop a new model that speaks differently stories, and pay artists differently, including behind the camera,” Affleck said at the summit), talent offers a unique way into a crowded market for private equity firms that are still cash-rich.
After all, who wouldn’t want to team up with Reese Witherspoon (Hello Sunshine/Candle Media), LeBron James (SpringHill/RedBird), Tom Brady and Michael Strahan (Religion of Sports/Shamrock Capital) or Will Smith (Westbrook/Candle Media) — now It might be too early to say the last one.
The money train shows little sign of braking. Peyton Manning’s Omaha Productions is in talks with Peter Chernin’s North Road. On Dec. 10, French conglomerate Mediawan said it would buy a majority stake in Brad Pitt’s Plan B production company, which is valued at hundreds of millions of dollars.
This story first appeared in the December 16 issue of The Hollywood Reporter. Click here to subscribe.
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