Prepare For A Ton Of Dumb, Counterproductive Streaming Video Mergers

While Comcast's streaming service Peacock has now reached 30 million subscribers, Comcast has been taking an absolute bath on the proposition. Comcast CEOMike Cavanagh says the company lost nearly $3 billion dollars on the effort last year alone.

The other streaming giants haven't fared a whole lot better. Warner Bros Discovery, Disney, and Paramount all struggled to nab a profit as they collectively (and in many cases successfully) spent a ton of money (not always particularly wisely) to compete with Netflix.

Grabbing any kind of meaningful profits here came at a cost; streaming companies that eked out a profit often did so by nickel-and-diming their subscribers in new and annoying ways (see: Amazon's decision to charge Prime Video customers an extra $3 just to avoid new ads, or Netflix's and Disney's decision to harass customers for sharing passwords), risking future defections.

While the losses are usually framed in the business press as just the cost of trying to compete in streaming, there was no shortage of dumb, wasteful spending. They paid their executives exorbitant compensation well out of proportion with their competence (see: Warner Bros Discovery CEO David Zaslav). They pursued pointless mergers that saddled them with mountains of debt. Netflix even launched a restaurant.

And as usually the case, it wasn't the executives that paid for their wild spending and bad decisions fueled by Wall Street's demand for improved quarterly returns at any cost. In most instances, like Disney, it was either consumers or the employees that paid the price:

Disney, the largest traditional media company, is in the midst of a gutting restructuring that has featured 7,000 job cuts and attacks from activist investors. It lost more than $1.6 billion from its streaming businesses in the first nine months of 2023, during which its Disney+ service gained 8 million subscribers. The company says it will turn a profit in streaming in late 2024."

Analysts," many of which are simply looking to goose client stock valuations, are already busy insisting that more mergers are the solution. Despite the absolute madness, bloodshed, debt, and chaos that resulted from the AT&T->Time Warner->Warner Bros Discovery merger. Have a huge ton of debt from the last two pointless mergers? Clearly the solution is more mergers:

Analysts said the two companies' high debt levels were an immediate concern for investors. We suspect investors will focus on pro forma leverage above all else," Citi analysts wrote in a note last week. They estimated that an all-stock combination of Warner and Paramount could yield at least $1 billion of synergies."

Warner Bros and Paramount are the first to propose merging, but they won't be the last. But they're pursuing consolidation not because it's good for the brand, company, or their longer-term visions. They're pursuing it in order to nab mammoth tax breaks and to make stock prices temporarily jump.

In reality, these mergers don't fix the actual problem, and in many instances make things worse. Bigger debt loads get recouped in the form of higher prices and even more layoffs. Less competition also means higher prices and lower quality product. We've noted how over-compensated, fail-upward executives in streaming are dead set in turning streaming video into old cable TV, having learned little from experience.

As these executives pursue mindless consolidation the underlying products will get worse. In turn, customers will either migrate back to piracy or more affordable (or free) alternatives like YouTube and TikTok. At which point, as we saw in the late 90s and early aughts, over-compensated executives will inevitably blame everyone and everything but themselves.