There's a big theme among media companies this earnings season: They're all planning to increase their content spending on streaming media. Paramount Global (PARA -4.77%) -- formerly ViacomCBS -- was the latest company to share its plans to step up content expenses with investors when it reported its fourth-quarter earnings earlier this month.
The company joins Walt Disney (DIS -2.61%), AT&T's (T 0.75%) WarnerMedia, and Comcast's (CMCSA -1.70%) NBCUniversal, which all plan to spend more on streaming over the next few years. They're all chasing Netflix (NFLX -0.94%) and its massive budget for original content.
Everybody's spending more
Paramount Global CFO Naveen Chopra shared plans to increase the company's direct-to-consumer content expense outlook for 2024. Instead of $4 billion spent on its SVOD services, it's going to spend $6 billion. Part of that increase will come from taking the exclusive license to Paramount Pictures film releases that year. The guidance comes with a more transparent way to break out spending for its streaming content.
Meanwhile, late last year Disney laid out plans to increase content spending across the company by $8 billion in fiscal 2022. Most of that spending will go toward streaming content, pushing the expense into Netflix territory in short order.
AT&T didn't detail its plans for HBO Max other than to say 2022 will be a "peak investment year" for the streaming service during its fourth-quarter earnings call, implying a further push into negative EBITDA territory. As it expects subscriptions and revenue to grow, that means more content and marketing expenses, too.
NBCUniversal was quite clear on its intentions with Peacock: It will double content spend in 2022 to $3 billion. It's aiming for $5 billion in spend for 2024.
How competition is impacting profitability
With Netflix and Disney pushing their content spend significantly higher, it's putting pressure on the smaller media companies to keep up.
Peacock is a prime example of the bigger companies' influence. It's unclear if increasing its content spend will get it to its long-term goal any faster, but management can't take any chances of being left in the dust, considering it sees the streaming service as an integral part of its future. The increased spending will make it more unprofitable longer, and it's not clear it'll result in greater revenue or a better position long term.
Paramount's decision will also extend losses for its streaming service, management said, but it also raised its long-term subscriber outlook. It now expects 100 million subscribers across its streaming services by the end of 2024, up from its original outlook of 65 million to 75 million. It ended 2021 with over 56 million subscribers.
Even HBO Max isn't immune from extending its operating losses. WarnerMedia's direct-to-consumer operations produced a negative EBITDA for the first time last quarter, and management avoided answering the question directly when asked if those losses will worsen in 2022.
While Disney's also increasing its content spend significantly in 2022, it still expects to reach break-even profitability for Disney+ in 2024. Similarly, while Netflix expects its operating margin to decline in 2022, with content spending continuing to climb, it still expects to see long-term margin expansion as it leverages its growing library of global series and films.
So it appears as if the competition is having a bigger impact on the smaller streaming services than the bigger ones, which are setting the tone. The smaller companies are being forced to take on more risks of extended losses -- without as much clarity on subscriber and revenue growth.
Investors looking to buy in on the shift among media companies to streaming may be best off sticking with the companies that are capable of outspending the competition without putting added pressure on profitability.