The popularity of subscription video-on-demand (SVOD) was one of the bright spots for the stock market during the worst months of the COVID-19 pandemic; entertainment companies such as Warner Bros. Discovery (WBD -0.71%) and Walt Disney (DIS 0.18%) saw SVOD subscriber numbers grow at a fast clip, and both were able to leverage their respective streaming platforms to release new movies as countless film theaters remained in stasis.
Since the world has opened up again, the SVOD industry as a whole has experienced slower growth. And with 82% of US households now subscribing to at least one premium streaming service, some industry experts are suggesting the sector could be in for a rocky 2023.
With this in mind, investors looking to shore up their streaming bets may wonder whether Walt Disney or Warner Bros. Discovery is the better option right now. Let's explore.
Warner Bros. Discovery says its future is bright
Warner Bros. Discovery spent much of 2022 slashing content and laying off staff in an effort to find $3.5 billion worth of savings. Now, according to Warner Bros. Discovery CFO Gunnar Wiedenfels, that era is over, and the company wants to focus on "relaunching and building."
Speaking during a recent investor conference, Wiedenfels said Warner Bros. Discovery's cuts last year have "laid a great foundation" for future growth. The executive also posited the streaming industry as a whole had gone "overboard" in recent years, committing an unsustainable amount to content creation. "We're coming from an irrational time of overspending with limited focus on return on investment," said Wiedenfels.
An expensive content play for Disney+
Walt Disney launched Disney+ in late 2019, pitching viewers on a mix of classic content along with brand-new programming -- much of it centered around the Marvel Cinematic Universe (MCU) and Star Wars characters. Since then, the company has released shows like WandaVision, She-Hulk: Attorney at Law, The Mandalorian, Andor, and many others, with the VFX-heavy shows costing in the range of $100 million to $200 million per season.
Walt Disney's spending on Disney+ has helped make it one of the most popular SVOD platforms in the world, with a subscriber base of more than 164 million. But despite that success, the streaming division is not yet profitable -- and that is starting to manifest in disquiet from some of its biggest stakeholders.
A battle for the Disney boardroom
Speaking during Walt Disney's fiscal 2022 fourth-quarter results call, CEO Bob Iger (who returned to the role in November 2022) projected streaming losses would decline through 2023, with the unit likely reaching profitability in 2024. For some stakeholders, though, that's simply not good enough.
Activist investor Nelson Peltz of Trian Partners has instigated a lobbying campaign to try to secure a seat on Walt Disney's board. Peltz has lodged a litany of complaints against Walt Disney's current stewardship, claiming the company lacks "cost discipline," and that it is using its Parks division "to subsidize streaming losses."
Peltz also alleges Walt Disney spent too much when it acquired 21st Century Fox assets for $71 billion in 2019, and that it may even have to "get out of the streaming business" if it's unable to do a deal for the 33% of Hulu that is owned by Comcast.
In response to Peltz's bomb-throwing, Walt Disney has pushed back in an SEC filing, saying the investor "does not understand Disney's businesses," and that he doesn't have experience in the streaming space. The company also noted that Iger has already made a commitment to prioritizing streaming profitability over subscriber numbers, and claims the 21st Century Fox acquisition brought key talent to Walt Disney.
Focusing on the road ahead
For market watchers, Warner Bros. Discovery's confidence in the state of its operations should bode well; the company has already factored in the cost of content write-downs, and it seemingly believes it has the necessary resources to succeed in the current streaming climate. For investors, the stability of the company's strategy may be appealing.
By contrast, with Peltz yet to be convinced by Walt Disney's cost-cutting plans, the threat of a proxy battle could only add pressure to how the company does business. And while Peltz has yet to find a seat on the company's board, that doesn't mean he won't ultimately succeed. Of course, some may believe Peltz's approach could help Walt Disney unlock more shareholder value, in which case they will surely want to pay attention to how it all plays out.
