- Consumers thought streaming would be forever, but library content is disappearing as studios seek to cut costs.
- Wall Street has turned up the heat on media companies, now focusing on if and when streaming will be profitable versus if they're putting up big subscriber numbers.
- Removing content from streaming platforms is a way for streamers to avoid residual payments and licensing fees.
Streaming was supposed to be forever.
That was the promise of a digital library of movies and TV shows.
Consumers got used to Netflix cycling through titles, aware that as Hollywood studios launched their own streaming services, proprietary content would transition to a new platform.
Even when Warner Bros. Discovery pulled content as part of planned tax write-offs tied to its merger, consumers seemed to accept the move as the cost of doing business.
However, as Disney is set to yank dozens of shows and films from Disney+ and Hulu, including "Willow," "The Mighty Ducks: Game Changers" and "The Mysterious Benedict Society," subscribers are suddenly faced with a new reality.
"At first I expected any show that was on a streaming platform would stay on that platform," said Conrad Burton, 35, an account manager at a transportation company in Raleigh, North Carolina. "But then I started noticing things expiring."
After the initial bloom of new platforms and subscriber growth, aided by pandemic lockdowns and a surge of fresh content, the digital streaming industry has cooled. And Wall Street has turned up the heat on media companies, now focusing on if and when streaming will be profitable versus if those providers are putting up big subscriber numbers. The change came last year after Netflix reported its first subscriber loss in a decade.
"What is hitting their income statements is the amortization of content that's already been made and released," said Michael Nathanson, an analyst at SVB MoffettNathanson. "Warner Bros. Discovery was the first one to figure this out, so we have to give credit where it's due. They said they need to get their earnings up, so they started taking shows off the app. Disney is now doing that and we should expect Paramount to follow suit. And one day Netflix may even do the same thing."
It's been difficult for consumers to understand why content made specifically for streaming platforms has been removed, especially when Netflix originals remain untouched in its library.
"From a consumer standpoint, what they want is they want to be able to always have access to their content," said Dan Rayburn, a media and streaming analyst.
"The part that really confuses consumers is because they don't understand how content is licensed," he said. "They do get confused when one day content is on a service and then disappears or the content is still in the service, but it's only X number of seasons."
Removing content from platforms is a way for streamers to avoid residual payments and licensing fees.
"Much like syndication of Hollywood's yesteryear, streaming services must pay for the right to host a title," explained Brandon Katz, an industry strategist at Parrot Analytics.
He noted that if a title is not owned by the streamer, then a licensing fee must be paid to the studio that owns that content. For example, Hulu licenses "The Handmaid's Tale" from MGM Television.
Even titles that are owned in-house must be licensed. That's why NBCUniversal had to pay itself $500 million to stream Universal TV's "The Office" on Peacock and Warner Bros. Discovery paid $425 million for the streaming rights to the WBTV-produced "Friends."
"The balance sheet must reflect that," Katz said.
By removing the content specifically made for streaming rather than licensed shows and movies, Warner Bros. Discovery and Disney can immediately cut expenses. Warner Bros. Discovery saved "tens of millions of dollars" after eliminating content, CNBC previously reported.
The studio's removal of movies and TV shows began last summer, initially with titles such as the "Sesame Street" spinoff "The Not-Too-Late Show with Elmo" and teen drama "Generation."
But in the ensuing months, more and more original HBO and Max content was removed. Most notably, the sci-fi dramas "Westworld" and "Raised By Wolves" disappeared.
"In my opinion, it discourages subscribers from checking out future original content," said Matt Cartelli, 33, from New York state's Hudson Valley. "Streaming used to be seen as a safe haven for consumers who were sick and tired of seeing shows canceled on traditional TV. Now streamers are following suit by canceling their own underperformers."
Cartelli was especially disappointed when he learned Disney+ initially planned to remove "Howard," about a songwriter whose work was heard in Disney films such as the animated "The Little Mermaid." Disney reversed its decision about that title after facing backlash on social media.
And streamers have a fine line to walk.
"The risk is with the writers' strike," Nathanson said. "If it continues for awhile, then they will rely on library content. If there's nothing on there, churn will only get worse."
Streaming services are being strategic about what sticks around and what leaves their platforms. Major hits such as Max's "Peacemaker" or Disney's "The Mandalorian" are unlikely to be pulled from their respective apps.
Meanwhile, underperforming shows and films could be on the chopping block.
In the first quarter of the year, the demand for the dozens of shows and movies being cut from Disney+ represented only 1.9% of the total Disney+ catalog, according to data from Parrot Analytics. For comparison, "The Mandalorian" accounted for 1.3% of total demand during the same period.
Similarly, the removed titles for Hulu accounted for just 0.4% of demand on the streaming service.
And these titles aren't lost forever.
Soon after cutting programs from Max, Warner Bros. Discovery began licensing the content to Fox Corp.'s Tubi and Roku, which are free, ad-supported streaming television platforms — also known as FAST — allowing it to bring in a new source of revenue for the content.
As media companies have been desperate to make streaming profitable, the businesses have been turning more and more to new advertising strategies, from cheaper, ad-supported offerings to putting content on FAST channels.
"My main takeaway is that nothing is guaranteed to remain on streaming forever. You are paying for a convenient way to watch content, but it is not a replacement for buying a movie or TV show on home video," Cartelli said.