Hollywood is paying a steep price for never really figuring out the streaming model

Published

2 years ago

September 17, 2023

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People carry signs as SAG-AFTRA members walk the picket line in solidarity with striking WGA workers outside Netflix offices in Los Angeles, July 11, 2023.

Mario Tama | Getty Images News | Getty Images

Picket signs have lined the gates of Hollywood’s studios for nearly five months, as the industry’s writers and actors rally for AI protections, better wages and a cut of streaming profits.

The problem is streaming isn’t yet profitable for many studios.

Sparked by the creation of Netflix’s direct-to-consumer platform in 2007, streaming has upended the economics of the media industry. Yet, it’s still unclear whether it’s a sustainable business model for the future.

“Without sounding hyperbolic, the change in the economics of the North American media industry in the last five years has been breathtaking,” said Steven Schiffman, an adjunct professor at Georgetown University.

Legacy media companies like Disney, Warner Bros. Discovery, Paramount and NBCUniversal scrambled to compete with Netflix when it began creating original content in 2013 and slowly pulled market share over the next five years. The studios padded their platforms with massive content libraries and the promise of new original shows and films for consumers.

However, the subscription-based streaming model proves vastly different than the ad-revenue-fueled traditional TV bundle. High licensing costs and low revenues per subscriber quickly caught up with studios, which had previously placated shareholders with massive subscription growth.

Netflix was the first streamer to report a loss in subscribers in 2022, sending its stock and other media companies spiraling. Disney has followed suit. Since then, both have set subscription numbers aside in favor of advertising, a password-sharing crackdown and raising prices.

Media companies also have begun slashing content spending budgets. Disney CEO Bob Iger has promised the company will focus on quality over quantity when it comes to both its streaming and theatrical businesses, pointing to Marvel as an example of too much content.

Yet streaming remains the focus for all of these companies as consumers rapidly cut the cord and opt for streaming. To make up for the losses, media organizations are now relying on methods that once made the traditional bundle so successful.

“What’s the fundamental solution? In some way, shape or form, it’s everything brought together,” said CEO Ken Solomon of the Tennis Channel, owned by Sinclair, of the various business models in media. “It’s about understanding where to put a little more resources and how they all are glued together to satisfy the consumer.”

A broken model

Two strategies media companies long relied upon — windowing content to various platforms and creating more cable channels to reap higher fees from the bundle — proved lucrative and still reap profits.

“This gun has been cocking itself for decades,” said Solomon, noting that the pay TV bundle was a good value proposition until it became too expensive for consumers. That gave Netflix an opening to upend how the entertainment industry makes and spends money.

Legacy media companies scrambled to follow suit, unsure if the model actually worked. But they were desperate to keep up with changing consumer demand, and in the process they depleted other revenue streams.

Now turmoil rules the industry. Companies like Disney and Warner Bros. Discovery are in the midst of reorganizations — slashing jobs and content costs while trying various ways to piece together profits.

An image from Netflix’s “Stranger Things.”

Source: Netflix

“All of these companies spent more money than they likely should have,” said Marc DeBevoise, CEO and board director of Brightcove, a streaming technology company.

Netflix, with a considerable head start, is the only company to make a profit off of streaming. “For everyone else, it’s still dictated by linear TV,” said UBS analyst John Hodulik. “That’s a problem as the decline in customers accelerates and streaming is not a big enough opportunity to offset that.”

Although subscriber growth initially ramped up streaming subscriber growth and bolstered many media stocks, it was short-lived. Fears of a recession, inflation and rising interest rates led Wall Street to reassess these companies and focus on profitability as subscriber growth slowed.

A content arms race

Netflix’s entrance into media signaled the beginning of a content arms race that, ultimately, hasn’t paid off for any media company.

Content spending ballooned across the industry, with each company spending tens of billions of dollars for new shows and films in an effort to lure in new subscribers — and keep the ones they already had.

“The networks had aligned with their streaming services and taken all the elasticity out of it. They were throwing money at a problem and hoping that it was going to solve itself,” said Solomon. “There was no economics behind it.”

Race to launch

Netflix — launched streaming service in January 2007, first original content launched February 2013
Hulu — launched streaming service in March 2008
Paramount+ — launched as CBS All Access in October 2014, rebranded as Paramount+ in March 2021
Disney+ — launched streaming service in November 2019
Peacock — launched streaming service in April 2020
Max — launched as HBO Max in May 2020, rebranded as Max in May 2023

There were also massive one-off licensing deals for shows like “The Office,” “Friends” and “Seinfeld,” which viewers were actively watching on repeat.

Studios even struck exclusive contracts with some of Hollywood’s biggest writer-producers — Ryan Murphy, Shonda Rhimes, J.J. Abrams, Kenya Barris and the duo of David Benioff and D.B. Weiss — in the hope that they could create new projects that could capture the attention of audiences.

Show budgets draw a lot of attention these days. But Jonathan Miller, a former Hulu board member and current CEO of Integrated Media, doesn’t recall that being a focus when it was just the four major broadcast networks creating all of the content.

DeBevoise, a former ViacomCBS (now Paramount) executive, said he doesn’t remember greenlighting a show, including “Star Trek Discovery,” in the mid-2010s at CBS for more than $10 million an episode, noting many were “much, much less expensive.”

Meanwhile, Solomon, who once ran Universal Studios Television, recalled when his budgets for top TV shows like “Law & Order” were below $2 million an episode. “I thought budgets were out of control back then,” he said.

Shonda Rhimes attends 2018 Vanity Fair Oscar Party on March 4, 2018 in Beverly Hills, CA.

Presley Ann | Patrick McMullan | Getty Images

Disney sought to capitalize on the success of its Marvel Cinematic Universe by developing more than a dozen superhero shows for its Disney+ platform. Although the seasons were shortened, often only six to 10 episodes, each episode cost around $25 million. Similar production budgets were seen for the company’s foray into the new live-action Star Wars TV series.

Netflix has poured money into multiple seasons of political drama “The Crown,” science fiction darling “Stranger Things” and a series based on The Witcher video game franchise. Production costs per episode for these series ranged from $11 million to $30 million.

And Warner Bros. Discovery is adding more Game of Thrones series to its catalog of direct-to-consumer offerings with “House of the Dragon,” which cost around $20 million per episode, and the upcoming “A Knight of the Seven Kingdoms: The Hedge Knight,” which has not begun filming.

Meanwhile, e-commerce giant Amazon shelled out a record $465 million on its first season of a Lord of the Rings prequel series, which was met with tepid responses from critics and fans alike.

“The price of content isn’t always determinant of success. ‘The Simpsons’ were crudely animated initially, right? So, it’s not necessarily that if you go spend a lot of money, it works,” Solomon said.

Bart Simpson plays esports in an episode of “The Simpsons” that aired on March 17, 2019.

Fox

At the same time the economics for actors, writers and the industry as a whole changed.

“The problem is that the cost increases don’t make sense given the revenue models. Something got broken in this part of the business if that kind of increase happened and actors and writers don’t feel like they got their fair share,” DeBevoise said.

A growing disconnect

While many of Hollywood’s biggest studios are publicly traded and must share quarterly financial reports, there are no rules about providing streaming-viewership data. This lack of transparency has made recent contract negotiations between studios and the industry’s writers and actors especially contentious.

“There’s a frustration about how these people can get together and share this information and come up with something that is reasonable for both sides,” said Schiffman, the Georgetown professor. “But until that happens, in my view, this thing goes on until next year.”

Streaming studios, in particular, have long been reluctant to share data around viewership and don’t want compensation to be tied to the popularity of shows, including those that have been licensed from other studios.

Hollywood strike doesn't have an end in sight, says Puck's Matt Belloni

This is in stark contrast to how linear television has handled popular shows. Traditionally, studios pay residuals, long-term payments, to those who worked on film and television shows after their initial release. Actors and writers get paid every time an episode or film runs on broadcast or cable television or when someone buys a DVD or Blu-ray Disc.

When it comes to streaming, there are no residual payments. Studios that get a licensing fee pass on a small sum to actors and writers, but no additional compensation is given if the show performs well on the platform. Actors, in particular, are looking to change this.

“Why I think the streaming model has been a difficult model for the actors and writers, and I was part of helping that model, is that there was a fundamental shift of long-term versus short-term economics that likely wasn’t properly understood or explained,” said DeBevoise.

Back to the future

Media companies’ effort to make streaming profitable is drawing out many of the old business models that were successful in the past.

The subscription streaming model is being subsidized now by tried and true models like advertising, licensing content to other platforms, cracking down on password sharing, and windowing content to different platforms with longer stretches of time in between.

“Netflix understood finally, because of the Street, that subscriber numbers don’t mean jack, if the economics don’t pencil out,” said Peter Csathy, founder and chair of advisory firm Creative Media.

Even the pay TV bundle, despite rampant cord cutting by consumers, remains a reliable source of revenue.

The recent dispute between Charter Communications and Disney highlighted this fact, and led to Disney+ and ESPN+ being bundled with some pay TV subscriptions.

The consumer is ultimately the winner in the Disney-Charter deal, says media mogul Tom Rogers

“We, the distributors, are funding the streaming experience. And it’s frankly a better content experience on streaming than what is provided to us on linear TV,” said Rob Thun, chief content officer at DirecTV. “These companies will cease to exist without the funding of distributors’ licensing fees. Perhaps this is a moment of awakening.”

Disney and even Netflix, which long resisted ads, are among the companies relying more on ad-supported offerings to boost subscriber growth and bring in another revenue stream, even as the ad market has been soft.

This is especially true as free, ad-supported streaming services like Fox Corp.’s Tubi and Paramount’s Pluto — which are likened to broadcast networks — have also exploded. Besides the parent companies leaning on the ad revenue from these platforms, other media companies, like Warner Bros. Discovery, are funneling content there for licensing fees.

“In terms of the business models, they all ‘work,'” said DeBevoise. He noted paid tiers for the more expensive, timely content will remain, while free and options with commercials will support the older library shows and movie. “There are going to be hybrid models that reincarnate the dual-revenue cable TV model with both a subscription fee and ads. It’s all going to be about price-to-value and time-to-value for the consumer.”

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.

Technology

Software startup deploys Singapore’s first quantum computer for commercial use

Published

5 hours ago

December 4, 2025

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Software startup deploys Singapore’s first quantum computer for commercial use

Inside Horizon Quantum’s office in Singapore on Dec. 3, 2025. The software firm claimed it is the first private company to deploy a commercial quantum computer in the city-state.

Sha Ying | CNBC International

Singapore-based software firm Horizon Quantum on Wednesday said it has become the first private company to run a quantum computer for commercial use in the city-state, marking a milestone ahead of its plans to list in the U.S.

The start-up, founded in 2018 by quantum researcher Joe Fitzsimons, said the machine is now fully operational. It integrates components from quantum computing suppliers, including Maybell Quantum, Quantum Machines and Rigetti Computing.

According to Horizon Quantum, the new computer also makes it the first pure-play quantum software firm to own its own quantum computer — an integration it hopes will help advance the promising technology.

“Our focus is on helping developers to start harnessing quantum computers to do real-world work,” Fitzsimons, the CEO, told CNBC. “How do we take full advantage of these systems? How do we program them?”

Horizon Quantum builds the software tools and infrastructure needed to power applications for quantum computing systems.

“Although we’re very much focused on the software side, it’s really important to understand how the stack works down to the physical level … that’s the reason we have a test bed now,” Fitzsimons said.

Quantum race

Horizon Quantum hopes to use its new hardware to accelerate the development of real-world quantum applications across industries, from pharmaceuticals to finance.

Quantum systems aim to tackle problems too complex for traditional machines by leveraging principles of quantum mechanics.

For example, designing new drugs, which requires simulating molecular interactions, or running millions of scenarios to assess portfolio risk, can be slow and computationally costly for conventional machines. Quantum computing is expected to provide faster, more accurate models to tackle these problems.

A top executive at Google working on quantum computers told CNBC in March that he believes the technology is only five years away from running practical applications.

Still, today’s quantum systems remain in the nascent stages of development and pose many engineering and programming challenges.

Investment in the space has been rising, however, as major tech companies report technological breakthroughs. Alphabet, Microsoft, Amazon and IBM, along with the U.S. government, are already pouring millions into quantum computing.

Investor attention also received a bump in June after Nvidia chief executive Jensen Huang offered upbeat remarks, saying quantum computing is nearing an “inflection point” and that practical uses may arrive sooner than he had expected.

Nvidia CEO: Quantum computing is reaching an inflection point

Nasdaq listing

Horizon Quantum’s announcement comes ahead of a merger with dMY Squared Technology Group Inc., a special purpose acquisition company. The deal, agreed upon in September, aims to take Horizon public on the Nasdaq under the ticker “HQ.”

The software firm said in September that the transaction valued the company at around $503 million and was expected to close in the first quarter of 2026.

The launch of its quantum computer also helps cement Singapore’s ambition to be a regional quantum computing hub. The city-state has invested heavily in the technology for years, setting up its first quantum research center in 2007.

Before Horizon Quantum’s system came online, Singapore reportedly had one quantum computer, used primarily for research purposes. Meanwhile, U.S.-based firm Quantinuum plans to deploy another commercial system in 2026.

Singapore’s National Quantum Strategy, unveiled in May 2024, committed 300 million Singapore dollars over five years to expand the sector, with a significant portion directed toward building local quantum computer processors.

In May 2024, the National Quantum Strategy (NQS), Singapore’s national quantum initiative, pledged around S$300 million over five years to strengthen development in the sector, with a significant portion directed toward building local quantum computer processors.

Why Amazon, Google, Microsoft, IBM and numerous startups are racing to build quantum computers

Technology

A little-known startup just used AI to make a moon dust battery for Blue Origin

Published

12 hours ago

December 3, 2025

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A little-known startup just used AI to make a moon dust battery for Blue Origin

Istari Digital CEO Will Roper talks about the AI technology that built the Blue Origin moon vacuum

Artificial intelligence has created a device that turns moon dust into energy.

The moon vacuum, which was unveiled on Wednesday by Blue Origin at Amazon‘s re:Invent 2025 conference in Las Vegas, was built using critical technology from startup Istari Digital.

“So what it does is sucks up moon dust and it extracts the heat from it so it can be used as an energy source, like turning moon dust into a battery,” Istari CEO Will Roper told CNBC’s Morgan Brennan.

Spacecraft carrying out missions on the lunar surface are typically constrained by lunar night, the two-week period every 28 days during which the moon is cast in darkness and temperatures experience extreme drops, crippling hardware and rendering it useless unless a strong, long-lasting power source is present.

“Kind of like vacuuming at home, but creating your own electricity while you do it,” he added.

The battery was completely designed by AI, said Roper, who was assistant secretary of the Air Force under President Donald Trump‘s first term and is known for transforming the acquisition process at both the Air Force and, at the time, the newly created Space Force.

Nvidia CEO Jensen Huang talks chip restrictions with Trump, blasts state-by-state AI regulations

Published

12 hours ago

December 3, 2025

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Nvidia CEO Jensen Huang talks chip restrictions with Trump, blasts state-by-state AI regulations

Jensen Huang: State-by-state AI regulation would drag industry to a halt

Nvidia CEO Jensen Huang said he met with President Donald Trump on Wednesday and that the two men discussed chip export restrictions, as lawmakers consider a proposal to limit exports of advanced artificial intelligence chips to nations like China.

“I’ve said it repeatedly that we support export controls, and that we should ensure that American companies have the best and the most and first,” Huang told reporters on Capitol Hill.

Lawmakers were considering including the Guaranteeing Access and Innovation for National Artificial Intelligence Act in a major defense package, known as the National Defense Authorization Act. The GAIN AI Act would require chipmakers like Nvidia and Advanced Micro Devices to give U.S. companies first pick on their AI chips before selling them in countries like China.

The proposal isn’t expected to be part of the NDAA, Bloomberg reported, citing a person familiar with the matter.

Huang said it was “wise” that the proposal is being left out of the annual defense policy bill.

“The GAIN AI Act is even more detrimental to the United States than the AI Diffusion Act,” Huang said.

Nvidia’s CEO also criticized the idea of establishing a patchwork of state laws regulating AI. The notion of state-by-state regulation has generated pushback from tech companies and spurred the creation of a super PAC called “Leading the Future,” which is backed by the AI industry.

“State-by-state AI regulation would drag this industry into a halt and it would create a national security concern, as we need to make sure that the United States advances AI technology as quickly as possible,” Huang said. “A federal AI regulation is the wisest.”

Trump last month urged legislators to include a provision in the NDAA that would preempt state AI laws in favor of “one federal standard.”

But House Majority Leader Steve Scalise (R-LA) told CNBC’s Emily Wilkins on Tuesday the provision won’t make it into the bill, citing a lack of sufficient support. He and other lawmakers will continue to look for ways to establish a national standard on AI, Scalise added.

WATCH: Nvidia currying favor to be able to sell chips in China