Hollywood is choking on a mountain of debt

Lstrike of actors and screenwriters he ended up in Hollywood. Not the headaches of American studies. Last week Warner Bros. Discovery Group has admitted it will not be able to meet its debt repayment targets, despite historical success of the film Barbie. It reached… 43 billion dollars (40 billion euros) at the end of September 2023! The current sanction of the financial markets: shares of the parent company of the studio Warner Bros and the channels CNN, HBO and Eurosport fell by almost 20% on Wall Street.

Last year, the merger of WarnerMedia and Discovery saddled the new company with $40 billion in debt. Rising interest rates complicate the group’s economic equation, which is affected by the sluggishness of the advertising market. Especially since its production was destabilized by strikes. If current (Maximum service) generated a profit in the last quarter, the company still shows a net loss of $417 million (389 million euros), compared to $2.3 billion a year ago, on quarterly turnover of about $10 billion (9.3 billion euros).

Drastically reduce costs

Warner Bros Discovery is not an isolated case. According to the research company Enders Analysis, the five major studios (Warner, Disney, Paramount, Comcast and Netflix) are burdened with roughly $190 billion in debt. Oscar for the biggest debt goes to Comcast, the owner of DreamWorks, Sky and NBC Universal studios: it reached about 100 billion dollars in the first half of 2023!

After Warner, Disney (about forty billion), Paramount (14 billion) and Netflix (about ten billion) follow, the only profitable video streaming service. The new streaming activities generate reduced margins, which are estimated to be between 10 and 15%. The big studios are therefore forced to drastically cut their costs in order to raise more money to pay off their colossal debts.

This is what Bob Iger, director of Disney (Disney+, ESPN, Marvel films, etc.), tried to demonstrate to investors during the recent presentation of financial results. The century-old entertainment giant plans to cut costs by $7.5 billion, $2 billion more than originally planned. Above all, it generated $4.9 billion in liquidity (“free cash flow”) during its most recent financial year, compared with $1 billion a year earlier.

Bob Iger promises to make fewer but better movies. There’s more work to do. Recent The Marvels he had the franchise’s worst start, with “only” $44 million in revenue in the United States (total of $110 million worldwide), for a budget of around $220 million. The end of the recipe for success?

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