The great streaming scare of 2022 started with a flawed quarterly earnings report four years ago.
Netflix, which has been on the rise for years, announced a loss of 200,000 subscribers, stunning Wall Street and missing its own forecast of gaining 2.5 million subscribers. On the earnings call, Netflix co-founder Reed Hastings shocked even his employees by announcing that the company would launch an ad-supported tier.
This failure initiated an industry-wide shift toward profitability: the streaming wars, which had been about grabbing territory for subscribers, were now transformed into a battle for survival, with profits at their core.
Four years later, we’re once again in the midst of first-quarter earnings. But what if…we’re not?
On Tuesday, the Securities and Exchange Commission proposed amendments that, if adopted, would change how public companies share important information with Wall Street. Instead of filing quarterly reports, companies will have the option to file semi-annual reports, a radical change that SEC Chairman Paul Atkins says is part of the “Make IPOs Great Again” agenda.
It’s worth considering: If semi-annual reports had existed in 2022…would Hollywood’s big streaming pivot be different? When a veteran media executive was recently asked whether the move to semi-annual reporting could impact Hollywood, he said the ability to “smooth” data should not be underestimated.
If companies like Netflix, Disney, or Paramount chose to report semi-annually rather than quarterly (that would be an option, the SEC notes), data points like subscriber numbers (both streaming subscribers, but also pay-TV subscribers as reported by cable companies), as well as ad sales trends, could be shielded from view, or fluctuations could be smoothed out.
One veteran ad sales executive said they wish their sales were reported less frequently, given the cyclicality of the business.
In 2022, Netflix’s first quarter stunned the Street, but by the end of the second quarter, it began to stabilize, and by the end of the third quarter, growth returned. One wonders how the company would have responded if it had only provided semi-annual reports.
To be sure, the SEC’s goal is to get more companies to go public, which is a real problem since many of the world’s most valuable companies (e.g. SpaceX, OpenAI, Anthropic, etc.) are now private companies. The SEC has also promoted the idea as consistent with management’s long-term thinking, suggesting that quarterly reports tempt a short-term view.
But existing public companies will be able to benefit, and previous reports have suggested that the idea of moving to semi-annual reporting arose from a conversation the former PepsiCo CEO had with President Trump in his first term.
Hollywood is no exception. The industry is undergoing a seismic shift, with trusted paid channel dollars slowly trickling down and forming a volatile path into the future. Movies may succeed or fail, but costs have a regular rhythm.
It’s an industry primed to embrace a less frequent reporting structure (Wall Street and competitive pressures permitting), and it can buffer industry woes, or at least allow the numbers to “smooth out” to show calm even amid monthly fluctuations. Another SEC commissioner, Hester Peirce, also raised the idea of developing simplified 10th-quarter reporting, even for companies that choose to disclose data quarterly, again giving companies more room for finesse in how they present them to investors.
The changes are shaky, but as the 2022 bloodbath has confirmed, they could be significant, for better or worse. For an industry in transition, the changes can be welcomed with open arms (most companies have already chosen to stop sharing subscriber numbers, with Netflix leading the way).
The Securities and Exchange Commission may not stop at quarterly earnings reports.
“Over the next few months, I expect the Commission will consider a series of proposals that, if adopted, will not only redefine what it means to be a public company, but will make being a public company attractive again,” Atkins said in a statement.
