The great streaming panic of 2022 began with an errant quarterly earnings report four years ago.
Netflix, which had been riding high for years, reported a 200,000 subscriber loss, stunning Wall Street and missing its own expectations of a 2.5 million subscriber gain. On the earnings call, Netflix co-founder Reed Hastings shocked even his own staff by announcing that the company would launch an ad-supported tier.
That miss began an industry-wide pivot to profitability: The streaming wars, which had been about a land grab for subscribers, turned in that moment into a battle for survival, with profits at the core.
Four years later and we are once again in the throes of Q1 earnings. But what if … we weren’t?
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 reporting quarterly, companies would have the option to report semi-annually, a sea change that SEC chairman Paul Atkins says is part of his “Make IPOs Great Again agenda.”
It’s worth considering: Had semi-annual reporting been a thing in 2022 … would Hollywood’s great streaming pivot have been different? One veteran media executive, when asked recently if the move to semi-annual reporting could impact Hollywood, said that the ability to “smooth out” data is not to be underestimated.
If companies like Netflix, Disney or Paramount choose to report semiannually instead of quarterly (it will be a choice, the SEC notes), datapoints 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 choppiness could be smoothed out.
One veteran ad sales executive has said that they wished their sales were reported less frequently, given the cyclicality of that business.
In 2022, Netflix’s Q1 stunned the street, but by the end of Q2 it had begun to stabilize, and by the end of Q3, growth had returned. One wonders how the company would have responded if it only reported semiannually.
To be certain, the SEC’s goal is to get more companies to go public, a real problem with many of the world’s most valuable firms (think SpaceX, OpenAI, Anthropic, etc) now private. The SEC has also touted the idea as being consistent with more long-term thinking for management, suggesting that quarterly reports entice short-termism.
But current public companies will be able to benefit, and previous reporting had suggested that the idea to move to semi-annual reporting originated from a conversation PepsiCo’s former CEO had with President Trump in his first term.
And Hollywood is no exception. The industry is undergoing a radical transformation, with the reliable pay-TV dollars slowly deteriorating and streaming forging a choppy path toward the future. Films are hit or miss, but the costs have a regular cadence.
It is an industry ripe for adopting the less frequent reporting structure (if Wall Street and competitive pressures allow), and could shield the industry’s woes, or at least allow for that “smoothing out” of the numbers to project tranquility even amid monthly choppiness. Another SEC commissioner, Hester Peirce, also raised the idea of developing simplified 10-Q reports, even for companies to elect to reveal data quarterly, again giving companies more leeway to finesse how they present to investors.
The changes are wonky, but as the 2022 streaming bloodbath underscored, could be significant, for better or for worse. And for an industry in transition, the changes could be welcomed with open arms (already most companies have opted to stop sharing subscriber numbers, with Netflix leading that charge).
And the SEC may not stop with quarterly earnings reports.
“Over the next few months, I expect that the Commission will be considering a series of proposals that, if adopted, will not only redefine what it means to be a public company, but will make being public attractive again,” Atkins said in a statement.
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