It’s not cost-cutting, it’s efficiency. That’s the idea Meta CEO Mark Zuckerberg aimed to sell to investors Feb. 1, when he outlined 2023 as the “Year of Efficiency” for the parent company of Facebook and Instagram. It came after Meta had laid off 13 percent of its workforce and downsized its office space in light of the tough macroeconomic environment and overhiring, alongside other company-specific factors like its pricey foray into the metaverse.
Rather than view that as a negative, Zuckerberg positioned it as more of a rallying cry, even while cautioning that there would be more “efficiency” to come. “A lot of the time, when people talk about efficiency, there is a lot of focus on prioritization and which big things can you cut. But I actually think what makes you a better company over time is being able to execute and do more things because you’re operating more efficiently, and you can get things done with fewer resources,” Zuckerberg told investors on the earnings call.
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And so far, investors like what they hear. Meta’s stock skyrocketed the day after the earnings report, and Guggenheim analysts praised the new mode of operation in a Feb. 1 note as one that “will generate greater profitability and create a technologically stronger business.”
Other tech giants have followed suit on cost-cutting, with Amazon announcing the layoff of more than 18,000 workers, largely concentrated in its Amazon Stores and People Experience and Technology divisions, and slowing down its physical expansion, while YouTube parent Alphabet is set to lay off 12,000 employees. “These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles,” CEO Andy Jassy said in a Jan. 4 note announcing the layoffs, foreshadowing some of the themes Zuckerberg would later use.
But amid these cuts at the tech giants, one area remains largely spared so far: content spending. On its Feb. 2 earnings call, Amazon’s CFO Brian Olsavsky highlighted the performance of The Lord of the Rings: The Rings of Power, which cost Amazon $465 million for the first season, as well as the company’s acquisition of the rights for NFL’s Thursday Night Football, which commands a $1 billion annual spend. With that, Amazon’s overall content spend, which also includes its music services, surged to $16.6 billion in 2022, up 28 percent from the previous year. This comes after Amazon’s $8.5 billion acquisition of MGM in March 2022.
While Amazon said it was monitoring content spending, management highlighted the area as an important part of the company’s revenue generation, and maybe even more so as other areas are pressured. “We regularly evaluate the return on the spend and continue to be encouraged by what we see, as video has proven to be a strong driver of Prime member engagement and new Prime member acquisition,” Olsavsky said on the call.
Underlining the point, the services sector of Apple, which encompasses Apple TV+, Apple Music and Apple Arcade, also remained remarkably resilient, hitting a new revenue record of $20.8 billion for the three months ending Dec. 31, even as the tech company missed Wall Street expectations for its overall income and revenue.
YouTube, led by CEO Susan Wojcicki, also made a big move into content, after nabbing the rights to the NFL Sunday Ticket package for YouTube TV starting with the 2023 season, and reporting “great momentum” in its YouTube subscription products, which include YouTube TV and YouTube Music Premium.
This optimistic investment in content marks a change from many Hollywood studios, which are killing unfinished projects, such as Warner Bros. Discovery’s now infamous decision to put an end to a Batgirl movie, canceling or pulling particularly underperforming projects from their streamers to immediately cut costs, including for residuals — from the likes of the Twilight Zone reboot on Paramount+ to HBO Max’s Westworld — and reducing budgets. Part of this may be due to the fact that tech giants have larger balance sheets than the studios. But, as Peter Csathy, chairman of advisory firm Creative Media, says it’s also a function of how many tech companies view content: as a driver of engagement to their platforms and products. “They essentially get to use content as a marketing expense. And so it’s a means to an end, whereas for the media companies, content is the end to the end,” Csathy says.
The finance expert notes that there is also less scrutiny on the content budgets of Big Tech, since the spending is typically not broken out the same way it is for studios and streaming companies. And with larger overall budgets at their disposal and increasing competition among the streaming companies, tech giants are expected to keep up content spending. “I’m doubtful that the tech giants will reduce how much they are spending on content,” adds Brian Wieser, principal at Wall Street insights provider Madison and Wall. “It’s possible they will slow growth as they find a steady state in the business, but I think that any company that has decided to play in this space will have anticipated spending a certain percentage of revenue on content, just as the traditional media companies always did.”
This story first appeared in the Feb. 8 issue of The Hollywood Reporter magazine. Click here to subscribe.
