Studio Profit Report 2019: Disney Reigns, Netflix Gains

Courtesy Photos
Disney's 'Avengers: Endgame'; Netflix's 'The Witcher; Warner Bros.' 'Riverdale'; NBCU's 'Hobbs & Shaw'; ViacomCBS' 'Jack Ryan'; Sony's 'Once Upon a Time in Hollywood.'

As earnings season ends, The Hollywood Reporter’s annual analysis of conglomerate studio divisions, and for the first time Netflix, reveals profit gains across the board, even as investments in streaming are starting to have an impact.

While Hollywood has been debating if or how much the rise of streaming services and franchise fatigue is hurting the film business at home, studios’ profits for 2019 showed little evidence of pain, rising across the board, in some cases to record levels.

Disney dominated theaters for much of 2019, making it a tough year for its peers at the box office. Overall, theatrical growth abroad — global box office revenue increased 2 percent amid a 4 percent international gain — helped soften the industry’s blow of a 4 percent drop in North America. But at other studios, such as Paramount and Universal, increased revenue from content licensing, including to streaming platforms, and lower operating expenses helped lead the way in more than offsetting lower theatrical results. 

The Hollywood Reporter's annual film unit profit table shrunk further thanks to Disney’s March 2019 acquisition of the Fox studio business less than a year after telecom giant AT&T took over Warner Bros. and the rest of Time Warner. In a first, the latest annual analysis includes a look at Netflix. The streaming giant’s business and financials are, of course, not directly comparable to those of the studio units of entertainment conglomerates. For starters, its revenue comes from subscribers that studios don’t have, even though other units of traditional studios’ parent companies have launched or will soon launch their own streaming services. 

But there has been much discussion about how Netflix with its original content push, including in movies, and Oscar ambitions has become more like a studio, and it is now also a member of the MPAA, making a look at how its financials compare with traditional studios’ educative.

Among key trends for 2019, Disney hit an all-time film profit record that many say may stand for years, while Viacom’s, now ViacomCBS', Paramount Pictures turned properly profitable. Financial disclosures for studio units remain limited, and the figures crunched by THR aren't always easily comparable as some companies have fiscal years that differ from the calendar year. Plus, Warner, Sony and ViacomCBS’ studio arms include TV production units, which others don’t.

Still, the numbers provide a snapshot of the filmed entertainment landscape at conglomerates at the time when Hollywood giants are pushing into the streaming space with their own branded services, which already affected revenue trends at Warner in the fourth quarter. Here is a closer look at each company:

Disney: Studio results for 2019 include Fox from the close of the merger on March 20, making it a tale of two companies. Led by Avengers: Endgame, Disney reached an unprecedented $11.1 billion at the global box office before including Fox, with Disney, Marvel and Lucasfilm hits galore. Overall, the company became the first studio ever to have seven $1 billion releases in a year. The plan for 2020? Getting 20th Century Studios on track and making sure such tentpoles as Mulan, Jungle Cruise and Marvel's Black Widow and The Eternals, plus Onward and Soul from Pixar, perform. "2020 is not going to be the same as 2019 for the studio," outgoing Disney boss Bob Iger told analysts Feb. 4. But given that Disney+ is a focus and that the company's direct-to-consumer and international unit, which includes the streamer and Hulu, saw its operating final-quarter loss rise to $693 million due in part to the costs associated with launching the streaming service, analysts will keep an eye on disclosures regarding its impact on the studio unit.

Sony: Some big hits, including Once Upon a Time in Hollywood ($374 million globally), and lower expenses helped Sony grow its profit despite flat revenue in the calendar year 2019. Sony reached domestic box office revenue of $1.35 billion, its best showing since 2012, even though its global haul fell below that of 2018. The conglomerate signaled that its TV studio arm was a mixed bag last year, though it didn't break out financial details. It benefited from Netflix hit The Crown, whose season three the studio said boosted financials in the final quarter of 2019. But it had no new season of Better Call Saul in 2019. Plus, in some quarters of 2019 the studio cited "higher development expenses" for TV productions. Sony also boosted profitability by further trimming the portfolio of international TV channels in its media networks segment. It went from 100 channels at the end of 2017 to 76 at year-end 2019.

ViacomCBS: In 2019, which ended with December's Viacom-CBS merger, Paramount swung to adjusted earnings of $80 million after a $33 million loss in 2018. (Before the merger, Viacom in THR’s calculations made a minimal profit of $1 million in 2018. But with its most recent earnings report, ViacomCBS changed from using adjusted operating profit to reporting adjusted operating income before depreciation and amortization, which changed its calculations for 2018.) The swing to a profit in 2019 was driven by a 14 percent improvement in licensing revenue and a 3 percent dip in expenses. Licensing revenue came from titles in its film library as well as from new series from Paramount TV Studios, with the company highlighting that the year saw "increases in licensing of film catalog titles to SVOD providers and recent releases to pay television services." As in 2018, licensing was the largest revenue generator for Paramount, with $1.7 billion, or 57 percent of the total, in 2019. That was ahead of home entertainment with $623 million, which was up 1 percent. Paramount TV Studios, whose shows include Amazon's Jack Ryan and Netflix's 13 Reasons Why, expanded to end 2019 with 27 shows ordered, but financials were not disclosed.

Warner Bros.: It exceeded its annual operating income record set in 2018. One key benefit for the bottom line was the fact that Warners cut operating expenses by 5.6 percent to $11.9 billion from $12.6 billion, with the company in several quarters citing a mix of lower film and television production costs and decreased marketing expenses. Warners' revenue took a hit last year, though, as it became the first studio to detail the financial impact from the upcoming launch of its streaming service, HBO Max. With WarnerMedia holding back content from third parties for May's HBO Max, the company in the fourth quarter recorded $1.2 billion in foregone licensing revenue. The studio's TV production arm, whose profits the company doesn’t break out, again was a source of strength, benefitting from such hits as The Big Bang Theory, which ended its run in May, and The CW's Riverdale. The studio's TV product revenue was $6.4 billion for the year, exceeding its $6 billion theatrical haul, with video games and other revenue sources contributing the remaining $2.0 billion. 

NBCUniversal: Profit at the studio run by Comcast entertainment unit NBCUniversal recovered in 2019 after a 2018 drop, with the studio proving that it's not all about box office despite such box office hits as Fast & Furious spinoff Hobbs & Shaw. In fact, 2019 saw a nearly 29 percent fall in theatrical revenue to $1.5 billion after 2018 blockbuster Jurassic World: Fallen Kingdom alone had brought in more than $1.3 billion. Home entertainment revenue was also down, slightly, from more than $1 billion to $957 million. However, content licensing climbed 3.4 percent from $2.9 billion to $3 billion, and lower operating expenses also boosted the bottom line amid reduced film production costs throughout the year because of the makeup of the slate. The content licensing revenue line in 2020 could see some impact from the April launch of streamer Peacock, which led Universal to end its movie output deal with FX Networks starting with 2020 titles. 2019 though ended up being the third most profitable year in Universal's history, with management saying that was evidence that its "strategic slate approach," which sees the studio plan releases for single years and over multiyear periods, is working.

Netflix: The streaming giant gained 27.8 million subscribers in 2019, down from its peak addition of 28.6 million in 2018, amid new competition. Netflix ended the year with 167 million global members, including 61 million in the U.S., and has predicted it will tally 7 million more in the first quarter of 2020. Original series The Witcher was its biggest show launch, with 76 million member households having watched (for at least two minutes). Netflix revenue grew briskly in 2019, and its operating profit trailed only Disney's among Hollywood giants' studio units. Management promised that last year marked the peak in its free cash flow losses with $3.1 billion, projecting an improvement to a $2.5 billion deficit in 2020. The company spent $15.3 billion on programming in 2019, with CFO Spencer Neumann saying that "well over 50 percent of our cash spend is on originals." The fourth quarter also marked a high water mark for original film releases on Netflix, including Michael Bay’s 6 Underground, as well as Oscar nominees The Irishman from Martin Scorsese and Noah Baumbach’s Marriage Story. With Hollywood conglomerates all pushing into the streaming space, Wall Street will in 2020 keep particularly close tabs on Netflix’s subscriber and financial trends.