How The Economy Flipped The Script On Legacy Media

In times of economic prosperity, business leaders are often focused on commercial objectives, sometimes too preoccupied to notice early signs of a changing landscape.

Over the past decade, near-zero interest rates provided media businesses with the opportunity to grow and fund an Aladdin’s cave of content. This treasure trove was published on newly created OTT platforms, designed to replicate Netflix’s successful model and cater to a stay-at-home audience. The result was a content production boom—independent production houses were inundated with new commissions, and freelancers had an abundance of opportunities.

The Impact of COVID-19

Like other Western nations, the UK government was forced to borrow heavily from international money markets to support the economy during the COVID-19 crisis. This necessary response led to national debt exceeding 100% of GDP, with rising inflationary pressures materializing within 12 to 18 months.

The era of cheap debt financing enabled the rapid development of competitive digital platforms, pushing company CapEx and OpEx to record highs. These investments initially paid off, as global streaming subscriptions surpassed one billion for the first time. Legacy media companies saw promise in their OTT ventures, with platforms like Disney+, Apple TV+, and HBO Max experiencing strong growth.

The Russia-Ukraine War

However, new challenges arose in 2022 when geopolitical tensions escalated following Russia’s invasion of Ukraine. This was not just a military conflict—it was also an economic attack on the West. As major suppliers of energy (Russia) and grain (Ukraine) to the EU, both nations understood that supply chain disruptions would drive up prices and strain household budgets. The resulting fluctuations in oil prices led to a steep increase in production and distribution costs.

Tightening of the Labour Market

Post-COVID, both the US and the UK have faced a tightening labour market due to worker shortages. Inflation surged from 2% to 11% by the end of 2022, compelling governments to raise interest rates to stabilize the economy. These measures signaled a shift in fiscal policy, forcing media companies to adjust their strategies accordingly.

Central banks raised interest rates to curb spending and inflation, creating significant challenges for legacy media businesses that had relied on cheap borrowing to expand operations and satisfy investor expectations for revenue growth, EBITDA, EPS, and stock price appreciation. Media companies that had once thrived on inexpensive capital now faced mounting borrowing costs, higher production and distribution expenses, and declining consumer spending. Viewers cut back on TV subscriptions, and advertisers slashed budgets.

The Current State of Affairs

The impact has been severe. In 2023, Channel 4 pulled commissions and announced job reductions. ITV Studios reported a 16% revenue drop and underwent corporate restructuring. The BBC continued its cost-cutting efforts, reducing headcount.

Across the Atlantic, Paramount merged with Skydance, likely leading to divestments of less profitable business segments to boost shareholder returns. WarnerMedia shifted its strategy towards cheaper, high-volume content and announced over 1,000 job cuts. Disney reported losses nearing $1 billion in 2023 and initiated a $2 billion cost-reduction exercise.

The strategic focus of major US corporations, often influenced by McKinsey’s model of prioritizing shareholder value and tying executive compensation to stock performance, may have inadvertently downplayed macroeconomic risks. While businesses flourish in expanding economies, sustaining growth during downturns requires different strategies—many of which are now being tested in real-time.

A perfect storm of COVID-19, war, and labour market challenges has disproportionately impacted the media industry, and recovery remains elusive. The era of Peak TV has passed. However, if history has shown us anything, it’s that media companies are nothing if not resilient. They will continue to adapt, reinvent their business models, and find new opportunities in an evolving economic landscape.

ALISTAIR DAVIS