Big Tech’s “Year of Efficiency” hasn’t arrived yet for content spending

It’s not cost saving, it’s efficiency. That’s the idea of ​​Meta CEO Mark Zuckerberg wanted to sell it to investors on Feb. 1, when he described 2023 as the “Year of Efficiency” for the parent company of Facebook and Instagram. It came after Meta laid off 13 percent of its workforce and downsized its office space in the face of the tough macroeconomic environment and over-renting, among other company-specific factors such as its expensive foray into the metaverse.

Rather than take that as a negative, Zuckerberg framed it more as a rallying cry, even while warning that more “efficiency” was coming. “Often when people talk about efficiency, there’s a lot of focus on prioritizing and what big things you can cut out. But I actually think what makes you a better company over time is that you can run and do more things because you work more efficiently and you can get things done with less resources,” Zuckerberg told investors on the earnings call .

And so far, investors like what they hear. Meta’s stock skyrocketed the day after its earnings report, and Guggenheim analysts praised the new practice in a Feb. 1 note as one that “will generate greater profitability and create a technologically stronger company.”

Other tech giants have followed suit on cost-cutting, with Amazon announcing the layoff of more than 18,000 employees, largely concentrated in its Amazon Stores and People Experience and Technology divisions, and slowing physical expansion, while YouTube parent Alphabet plans to move from 12,000 employees. “These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I am also optimistic that we will be inventive, resourceful and sloppy during this time when we are not mass hiring and cutting some positions,” CEO Andy Jassy said in a Jan. 4 note announcing the layoffs. of the themes Zuckerberg would later use.

But amid these cutbacks at the tech giants, one area has largely been spared so far: content spending. On his Feb. 2 earnings call, Amazon CFO Brian Olsavsky highlighted the performance of The Lord of the Rings: The Rings of Powerwhich 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 imposes an annual expenditure of $1 billion. With that, Amazon’s total spending on content, which also includes its music services, rose to $16.6 billion by 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 eyeing content spending, management stressed that the territory is an important part of the company’s revenue, perhaps even more so as other areas are under pressure. “We regularly evaluate return on 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.

To underscore this point, Apple’s services sector, which includes Apple TV+, Apple Music, and Apple Arcade, also remained remarkably resilient, reaching a new record revenue of $20.8 billion for the three months ended Dec. 31, even as the tech company Wall missed Street Expectations for his total income and sales.

YouTube, led by CEO Susan Wojcicki, also made a big move into content, having acquired the rights to the NFL Sunday Ticket package for YouTube TV starting in the 2023 season and reporting “great momentum” in its YouTube subscription products, including YouTube TV and YouTube Music Premium.

This optimistic investment in content marks a change from many Hollywood studios that kill unfinished projects, such as the now-infamous Warner Bros. decision. Discovery to end one bat girl film, cancel or remove particularly underperforming projects from their streamers to immediately save costs, including for leftovers – from the twilight zone reboots on Paramount+ to HBO Max’s West world – and cutting 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 consulting firm Creative Media, says, it’s also a function of how much tech companies view content: as a driver of engagement with their platforms and products. “They can essentially use content as a marketing spend. And so it’s a means to an end, while for the media companies, content is the end to the end,” says Csathy.

The financial expert notes that there’s also less focus on Big Tech’s content budgets, as spending isn’t typically split the same way it is for studios and streaming companies. And with bigger overall budgets at their disposal and increasing competition among the streaming companies, tech giants are expected to keep content spending up. “I doubt the tech giants will cut back on how much they spend on content,” adds Brian Wieser, director of Wall Street insights provider Madison and Wall. “It’s possible they’ll slow down growth if they find a steady state in the business, but I think any company that has decided to play in this space will have expected to spend a certain percentage of sales on content, just as the traditional media companies always do. did.”

This story first appeared in the Feb. 8 issue of The Hollywood Reporter magazine. Click here to subscribe.