What does Wall Street want to see from Hollywood in 2024?

It’s the third chapter of the streaming wars. This is the time when the hero, who appears defeated and broken, rises up and saves the day. But Wall Street is concerned that the hero may never come to Hollywood.

Legacy media companies including Disney, Warner Bros. Discovery, Comcast And Paramount Global They try to figure out a solution to the financial wounds they’ve inflicted on themselves, particularly spending heavily while chasing streaming subscribers to compete with Netflix.

Since then, the companies have reduced their budgets and adjusted their strategy for licensing local films and shows. Many streamers have added services supported by ad revenue, cracked down on password sharing and raised prices.

However, Wall Street is still not satisfied. Warner Bros. Discovery and Comcast are on the S&P 500 in 2023, albeit just barely. Disney and Paramount performed poorly. Netflix, on the other hand, significantly outperformed, with its shares rising 65%.

“We’re looking for someone to bring a credible vision for how this industry can have a sustainable business model,” said Doug Kreutz, managing director and senior research analyst at Cowen.

The answer may seem simple: a cable package, with streaming only. But convincing all these competitors to cooperate is almost as difficult as dealing with increased regulatory scrutiny, Kreutz said. Likewise, the outlook for mergers and acquisitions is uncertain, as many companies already have huge debt loads, and regulators are concerned about reducing competition in the industry.

Wall Street wants a solution, or at least a company to pave the way for a potential solution. It was clear how to make money from linear TV, but until now it’s not clear how investors could profit from streaming beyond investing in Netflix.

“The only thing that brings people back into investing in media is some sort of hope that they can build an economic position in the streaming world,” said Michael Nathanson, MoffettNathanson co-founder and senior research analyst.

There is momentum to bundle subscription streaming services into something resembling traditional cable TV, as media companies look for a way to create and maintain streaming profitability. Aggregation, in turn, can ease the consumer experience, bringing all content into one hub.

“In theory, this is a really good idea,” Kreutz said. “But there are a lot of details to work out.”

The biggest hurdle is getting all the media companies to agree on what it will look like.

“You have to get a group of people in one room to agree on something, and they are people who are not necessarily inclined to cooperate,” he said.

One of the biggest hurdles is how these companies calculate average revenue per user, or ARPU, and subscriber growth when offering their services at a discount. The bundle will cut into average revenue per user (ARPU), but if enough subscribers sign up, the cost can be offset.

Mergers and acquisitions represent another path to a bigger package, but Wall Street isn’t sure there will be a big deal in 2024.

“I think there is still an expectation that someone will go ahead with some mergers and acquisitions that will solve the problems,” Kreutz said. “I don’t think that will happen.”

No company really wants to be a buyer right now, he said. Disney still has a high debt load from its 20th Century Fox acquisition in 2019, and the same is true for Warner Bros. Discovery after its merger in 2022.

“What I see as a fundamental problem is that (these companies) have balance sheets built on linear cable network economics that are no longer stable,” Nathanson said. “The challenge to overcome is what do you do about your linear cable networks? Given those headwinds, the mix of debt, plus the instability of the underlying business that was good and stable and stable — that’s the biggest issue.”

The biggest target is Paramount. Controlling shareholder Shari Redstone is said to be keen on a deal. It controls Paramount through its company, National Amusements.

He met with the CEO of Warner Bros. Discovery’s David Zaslav and Paramount CEO Bob Bakish in late December for an initial discussion, but some speculate that the leaked talks were a way for Warner Bros. To position itself as a viable asset for Comcast’s NBCUniversal.

There may also be regulatory issues. Universal and Warner Bros. were are among the top three domestic movie studios by revenue in 2023, according to data from Comscore.

“I don’t think the regulatory environments will be supportive of consolidation,” Kreutz said.

Legacy media companies are also grappling with a beleaguered theatrical industry, which has yet to recover from the pandemic. However, Wall Street still sees value in this distribution route.

After all, Warner Bros. “Barbie” grossed more than $1.4 billion at the global box office, while Universal’s “The Super Mario Bros. Movie” and “Oppenheimer” grossed $1.3 billion and $950 million, respectively.

“The message we’re sending to Hollywood in 2023 is that we don’t need superheroes or Star Wars to return to the stage,” Josh Brown, CEO of Ritholtz Wealth Management, wrote in a LinkedIn post last month. “We need events. Great scripts. Big stories. Real movie stars. Cinema!”

Film production has been halted during the pandemic and again during dual labor strikes in Hollywood last year. All of this led to fewer releases and lower box office returns. Right now, the 2024 calendar is full of sequels, prequels and spin-offs, the kind of content that failed to attract audiences in 2023.

“As we saw with exhibitor stock prices, lower expectations for the 2024 film slate (clearly) weighed on investor sentiment going into the year,” said Eric Wold, senior analyst at B. Riley Securities. “While the 2025 slate benefited from the delay in 2024, we do not believe investors are ready to move forward at this time and may wait until later in the year when visibility into 2025 improves.”

As movie theater chains wait for Hollywood production to pick up again, Wall Street expects huge investments in premium screens — such as IMAX, Dolby, ScreenX and 4DX — that offer upscale experiences at a higher ticket price.

“The main focus for investors is to return to pre-pandemic levels of profitability even as film production and attendance decline,” Wold said.

Additionally, Hollywood is still thinking about how to handle theatrical windows. Before the pandemic, films remained in theaters for at least 90 days before moving to home video and streaming on demand. Now, there is no specific timing. It’s up to the studio to make that call.

On the other hand, both “Barbie” and “Oppenheimer” spent more than 120 days in cinemas before arriving in the local market. Then there was “Five Nights at Freddy’s,” which was released in theaters and on NBCUniversal’s Peacock on the same day. Each strategy has its own rewards.

For “Barbie” and “Oppenheimer,” grassroots efforts led to millions seeing double features of the two films on their opening weekend, and word of mouth kept moviegoers coming back for months. As for “Freddy’s,” horror fans and fans of the video game on which the film is based turned out in crowds when it debuted, with repeat viewings via livestream.

Either way, the lesson is clear: people still want to watch movies.

“There are already too many TV shows,” Brown wrote. “Start making movies again.”

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.