In this illustration, a hand is holding a TV remote control in front of the Disney Plus logo on the TV screen.
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Media stocks have been rocking this year, with companies losing billions of dollars in market value, as streaming subscriber growth falters and the ad market deteriorates.
According to media executives and industry analysts, the pain is likely to continue into the first half of 2023.
Disney and Discovery of Warner Bros., the two companies are going through a transition, especially when it comes to streaming, each hitting 52-week lows in recent days. Year-to-date, Warner shares are down more than 60% and Disney shares are down more than 45%.
The media industry has reached a turning point as competition between streaming services is at an all-time high and consumers are becoming more and more picky about their subscription numbers. On top of that, companies are facing lower advertising revenue and more cord cutting. Some Unified Expectations will happen in the near future.
“Across the sector, it was chaos,” said Mark Boidman, head of media and entertainment investment banking at Solomon Partners. “People have been saying for years that technology is going to change the world of media, and it has. But we’re at a real point, when it’s a moment of crisis.” He predicted bundled streaming will become even more important in 2023.
It has been a difficult year on a large scale for the market. The Nasdaq Composite is bracing for its worst drop since 2008 and it is positioned to underperform the S&P 500 for the second year in a row. Stocks in other industries, including technology, were congested.
Big tech stocks have lose at least half of their value. huge streaming by Netflix The stock has fallen more than 50%, with its market capitalization halved to about $123 billion.
Netflix’s first-quarter drop in subscription numbers – for the first time in more than 10 years – put pressure on the media sector this year.
broadcast woes
When Netflix reports it lost subscribers in the first quarter – for the first time in more than 10 years – the news sent shockwaves through the industry. The streaming giant is to blame for the increased competition. It’s also starting to explore a cheaper, ad-supported option for customers, something the company has long said it won’t do.
Since then, shares of other media companies have followed suit.
Meanwhile, Disney has faced challenges since the early days of the pandemic, when movie theaters and theme parks closed for months. Disney’s financial performance has come under scrutiny in recent months, and Disappointing earnings report for NovemberThe company’s board fired Bob Chapek and brought in longtime former boss Bob Iger.
Although Disney investors were immediately excited After Iger’s return, the stock has since leveled off, most recently in part due to lower than expected opening weekend box office for “Avatar: The Way of Water.”
Warner shares have plummeted this year as the company’s new management is incorporated — a merger between Warner Bros. and Discovery ended this spring – was cut down the costswarn about tough advertising market and focus on online business profitable in the future.
Since Netflix’s loss earlier this year, Wall Street has questioned the viability of streaming business models.
“I think people are trying to compete with Netflix in the hopes of seeing similar valuations, and at this point things have started,” said John Hodulik, an analyst at UBS. “Netflix is no longer priced in revenue multiples. Investors are questioning how profitable direct-to-consumer service can be.”
The sentiment has also weighed on Warner, which plans to combine HBO Max and Discovery next year, as well as global supreme and Comcast’s NBCUniversal. Investors have a magnifying glass in terms of subscriber numbers and content spend, which have already run into the tens of billions of dollars for these companies.
“There is now a new focus on these costs,” says Hodulik. “I think Warner Bros. Discovery is leading the way, but we’ll see other companies curtail their ambitions in streaming over time.”
Tighten the advertising market
On top of that, the ad market has gotten worse. In times of economic uncertainty, companies often pull back on advertising spending, which is often seen as discretionary.
paramount missed the third quarter estimated after its advertising revenue fell, with its stock hitting a low in the following days. Shares are down more than 45% this year. Paramount’s stock rallied recently after Warren Buffett’s Berkshire Hathaway increase its shares within the company, fueling speculation that it could be an acquisition target.
Earlier this month at an industry conference, CEO Bob Bakish lower expectations for the company’s fourth-quarter ad sales. NBCUniversal CEO Jeff Shell also said at the same conference, advertising has been steadily getting worse over the past six to nine months, though he noted that ad revenue will increase in the fourth quarter.
“These stocks have fallen a lot and investors are wondering why I would buy this stock in the face of bad news not only in the next quarter but also in the next few quarters,” Hodulik said. “Things can get worse before they get better.”
However, there are some bright spots on the advertising front.
Streaming services like Netflix and Disney now offer cheaper, ad-supported options to customers, which is expected to benefit their businesses positively. “We also predict that ad streaming will become even more important in the coming year,” said Boidman of Solomon Partners.
Political ad revenue also increased in the third and fourth quarters due to a heated midterm election, with broadcasters such as Nextstar Broadcasting Team and Tegna reap the benefits. These stocks, especially Nexstar, are up year-to-date, despite the overall weakness of the industry, due to their earnings. highly dependent about the high fees that distributors pay to broadcast their local networks.
Pay TV exodus
cut the cord, though not a new trend for the industry, “accelerated to an all-time low” in the third quarter, according to data from MoffettNathanson. Along with the ad, Paramount sees it as an obstacle to its most recent quarterly results.
For media companies like Comcast and charter communication, slow subscriber growth on the broadband front, rather than the pay-TV business, more significantly affected their stock.
Charter, which only offers pay-TV, broadband, and mobile services and doesn’t engage in streaming wars like peer-to-peer Comcast, has particularly seen its stock suffer. recent influence. Shares of Charter are down nearly 50% year-to-date and it took a hit earlier this month when the company told investors it would increase spending on its broadband network in the coming years. . Comcast’s stock is down more than 30% this year.
“We know cord cutting is happening, but it has certainly accelerated since the beginning of the pandemic,” Hodulik said. “Looks like it’s going to get worse as we head into the first quarter.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
