The $500 billion hunch of media corporations
Higher cost streaming services, consumers tightening belts and falling advertising hit media groups like Netflix, Disney and Paramount
More than $500 billion of the market value of the world’s biggest media companies has evaporated this year after investors became frustrated with the streaming revolution – which triggered one of the worst waves of declines in shares of TV companies and entertainment in history.
Intensified competition and rising costs added to the impact of consumer belt-tightening and an advertising slowdown, triggering a broad-based decline in industry equities.
The media sector, which for investors includes a wide range of activities from film production to advertising and cable TV, is one of the hardest hit in what is likely to be the worst year for global equities since the financial crisis. worldwide.
“It was a perfect storm of bad news,” said Michael Nathanson, media analyst at SVB MoffettNathanson. “I’ve been covering this sector for a long time and I’ve never seen such a bad data series before.”
Walt Disney stock, down about 45%, is heading for its biggest annual loss since at least 1974. The stock has come under more pressure in recent days as revenue from Disney’s much-anticipated “Avatar” sequel , fell short by some estimates on the film’s opening weekend.
Those at Paramount Global are down 42% year-to-date for 2022 and those at Netflix, 52%, while those at Warner Brothers Discovery are down 63% since its inception this year with the merger of Discovery and AT&T’s WarnerMedia.
Executives at the conglomerate have been trying to integrate two of the biggest media operations at a time of industry turmoil. Last week, they warned they would face up to $5.3 billion in restructuring costs and other merger-related charges.
At the start of the pandemic, streaming companies did well as lockdown restrictions boosted their audience, boosting stocks across the industry in the stock market boom seen from March 2020.
However, as executives spent tens of billions of dollars on streaming content, product options proliferated and living costs soared – encouraging financially struggling families to “unsubscribe” or switch subscriptions.
The Dow Jones Media Titans Index, which tracks the performance of 30 of the world’s largest media companies, is down 40% year-to-date for 2022, as its total market cap shrinks from $1.35 trillion to $808 billion.
The increase in interest rates has shaken prices, especially in the case of “growth stocks” in the sector. Music streaming service Spotify saw shares fall 69% and video specialist Roku 81%.
Netflix shares are down 52% year-to-date — Photo: Pixabay
Traditional broadcasters were also affected. Some of the worst declines in stocks have been in US cable parent companies, long considered a surefire source of profits. Charter Communications fell 53% and Comcast fell 31%.
The trend known as “cord-cutting” has accelerated in the US, with the number of traditional pay TV subscriptions tracked by Macquarie down 8.3% in Q3 compared to the same period in 2021.
Price increases – especially for sporting events – have until recently slowed the decline in customer numbers, “but going into a recession, you’re worried that consumers will refuse to pay,” said Tim Nollen, media technology analyst at Macquarie.
Most streaming services had been incurring “very heavy losses,” so media companies “are not yet in a position where they can offset the linear decline,” added Nollen.
Advertisers, meanwhile, have become more reluctant to promote brands amid the slowing economy, hurting media companies such as Britain’s ITV, whose shares fell 36%.
The broadcaster recently reported that it is expected to see decline in annual ad revenue despite the boost from the football World Cup.
In response to the problems, several of the industry’s biggest companies have resorted to price increases, job cuts and other measures, such as launching ad-supported types of streaming subscriptions.
In a note to investors this week, Morgan Stanley analysts wrote that if such initiatives fail to generate “significant” streaming profits, companies would be forced to “fold out” or consolidate.
Source: Pipeline Valor