The stock market wiped more than $500 billion off the media sector this year — here’s what happens next
The media industry has faced a tumultuous 2022.
Rising costs, piling up balance sheets and a renewed focus on profitability have weighed on the struggling sector as investors quickly penalize companies struggling to make a profit. .
Netflix (NFLX) shares are down about 50% for the year, while companies like Warner Bros. Discovery (white blood cells) and Spotify (POINT) has dropped more than 60% with Roku (ROKU) plummeted up to 80%.
Cable Operator Fox (FOOD) and Comcast (CMCSA) dropped about 20% and 30% respectively when Paramount Global (PARA) the stock plunged more than 45%.
Disney (dis), once the darling of Wall Street, is also down 45% for the year, and the stock is heading for its worst year since 1947 in the wake of the financial crisis. The highly anticipated “Avatar” sequel missed expectations on the opening weekend to end a challenging year for the Mouse House.
This year alone, the stock market has wiped more than $500 billion in market capitalization from the world’s largest media, cable and entertainment companies, and is expected to continue to grow. more losses in 2023 amid higher interest rates and an unfavorable macroeconomic environment.
So what exactly happened – and what could happen next?
Wall Street’s profit boost: ‘It’s time to be a real company’
2022 is clearly a “soul-seeking” year for the media after the industry experienced a bumpy ride throughout the pandemic with record highs and jarring lows.
Like the “stay-at-home” transaction has taken placeThe highest level of subscriber penetration in the US and Canada resulted in the streaming companies rapidly seeing a faltering growth rate.
Netflix, the longtime leader of the streaming wars, lost subscriber for the first time in history when its market capitalization fell from over $267 billion at the end of 2021 to around $130 billion.
Similarly, NBCUniversal’s Peacock experienced zero growth in the second quarter, though subscribers rebounded in the third quarter with 2 million net additions.
Stagnant subscriber growth has led to growing criticism of production budgets, which have risen sharply as competition has intensified. Netflix has committed $18 billion to content alone by 2022 while Disney increased its budget by $8 billion this year to $33 billion.
Among companies that have begun to move from linear to streaming (excluding platforms like Netflix, Amazon, and Apple), direct-to-consumer content spending has grown from $2.7 billion. dollars in 2019 to $15.6 billion in 2021, according to Wells Fargo data, cited by Diversity.
That number is expected to grow to nearly $24 billion this year — despite growing streaming losses.
Disney’s direct-to-consumer marketing division posted a loss of more than $4 billion in fiscal year 2022, which ended October 1. Meanwhile, Paramount told investors that the line loss would totaling about $1.8 billion this year — well above Wall Street expectations.
Warner Bros. Discovery, market cap has halved amid its messy restructuring efforts, reported negative free cash flow of $192 million for the third quarter, compared with $705 million in positive cash the previous year. The company now plans to deal with $3.5 billion in content declines and development write-offs by 2024.
Industry-supported ‘bottom line’
In the race for profits, advertising has become a potential bright spot for investors — despite a decline in ad spend globally.
Netflix and Disney jumped on the ad-supported bandwagon this year, joining Warner Bros.’ HBO Max. Discovery, NBCUniversal’s Peacock and Paramount Global’s Paramount+.
Netflix launched Offer $6.99 in Novemberwhile Disney+ follows one month later for $7.99. Wall Street analysts the majority is still increasing about the profitable aspects of advertising tiers, while advertising experts have called launches a decisive moment for the media industry.
“It’s absolutely a pivotal moment for the industry,” said Kevin Krim, CEO of ad measurement platform. EDOpreviously told Yahoo Finance.
“I think what we’ve learned as an industry is that there’s a limit to how much consumers will pay,” Krim said. “Advertising is a really smart way to subsidize those subscription fees.”
Industry experts agree that offering low-cost, ad-supported options serves as an important precaution against abandonment — something all streamers do. want to avoid in the context of increased competition.
Jon Christian, Vice President of Digital Media Supply Chain at Qvest, the largest media & entertainment-focused consulting firm, told Yahoo Finance: “I love bringing it to consumers. option for an ad tier.
The data added by Christian will be a big driver (and potential money maker) when it comes to more targeted advertising in 2023: “Data can drive up the price of different ads that you can’t see. they’re pushing on the platform.”
However, the benefits of ad-supported will likely take time to mature.
Netflix’s advertising level seems to have gone through some the pain is getting worse — including reports of insufficient subscriptions and failure to guarantee viewership. However, analysts It’s still early to be cautious.
Analysts eye the next media merger
Along with focusing more on content and advertising spend, investors should also Expect more media mergers next year.
Wells Fargo analyst Steve Cahall wrote in a recent note: “Our 2023 projections show the Communications and Cables sector responding to tougher times, both cyclically and structurally. Tough times mean tough decisions.”
Possible acquisition targets in 2023 and beyond include Warner Bros. Discovery is in trouble.
Lionsgate’s TV and film studio, which the entertainment giant plans to spin off as a separate company, will also be up for sale, while AMC Networks (AMCX) continue to restructure which could lead to an acquisition.
Needham’s Laura Martin wrote in a recent customer note Paramount could be tempting to unload, while smaller players like WWE (WWE), Curious Stream (CURIW), and Chicken Soup for the Soul (CSSE) will probably sell due to their size.
Disney CEO Bob Iger, who back to the media conglomerate with much fanfare in Novemberwill Faced with a series of decisions — including what to do with notable properties like Hulu (selling it to Comcast?) and sports giant ESPN (selling it to Comcast?)turn it away?).
Fire, freeze recruitment attack major media
Amid growing profit concerns, media giants have laid off staff and frozen hiring in an attempt to stop the bleeding. More than 3,000 jobs were cut in October this year, according to data from Challenger, Gray & Christmas, cited by axis.
Netflix lay off about 150 positions of 11,000 streamers’ workforce in May, blamed the headcount drop on “slower revenue growth” and more draining spending.
Earlier this month, Warner Bros. Discovery has revealed its outstanding executives will leave the company afterward CNN +, lay off more CNN employees and cut 14% of the HBO Max workforce this year.
To date, the company has eliminated more than 1,000 jobs reported between units as WBD CEO David Zaslav doubling down on restructuring effortsalso included eliminate projects and programs.
Paramount Global began cutting jobs in November, targeting its ad sales team, according to tháng Limit linewhile AMC Network (AMCX) announced plans to lay off about 20% of the US workforce amid the departure of CEO Christina Spade.
AMC President James Dolan is said to have told employees that the network has struggled to make up for the cable drop as cable cuts accelerate, referring to company-owned streaming entities such as AMC+ and the horror platform Shudder.
Similarly, Comcast’s cable unit is made job cuts in November, while Roku (ROKU) cut 200 jobs, or 5% of the workforceshortly after the third-quarter earnings results.
The comeback stage is still TBD
The theater industry continues to recover from the losses caused by the pandemic into 2022 — though it remains to be seen whether a full return will be made.
Movies like “Top Gun: Maverick” break recordwhile Marvel’s “Black Panther: Wakanda Forever” and “Doctor Strange in the crazy multiverse” easily earned over $100 million in domestic openings.
However, Disney’s “Avatar: The Way of Water” Guaranteed only $134 million in the domestic market during the opening three-day weekend, fell short of expectations and sent Disney stock to its lowest level since March 2020.
Despite the debacle, theater executives backed the premiere, surmising that the film would steadily increase box office sales over the holidays and into 2023.
The streaming giants have embraced the theater too, with Netflix’s “Knives Out: Glass Onion” enjoying successful limited theatrical release during Thanksgiving week, while Amazon will report 1 billion USD investment to produce 12 to 15 movies a year exclusively for theaters.
Overall, the domestic box office is estimated to bring in about $7.4 billion for the year, according to Box Office Pro. While that number still falls short of the pre-pandemic figure by about 30%, there is hope that a denser release schedule next year will help close the gap.
Alexandra is a Senior Media and Entertainment Correspondent at Yahoo Finance. Follow her on Twitter @allliecanal8193 and email her at [email protected]
Click here to view the latest trending tickers of the Yahoo Finance platform
Click here for the latest stock market news and in-depth analysis, including stock-moving events
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, flip chart, LinkedInand YouTube
