The media sector has had a tumultuous 2022, culminating in the shocking return of Bob Iger as CEO of Disney and a spate of layoffs at multiple companies. But there may be a few hopeful signs for normalization and stabilization in 2023.
Take Netflix (NFLX). Wall Street, for what it’s worth, seems to think the worst is over for the streaming leader after it finally decided to cave and launch an ad-supported service. The stock is still down about 50% this year, but it’s no longer the biggest dog in the S&P 500 — and it’s actually up more than 75% from its 52-week low earlier this year.
The movie business is stabilizing, too — even though many people are still staying away from theaters and studios aren’t releasing as many blockbusters. But according to Box Office Mojo, the film industry has generated nearly $6.4 billion in ticket sales this year, led by Paramount’s “Top Gun: Maverick.”
While still a far cry from pre-pandemic levels, that’s up 30% from 2021 — and this year is not done.
DisneyMarvel has also had a monster hit with the eagerly awaited “Black Panther: Wakanda Forever” sequel, which should churn out even more ticket sales over the next few weeks before the the end of this year. (Movie theater stocks are still languishing, however.)
The news is mixed for other struggling media titans. Shares of some companies have rebounded off their lows — like Disney (DIS), Fox (FOXA), CNN parent Warner Bros. Discovery, Paramount, Comcast (CMCSA) and digital media device maker Roku (ROKU).
Yet those stocks are all still sharply lower for the year. And what’s more, many media companies are in the midst of layoffs and other cost-cutting measures, including CNN and its parent Warner Bros. Discovery.
CBS owner Paramount also just lowered its forecast for advertising sales in the fourth quarter. CEO Bob Bakish said at a UBS media conference earlier this week that the market remains “challenging,” adding that this is the case for both traditional “linear” cable and broadcast TV as well as on the digital side of Paramount’s business.
Streaming shifts and possible media mergers
Market watchers are increasingly questioning the willingness of consumers to pony up for more streaming services so they can watch movies and TV shows at home. Subscription fatigue is starting to set in, which is another factor hurting the likes of Netflix, Disney and others.
“Media is in a state of transition (linear legacy TV to streaming), which becomes more difficult when traditional revenue streams see pressure (advertising on weak macro and affiliate revenue on cord cutting), as will be the case next year,” said Tony McCutcheon, an analyst with BNP Paribas Securities Corp., in a recent report.
Some analysts are hopeful the movie business rebound can offset some of the streaming weakness.
“The return of former CEO Bob Iger drives a return to creativity dominance, and the ongoing release of blockbuster content will continue to drive its flywheel of growth,” said analysts at Tigress Research. “Content is king and [Disney] is the king of content.”
Wall Street also is starting to speculate about another possible round of media mergers, given that weaker players may want to join forces to try and more effectively compete with Netflix and Disney.
UBS analysts pointed out in a report that Paramount believes industry consolidation is “inevitable.”
The accuracy of that prediction remains to be seen. But Wall Street is certainly more bullish about the prospects for media stocks.
The consensus price target on NBC/Peacock owner Comcast, for example, is about 25% higher than current levels while analysts are predicting a 30% pop for Disney. Wall Street is predicting that Warner Bros. Discovery could nearly double.
So even though it feels like there’s still more bad news to come, media stocks may have already hit the bottom.
