‘Perfect Storm’ wipes nearly $ 400 billion off the value of large US media groups this year

The largest US media companies collectively lost nearly $ 400 billion in market value this year as recession concerns, slowdown in advertising, and post-pandemic audience trends triggered a “perfect storm” for Netflix. and his colleagues.

Large US media stocks have declined an average of 35% since the beginning of the year, compared with a 13% decline in the S&P 500 Index, resulting in a total loss of $ 380 billion in market capitalization.

Even after recovering somewhat in recent weeks, the stock prices of the largest media groups – Disney, Netflix, Comcast, Spotify, Roku, Fox, Paramount, Warner Bros Discovery, The New York Times and News Corp – have halved on average from all-time highs reached during the coronavirus pandemic, according to the Financial Times analysis.

Executives and analysts have blamed a confluence of factors for the bursting of the Netflix-fueled bubble in media headlines.

As the United States and other countries emerge from the pandemic, people are spending more time outside and less time at home looking at their screens. At the same time, Netflix revealed that its 10-year growth has stalled, scaring investors for the health of the entire industry.

These problems coincided with broader fears of a recession in the United States as central banks raise interest rates to tame rising inflation and Americans face tighter family budgets.

Advertising, typically the first expense that companies cut in a recession, is already slowing, as evidenced by second-quarter results from Snap, Meta and Google.

“How much is the pandemic ruining the trajectory? How much does the economy cost? How much do people want to be out more? There are so many factors right now, “said LightShed analyst Rich Greenfield.” I’d almost call it the perfect storm to blow up the story in streaming. ”

Companies that rely the most on streaming and advertising for revenue were the hardest hit.

Shares of Roku, which made a name for itself by selling streaming devices but now generates more advertising revenue on its channels, are down 65% this year and 83% from their all-time high in July 2021.

“We’re seeing advertisers worried about a possible recession and so we’re seeing them cut back on their spending,” Roku CEO Anthony Wood told investors last week.

Michael Nathanson, of media consultancy MoffettNathanson, said: “[Roku’s] the recent string of achievements, like many others in recent years, has been underpinned by the massive acceleration of video streaming that has now vanished with the opening of the world. ”

“We are experiencing the first digital advertising recession,” Nathanson added, following a pandemic-fueled online ad bubble “like we’ve never seen before.”

Netflix went to the second worst spot after Roku. Its shares are down 62% this year and are down 67% from their November highs. Spotify, another streaming pioneer, which makes most of its money from subscriptions, has dropped 49% this year.

After a decade of dizzying customer growth, Netflix has lost subscribers for two consecutive quarters, spurring a fundamental reassessment of the industry it pioneered.

Investors had previously been thrilled with Netflix’s growth, making the company one of the most successful titles of the decade, alongside Facebook, Amazon and Google. They treated Netflix like a tech stock, rewarding its rapid growth at the expense of profit.

Other media groups, such as Disney, have copied the Netflix model with their own streaming services. In doing so, they were rewarded with a multiple price-to-earnings ratio similar to that of Netflix and tech companies. On average, at the end of last year, major US media groups traded at a multiple of 49 times lower earnings. Now that multiple has dropped to 19 times.

Media groups that still operate primarily in the traditional television and film businesses have prevailed. Retransmission rates – the payments that cable companies make to transport broadcasters’ content – are more stable than advertising because contracts are often tied for years.

Fox, which gets most of its money from relay fees for its cable news and sports channels, is down just 9% this year and 24% from last year’s all-time high.

Disney, which earns billions of dollars a year from theme parks and tickets to its blockbuster movies, as well as streaming, is down 30% this year. Last year the group had traded at a multiple of over 100 times its earnings. It is now trading at 45x the earnings.

LightShed’s Greenfield said, “There has been a pretty massive shift from believing in the future of streaming to acknowledging that. . . the future of streaming isn’t as profitable or valuable as people had thought.

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