America’s biggest media companies have collectively lost nearly $400 billion in market value this year as recession fears, an advertising slowdown and post-pandemic viewership trends unleashed a ‘perfect storm’ for Netflix and its peers.
Major US media stocks have fallen an average of 35% since the start of the year, against a 13% drop in the S&P 500 index, resulting in total losses of $380 billion in market capitalization.
Even after some recovery in recent weeks, the stock prices of the biggest media groups – Disney, Netflix, Comcast, Spotify, Roku, Fox, Paramount, Warner Bros Discovery, The New York Times and News Corp – have fallen. half on average of all-time highs reached during the coronavirus pandemic, according to Financial Times analysis.
Executives and analysts blamed a confluence of factors for the bursting of the Netflix-fueled bubble in media stocks.
As the United States and other countries emerge from the pandemic, they are spending more time outdoors and less time at home staring at their screens. At the same time, Netflix revealed that its decade-long growth had stalled, spooking investors about the health of the entire industry.
These problems have coincided with broader fears of a recession in the United States, as central banks raise interest rates to rein in soaring inflation and Americans face tighter household budgets. .
Advertising, typically the number one expense companies cut in a downturn, is already slowing, as evidenced by second-quarter results from Snap, Meta and Google.
“To what extent is the pandemic screwing up the trajectory? How much is the economy? How badly do people want to be outdoors more? There are so many factors right now,” said Rich Greenfield, analyst at LightShed. “I would almost call it the perfect storm to blow up streaming history.”
Companies that depend most on streaming and advertising for their revenue have been hit the hardest.
Shares of Roku, which made a name for itself selling streaming devices but now generates more revenue from advertising on its channels, are down 65% this year and 83% from an all-time high in July 2021.
“We see advertisers worried about a possible recession and so we see them cutting back on spending,” Roku chief executive Anthony Wood told investors last week.
Michael Nathanson of media consultancy MoffettNathanson said “[Roku’s] The recent string of results, like many in recent years, was supported by the massive acceleration in streaming video which has now faded as the world has opened up.”
“We’re living through the first digital advertising recession,” Nathanson added, after a pandemic-fueled online advertising bubble “like we’ve never seen before.”
Netflix ranked second after Roku. Its shares are down 62% this year and have fallen 67% from their November highs. Another streaming pioneer, Spotify, which makes most of its money from subscriptions, has fallen 49% this year.
After a decade of meteoric customer growth, Netflix has lost subscribers for two consecutive quarters, leading to a fundamental reassessment of the industry that it pioneered.
Investors had previously been enthusiastic about Netflix’s growth, making the company one of the most successful stocks 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, like Disney, have copied the Netflix model with their own streaming services. In doing so, they were rewarded with a similar price/earnings ratio to Netflix and tech companies. On average, at the end of last year, the largest US media groups were trading at a multiple of 49 times their earnings. Now that multiple has dropped to 19 times.
Media groups that still operate primarily in the traditional television and film businesses are doing the best. Retransmission fees — the payments cable companies make to carry broadcasters’ content — are more stable than advertising because contracts are often tied for years.
Fox, which makes most of its money from retransmission fees from its cable news and sports channels, has fallen just 9% this year and 24% from last year’s all-time high.
Disney, which makes billions of dollars a year from theme parks and tickets to its blockbuster movies, in addition to streaming, has fallen 30% this year. The group had traded last year at a multiple of more than 100 times its earnings. It now trades at 45 times earnings.
LightShed’s Greenfield said, “There’s been a pretty massive shift from believing in the future of streaming, to recognizing that . . . the future of streaming isn’t as profitable or as valuable as people thought.