‘Perfect Storm’ Takes $400 Billion From US Major Media’s Value

America’s biggest media companies have together lost nearly $400 billion in market value this year as recession fears, falling ad bookings and post-pandemic viewership trends unleashed a ‘perfect storm’ for Netflix and other companies in the industry.

Shares of major US media companies have fallen an average of 35% since the start of the year, compared to 13% for the S&P 500 index. Due to this decline, the total market capitalization of these companies has fallen by 380 billions of dollars.

Even after a slight rally 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 lost on average half of their value compared to the historical maximums reached during the coronavirus pandemic, as analyzed by the FinancialTimes.

Some executives and analysts say the bursting of the Netflix-fueled stock market bubble was due to a confluence of factors.

As the pandemic recedes in the United States and other countries, people are spending more time outdoors and less time at home in front of their screens. Meanwhile, Netflix revealed it had stalled after a decade of growth, leaving investors concerned about the health of the entire industry.

These problems have coincided with widespread fears of a recession in the United States, as central banks raise interest rates to curb rising inflation and Americans grapple with tighter household budgets. .

Advertising, often the number one expense companies cut in a recession, is already on the decline, as second-quarter results from Snap, Meta and Google show.

“How much is the pandemic affecting that trajectory? How much is the economy? How much do people want to be outdoors more? There are a lot of factors right now,” Rich said. Greenfield, analyst at LightShed. “I would call it a perfect storm that hit the history of all these streaming platforms hard.”

Companies that depend most on direct-to-home 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 reached in July 2021. .

“We’re seeing advertisers worried about the potential recession and so we’re seeing advertisers cut spending,” Roku CEO Anthony Wood told investors last week.

Michael Nathanson, of media consultancy MoffettNathanson, said: “The recent string of results [de Roku]like so many in recent years, relied on the massive acceleration of video streaming which has now slowed down with the reopening of society.”

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

Netflix was the second worst after Roku. Its shares are down 62% this year and 67% from their November highs. Another industry pioneer, Spotify, which makes most of its money from subscriptions, is down 49% this year.

After a decade of skyrocketing customer growth, Netflix has been losing subscribers for two quarters, leading to a fundamental reassessment of the industry it pioneered.

Investors had been excited about Netflix’s growth; since the company has become one of the most successful stocks of the decade, along with Facebook, Amazon and Google. They treated Netflix like a tech stock, rewarding its rapid growth at the expense of profits.

Other media groups, like Disney, have copied the Netflix model with their own similar services. To do this, they were rewarded with multiple course-profits similar to those of 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 continue to operate primarily in the traditional television and film sectors performed best. Retransmission rates – the payments made by cable companies to carry content from stations – are more stable than advertising because contracts are usually for several years.

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

Disney, which makes billions of dollars a year from its theme parks and tickets to its biggest blockbuster movies, as well as its television service, is down 30% this year. Last year, the group traded at a multiple of more than 100 times its earnings. Now it is trading at 45x.

LightShed’s Greenfield said: “There’s been a huge shift from believing in the future of direct streaming to recognizing that…the future of direct streaming isn’t as profitable or as valuable as one might think. once thought.”