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

The largest US media companies have collectively shed nearly $400bn in market value this year, as recession worries, an advertising slowdown and post-pandemic audience trends ignited a “perfect storm” for Netflix and its peers.

Big US media stocks have fallen on average by 35 percent since the beginning of the year, compared with a 13 percent decline in the S&P 500 index, resulting in total losses of $380bn in market capitalization.

Even after recovering somewhat in the past few 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 Financial Times analysis.

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

As the US and other countries emerge from the pandemic, people are spending more time outside and less time at home watching their screens. At the same time, Netflix revealed that its decade-long growth has stalled, spooking investors about the health of the entire industry.

These problems have coincided with broader fears of a recession in the US, as central banks raise interest rates to tame soaring inflation and Americans contend with tighter household budgets.

Advertising, typically the first line item of spending that companies cut in a downturn, is already slowing down, as evidenced in the second-quarter results of Snap, Meta and Google.

“How much is the pandemic screwing up the trajectory? How much is the economy? How much do people want to be outside more? There’s so many factors right now,” said Rich Greenfield, analyst at LightShed. “I would almost call it the perfect storm to blow up the streaming story.”

The companies that rely most on streaming and advertising for revenue have been hit the hardest.

Shares of Roku, which made its name selling streaming devices but now generates more revenue from advertising on its channels, are down 65 percent this year and 83 percent from an all-time high hit in July 2021.

“We are seeing advertisers worried about a possible recession and so we’re seeing them reduce their spending,” Roku’s chief executive Anthony Wood told investors last week.

Michael Nathanson, from media consultancy MoffettNathanson, said: “[Roku’s] recent run of results, like many others over the past few years, were propped up by the massive acceleration in streaming video that has now faded as the world has opened up.”

“We are living through the first digital advertising recession,” Nathanson added, after a pandemic-fueled online advertising bubble “the likes of which we’ve never seen before.”

Netflix fared second-worst after Roku. Its shares have declined 62 percent this year and have fallen 67 percent from their November highs. Spotify, another streaming pioneer, which makes most of its money from subscriptions, has dropped 49 percent this year.

After a decade of blistering customer growth, Netflix has lost subscribers for two quarters in a row, spurring a fundamental reassessment of the industry 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 fast growth at the expense of profit.

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

Media groups that still operate mainly in the traditional businesses of television and film have fared the best. Retransmission fees — payments that cable companies make to carry broadcasters’ content — are more stable than advertising because contracts are often tied up for years.

Fox, which makes most of its money from retransmission fees for its news and sports cable channels, has fallen only 9 percent this year, and 24 percent 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 dropped 30 percent this year. The group had last year traded 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 streaming future, to recognizing that . . . the streaming future is not nearly as profitable or as valuable as people had thought.”

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