It’s been a year of ups and downs for entertainment stocks in general. Twitchy markets have been quick to respond to any positive (or negative) news, no matter how small. Many of the studios-turned-streamers have been buffeted by the headwinds of low profitability and a change in how ‘great performance’ is measured in the financial world. As we head into the last quarter of the year, where do we stand? Brandon Blake, entertainment attorney at Blake & Wang P.A. unpacks the latest Wall Street Developments.
Where the Industry Stands
The fall of SVOD from Wall Street’s graces has been an interesting one. It became a cheap, compelling way to keep earning during the pandemic, creating a seismic shift in the industry. However, such a quick swing to a brand-new production model without much of a planned entrance has come with its own hurdles, including the need for considerable inside investment into new infrastructure and business models. Now these issues are exacerbated by the decline of linear TV, a soft advertising environment, inflationary pressures, and a lack of further domestic growth opportunities. While subscription cost inflation and a swing to AVOD models have done something to help, it has still been a rocky year.
What Wall Street Wants
With that in mind, Wall Street is looking for DTC growth that offsets linear decline, profitability (or at least a reasonable near-future chance at it), and the scale to grow into that profit. Both Disney and Paramount have seen some renewed stock interest of late for those exact reasons.
It’s clear that Wall Street is also anticipating some consolidation in the industry as it stands, despite a lackluster financial environment for it. This means that they’re also looking for underlying fundamentals able to drive free cash flow and stand strong against a crowded competition field. Lastly, cable subscriber growth is now of little interest to them.
For now, the market will inevitably remain a little jittery on entertainment stocks overall as each studio seeks its own solution to these challenges (and a resolution to the SAG-AFTRA strike). Whether 2024 will see more volatility or less, however, is a key question. For now, we can only wait for answers.
