The first half of 2023 has not been kind to legacy media companies. Despite hopes that it would be a rebound year from a terrible 2022, where a slowdown in streaming subscribers cut valuations for Netflix, Disney, Warner Bros. Discovery, and Paramount Global roughly in half, these companies have struggled to keep up with the streaming giant. While Netflix has seen a surge in its share price over the past five months, outpacing the S&P 500, legacy players like Disney, Warner Bros. Discovery, Paramount Global, and Fox have struggled to get out of their own way.
Challenges Faced by Legacy Media Companies
Disney CEO Bob Iger has had a tumultuous time since returning to lead the company late last year. The company recently laid off 7,000 employees, with Chief Financial Officer Christine McCarthy stepping down last week. The company is also pulling programming from its streaming services to save money, and its animation business is in a major rut, with its latest Pixar movie, “Elemental,” recording the lowest opening weekend gross for the studio since the original “Toy Story” premiered in 1995. Shares have struggled in the past five months.
Similarly, Warner Bros. Discovery is laying off more employees after cutting thousands of jobs last year as it tries to boost free cash flow. CEO David Zaslav threw his weight behind CNN CEO Chris Licht for a year, only to fire him this month after a series of internal errors with employees and external mistakes with programming. The company’s movie, cable, and streaming businesses have also faced challenges. DC Studios’ co-chief James Gunn and Zaslav both trumpeted “The Flash” as one of the greatest superhero movies ever made, but the film flamed out at the box office amid mediocre reviews. This week, Zaslav held an emergency call with directors Steven Spielberg, Martin Scorsese, and Paul Thomas Anderson to convey his commitment to classic movies as he lays off employees at the cable network TCM. HBO Max is now Max, but that hasn’t stopped the service from removing programming for consumers.
Paramount Global cut its dividend last quarter as streaming losses peak this year, and a weak advertising market exacerbates a terminally ill cable network business. Wells Fargo released an analyst note Friday saying the bull case and the bear case for the company were the same: selling for parts. Warren Buffett, perhaps the most acclaimed investor in history, told CNBC that Paramount’s streaming offering “fundamentally is not that good of a business.”
Fox agreed to pay Dominion Voting Systems $787 million to avoid a trial over knowingly spreading election fraud lies. In April, the company fired Tucker Carlson, arguably its biggest star, and has seen viewership precipitously drop ever since. Shares haven’t really fallen in the past five months, in large part because Fox sold most of its media and entertainment assets to Disney in 2019.
While NBCUniversal has weathered the storm better than others, it is still shielded by its parent company Comcast, which gets its revenue from cable and wireless assets. It’s also taken advantage of missteps from other legacy media companies. MSNBC became the No. 1 cable news network this month for the first time in 120 weeks, dethroning Fox News amid coverage of former President Donald Trump’s federal indictment. Universal’s “The Super Mario Bros. Movie” is by far the biggest box office hit of the year, yet shares haven’t moved much.
The Impact of the Hollywood Writers’ Strike
All of this is happening with an extended Hollywood writers’ strike going on in the background, with no end in sight. The writers know the longer the strike lasts, the more pain will be inflicted on media companies, who will eventually run out of already-made scripted content. Zaslav recently gave a commencement address to Boston University and was drowned out by boos and chants of “pay your writers.” This week may bring even more bad news, as film and TV actors are set to join writers on strike unless they reach a deal with Hollywood studios by Friday.
The beneficiary of Hollywood work shutdowns will likely be YouTube, TikTok, and Netflix, which continues to churn out international content that is unaffected by the strike, says LightShed media analyst Rich Greenfield.
Legacy media may get a small reprieve if advertising jumps back as the 2024 U.S. presidential campaign heats up. But there’s still scant evidence investors will reward media companies for simply cutting costs. There’s currently no strong growth narrative for legacy media, and consolidation prospects are murky as regulators block media-adjacent deals such as Microsoft’s acquisition of Activision and Penguin Random House’s proposed purchase of Simon & Schuster.
The industry recently wrapped up its annual advertising gala in Cannes, France, where legacy media executives spent company dollars to make the trip to hang out on yachts and drink rosé. While the backdrop was as beautiful as ever, the landscape is bleak.
Leave a Reply