2015 may well be remembered as the year cord-cutting millennials wreaked havoc on Wall Street. Investors had grown used to reaping the rewards of big entertainment stocks that regularly outpaced the broader market. But this past summer, those Hollywood stalwarts fell victim to a wave of near-panic selling on concerns that digital disruption would eviscerate their bottom lines.
Media giant Viacom reported weaker cable networks profit figures for its latest fiscal year, and Walt Disney and others acknowledged subscriber declines, fueling worries that consumers are cutting the cable cord and tapping the Internet for entertainment. The mad scramble on trading floors left the seven big entertainment conglomerates — Disney, Viacom, CBS Corp., Time Warner, 21st Century Fox, Sony Corp. and NBCUniversal owner Comcast — some $50 billion poorer this year.
The question is: Can Hollywood stage a big comeback? Some say not too soon if the industry is overly reliant on traditional TV business models and doesn’t keep step with the industry’s streaming future and the need to maximize audiences and financial results across platforms. Some on Wall Street have, for example, said Hollywood players must weigh the shorter-term benefits of added revenue from licensing TV shows to streaming services against the risk of losing pay TV subscribers longer-term.
“These stocks tend to trade in long positive/negative sentiment cycles,” Cowen analyst Doug Creutz tells The Hollywood Reporter. “I expect more generally underwhelming performance from the group.”
Others are also predicting more challenges ahead. “We entered 2015 with a negative bias on TV businesses, and the respective stocks, which only got worse as the year went on,” Sanford C. Bernstein analyst Todd Juenger said in an end-of-year research note. “TV revenues will eventually begin to decline — not decelerate, decline. Ouch.”
The trend of people canceling pay-TV subscriptions to embrace the likes of Netflix, Amazon, Hulu and other streaming video services has spooked investors. A recent industry report from Pew Research said 15 percent of Americans have already cut the cord – a number, some observers contend, might be too high.
But, any way you slice it, those fears caused a financial hangover in 2015. More than half of the top 49 media and entertainment stocks tracked by The Hollywood Reporter suffered year-over-year declines. And shares at four of Hollywood’s seven biggest conglomerates underperformed the broad Standard & Poor’s 500 stock index, which is set to finish the year roughly unchanged.
That’s been startling to Wall Street, which had come to rely on entertainment and media companies to provide steady returns. The sector has outperformed the broader market for years, even cashing in when major indices were roiled in 2011 by global economic concerns during the European debt crisis.
Analysts believe Wall Street has started to more thoroughly question the outlook for Hollywood giants’ cable network units, which make up a bulk of profits. Needham & Co. analyst Laura Martin said in a recent report that there are three issues investors are trying to assess after the recent market upheaval: “trends in revenue per content hour viewed, added costs, and valuation multiple risk.”
One big event that intensified investor worries came in early August when Disney CEO Bob Iger acknowledged some subscriber losses at sports juggernaut ESPN and the company lowered its financial expectations for its cable networks unit. In the most recent fiscal year, its “media networks” segment, which includes ESPN, the Disney Channel and other networks, accounted for more than half of the it’s $14.7 billion in operating income.
Though Iger argued that Nielsen’s estimate of a 3.2 million drop in subscribers for ESPN over the course of a year was overstated, Disney’s stock still declined more than 9 percent the following day — its worst single-day run in almost four years. Other entertainment stocks followed suit.
Entertainment stocks have recovered somewhat from the depths hit over the summer, but most are finishing 2015 below their year-end 2014 prices. Many analysts remain cautious at best.
Just as 2015 ended, Juenger called it “an awful year for media stocks,” and Jefferies analyst John Janedis wrote “there appears to be a buyers strike in the media sector.”
Investors also worry about what Apple might be up to with its Apple TV product, which is in the midst of a radical upgrade. “Apple’s possible TV streaming service could accelerate the pace of cord cutting,” wrote Nomura analyst Anthony DiClemente.
Naturally, all the angst about cutting the cord and defecting to online services benefited streaming-media giant Netflix, whose stock soared 144 percent in 2015 as of Tuesday’s market close. Fellow streamer Amazon.com, whose financials are driven by its core e-commerce business though, saw its stock rise 124 percent.
Stock markets will also be open for trading on Wednesday and a half day on Thursday, but that typically won’t change the year’s final tallies much.
Here’s how big entertainment companies and other sector players finished the year:
Viacom was the biggest loser among the major conglomerates as of Tuesday’s market close, as its stock closed in on a 44 percent drop this year amid ratings struggles at MTV, Comedy Central, Nickelodeon and elsewhere.
Disney neared a 14 percent jump, spurred by Star Wars: The Force Awakens but held back by the revelation ESPN lost 7 million subscribers in two years.
Sony — more than a year removed from a devastating computer hack — was up 21 percent.
Time Warner sunk 23 percent, after helping lead the sector in 2014 with a 30 percent gain.
21st Century Fox lost 28 percent amid worries about ratings at its Fox broadcast network and myriad cable channels — though the Fox News Channel remains a powerhouse.
Google restructured as a division of a company called Alphabet in 2015 and its stock was up 48 percent while rival Yahoo was down 33 percent as CEO Marissa Meyer struggles with a restructuring of her own.
In social media, Facebook rose 38 percent, but Twitter fell 37 percent as it struggles to grow amid increased competition from Snapchat and others.
Apple, the purveyor of iTunes, saw its stock gain less than 1 percent in 2015, though its value still towers over those companies laboring in traditional media. On Wednesday, Apple’s market capitalization was $602 billion, more than Disney, Time Warner, Comcast, Sony, Fox, Viacom and CBS — combined.
The stock at Comcast, a unique company because it combines cable distribution assets with NBCUniversal, was nearly unchanged.
Charter Communications, which is positioning itself as a consolidator, and Cablevision Systems, which agreed to be acquired by European telecom and cable giant Altice, were up 9 percent and 58 percent, respectively.