Analyst Tim Nollen from Macquarie recently expressed skepticism regarding the value of leading Hollywood stocks, emphasizing that ad revenue stagnation and accelerating cord-cutting are impacting the sector negatively. Despite the downturn, he pointed out that Disney (NYSE:DIS) and Comcast are the only companies showing potential for long-term earnings growth due to their direct-to-consumer models. This assessment follows a detailed review of Hollywood’s latest quarterly earnings, underlining the struggle faced by the industry.
Hollywood stocks have been under scrutiny for a while. Earlier reports showed that the decline in pay TV subscribers has been a consistent trend, exacerbating concerns over the traditional TV model’s sustainability. Additionally, previous analyses highlighted similar issues with linear TV affiliate revenues and the intensified cord-cutting, which remain critical challenges. The industry’s ongoing transformation continues to bring fluctuating fortunes, as seen in recent quarters.
Ad Revenue and Cord Cutting Issues
Nollen highlighted that ad revenue has not improved when compared to the first quarter, and the trend of cord-cutting has worsened. He said,
“Ad revenue did not improve versus the first quarter, and cord-cutting intensified.”
This situation, he noted, contributed to a year-over-year decline of 10.9% in pay TV subscribers across publicly traded cable, satellite, and telecom operators.
The analyst also reported that linear TV affiliate revenues have deteriorated to -3.9% year-over-year at major network groups. This decline underscores the increasing challenges facing traditional TV networks in retaining their subscriber base and maintaining revenue streams amid shifting consumer preferences.
Long-Term Earnings Growth Potential
Despite the grim outlook, Nollen pointed out that Disney and Comcast still demonstrate potential for long-term earnings growth. He stated,
“Only Disney and Comcast offer long-term earnings growth thanks to direct-to-consumer.”
These companies’ strategies in embracing direct-to-consumer models have positioned them better to navigate the industry’s broader challenges.
In the context of the broader industry, these two companies stand out for their efforts to adapt to changing market conditions. Their investment in direct-to-consumer platforms has allowed them to build a more sustainable revenue stream compared to their peers who still rely heavily on traditional models.
The Hollywood stocks scenario paints a challenging landscape where traditional revenue models face downward pressure. However, companies like Disney and Comcast, with their strategic pivot to direct-to-consumer services, illustrate a pathway for potential growth. Investors and industry stakeholders must keenly observe these evolving dynamics and adapt to the ongoing shifts in consumer behavior and market trends. Understanding and capitalizing on these changes will be crucial for long-term success in the entertainment industry.
