This article was written by Mason McCaffrey, Market Analyst at Bloomberg LP.
With the launch of the WGA show in May, US nightly television was the first part of the entertainment industry to be affected. As the show continues into its third month, the fall season’s scripted TV shows and new movies are starting to gain traction. Traditional media companies continue to rely on Live Sports broadcasts, reality TV shows, and pre-recorded content for delivery. In contrast, advertising options can lean on the background to weather the storm, similar to their Covid-19 response. Estimates of the broker are writing two different notes depending on whether the move is to drive the company’s money. Although the negotiating parties remain optimistic, the possibility of a prolonged strike remains. Actions that the Directors Guild of America faced with a new union that offered wage increases, better compensation from social media platforms and other rights protections may not mean a deal similar to the WGA strike and the recent SAG boycott.
The initial impact of the strike was felt disproportionately across the industry. Informal streaming services that don’t have a deep legacy, as well as traditional cable providers that rely on ad revenue and licensing, could be at a disadvantage compared to a streaming giant like Netflix. Along with lawsuits and cord-cutting, financial problems are beginning to be felt by the media industry. Fox may see a YoY decline in Ad Revenue for the period ending 12/31, the first in 5 years. Using MODL
Industry trends show that the first half of the year tends to see a decline in Ad sales while the second half sees growth. The lack of content that drew viewers to their seats in the early months has yet to shake the confidence of investors, while major media companies have seen their prices rise since interest rates began.
The future of advertising revenue
Even with the storm of competition growing and battered, Netflix seems undaunted by the storm so far. The president of Netflix, Ted Sarandos, in the 2023 Q1 earnings call, has previously said that their sufficient return on assets will allow the company to overcome the challenges ahead. Although these ideas came as the author was preparing to strike, this is still true with the SAG strike threatening to hold back another release. At Gabelli’s 15th annual Media & Entertainment conference in June, Naveem Chopra, EVP of Paramount Global, said that ‘the commercial market has not changed much in the last few weeks just to repeat a little bit of what we have said before.[…]’ showing the short-term strength of Ad Revenues for these major companies. Similar sentiments were expressed by Disney in their early acquisitions, even though the strike was ongoing.
As advertising strengthens its presence in the entertainment industry, companies must create value by operating efficiently and finding new ways to generate revenue. As cord cutting continues, advertisers seem to be buying less ad time. With Paramount+, Disney+, Hulu, and SVOD companies offering ad segments, these companies are poised to attract advertisers who have been spending less on TV advertising. Bloomberg Terminal allows analysts to see the decline in ad time for TV companies over the past five years. The long-term increase may continue for the companies in the group and increasing the cost of production will reduce the overall profit from the marketer.
Estimates of advertising budgets for leading companies are increasing to reflect increased support from advertisers. This paradigm shift can be seen at KPIC
As the WGA strike continues, the Screen Actors Guild has joined the fray as SAG-AFTRA negotiations with the studios have not come to an agreement. Cord cutters continue to find alternative ways to view software, and headwind brokers will change their thinking as companies provide updates and comments on developments. Promote services such as MODL