The Zacks Film and Television Production and Distribution industry comprises companies involved in film and TV production, distribution and exhibition. The main activities of the industry participants include production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services and other exhibitors.
The companies are heavily dependent on box-office performance of their films, both domestically and internationally, the number of film releases and ratings of TV shows.
Here are the three major themes in the industry:
- The need for investment in original content is on the rise to attract movie goers as well as streaming and on-demand video service providers like Netflix (NFLX - Free Report) . Factors such as binge viewing, increased Internet penetration and advancement in mobile, video, and wireless technologies have driven small-screen viewing. In order to keep pace with new consumption patterns, industry participants are turning to digital content distribution. Emergence of digital capabilities is making consumer data easily available to companies. With the use of AI tools, production houses are gaining a better understanding of user preference. This is helping them produce content that strikes a chord with viewers.
- Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises/brands. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies, primarily involved in distribution, are increasingly producing original and award-winning content to reduce licensing costs and dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.
- Exhibitors are turning to highly efficient and cost-effective technologies like laser-based projection systems to enhance image quality and the entire movie experience. Additionally, the use of technologies like motion seating, immersive audio systems and interactive movies among others is expected to enhance the viewing experience. Increasing adoption of AR and VR technologies bodes well for industry participants. However, evolution of alternative motion picture distribution channels such as home video, pay-per-view, streaming services, video-on-demand, Internet and syndicated and broadcast television is hurting exhibitors.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Film and Television Production and Distribution industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #210, which places it in the bottom 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since Jul 31, 2019, estimates for the current year have widened from a loss of 13 cents to a loss of 18 cents.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Zacks Film and Television Production and Distribution industry has underperformed both the Zacks S&P 500 composite and its own sector in the past year.
The stocks in this industry have collectively lost 28.9% as against the S&P 500’s rise of 0.4%. The Zacks Consumer Discretionary sector has declined 3.5% over the same time frame.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 1.18X versus the S&P 500’s 3.20X and the sector’s 2.53X.
Over the past five years, the industry has traded as high as 1.70X and as low as 1.14X, recording a median of 1.33X, as the charts below show.
Price-to-Sales Ratio (TTM)
Slow market growth rate in the near term could weigh on the prospects of the Film and Television Production and Distribution industry. Nevertheless, rising demand for blockbuster movies and TV shows coupled with evolution of distribution platforms due to increased Internet penetration should continue to drive growth.
None of the stocks in the industry sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to in the near term.
Santa Monica, CA-based Lionsgate (LGF.A - Free Report) produces and distributes motion pictures for theatrical as well as straight-to-video release, and television programming. The Zacks Consensus Estimate for its fiscal 2020 earnings per share stayed at $1 over the past 30 days.
Price and Consensus: LGF.A
NY-based News Corporation (NWSA - Free Report) is a diversified media and information services conglomerate. The Zacks Consensus Estimate for its fiscal 2020 earnings per share has been steady at 40 cents over the past 30 days.
Price and Consensus: NWSA
Headquartered in Stamford, CT, World Wrestling Entertainment (WWE - Free Report) is a media and entertainment company with business in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.
The consensus mark for its current-year bottom line stayed put at 99 cents over the past 30 days.
Price and Consensus: WWE