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Film and Television Industry's Near-Term Outlook Lacks Glitz

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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 industry’s four major themes:

  • Industry participants are bearing the brunt of coronavirus-induced macroeconomic woes and the heightened fears of a prolonged recession. Dwindling advertising revenues due to a sharp fall in advertising spending are a lingering concern for the industry participants. Moreover, closure of entire theater network and a decrease in theater system installations as a result of the plaguing pandemic is expected to dim prospects. Further, the economic uncertainty delayed theatrical distribution of several films, domestically and internationally.

 

  • Companies involved in content creation are looking to distribute content through over-the-top services to leverage the popularity of their franchises. With this, they are looking to provide exclusive content and a differentiated experience. However, streaming companies like Netflix (NFLX - Free Report) and Disney (DIS - Free Report) are increasingly producing original and award-winning feed to reduce licensing costs and excessive dependence on third-party content providers. This is likely to hurt industry participants’ content distribution strategy.

 

  • Moreover, factors such as binge watching, deepening Internet penetration and advancement in mobile, video, and wireless technologies got viewers glued to small screens. 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. However, increasing spending on content and sales & marketing is hurting profitability due to stiff competition from streamers like Netflix.

 

  • 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 #161, which places it in the bottom 36% 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 Jan 31, 2020, estimates for the current year have plunged 59.2%.

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 23.3% against the S&P 500’s rise of 6.7%. The Zacks Consumer Discretionary sector has declined 6.5% 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), a commonly used multiple for valuing Film and Television Production and Distribution stocks, the industry is currently trading at 0.81X compared with the S&P 500’s 3.35X and the sector’s 2.40X.

Over the past five years, the industry has traded as high as 2.04X and as low as 0.52X, recording a median of 1.43X as the charts below show.

Price-to-Sales Ratio (TTM)

 

 

Bottom Line

Slow market growth rate in the near term, primarily due to COVID-19 woes could weigh on the prospects of the Film and Television Production and Distribution industry. Nevertheless, pent-up demand for movies and TV shows coupled with the evolution of distribution platforms owing to heightened 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 a couple of stocks with a Zacks Rank #3 (Hold) that investors may want to retain in the near term.

New York-based News Corporation (NWSA - Free Report) is a diversified media and information services conglomerate. The Zacks Consensus Estimate for its fiscal 2020 loss has been steady at $1.57 per share over the past 30 days.

Price and Consensus: NWSA







New York-based ViacomCBS (VIAC - Free Report) is a media and entertainment company formed by the merger of Viacom and CBS. The Zacks Consensus Estimate for 2020 earnings has moved 0.8% north to $3.74 per share over the past 30 days.

Price and Consensus: VIAC



 

 



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ViacomCBS Inc. (VIAC) - free report >>

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Netflix, Inc. (NFLX) - free report >>

The Walt Disney Company (DIS) - free report >>