Recession fears could force Hollywood giants to change course

ONECEO of JPMorgan Chase jamie dimond Alert of the coming economic “storm”, most media and entertainment companies are still not covered. Dimon’s prediction, made at an analyst conference on June 1, came after inflation remained high, the war in Ukraine was putting pressure on global commodities and the Federal Reserve looked ready to chase interest rates. Although the United States created 390,000 jobs in May, according to the latest jobs report, this strength could strengthen the Federal Reserve’s plans to raise rates under control of inflation and thus possibly trigger a recession.

When asked about the potential for a downturn at recent analyst conferences, company executives largely denied the impact, with film chain Cinemark positioning itself as a recession-resilient industry and executives at video game publisher Take-Two Interactive recognizing the possibility. . A broader downturn in fun, but not one that has a big impact on your business. “We’ve seen over the years that people are cutting back on bigger expenses, vacations, more expensive entertainment, but in the end they still want to go out and do something,” said Cinemark’s CEO. be bet Said on May 24.

A recession is far from guaranteed as the Fed continues to muddle through the needle to reduce inflation. A colleague of Dimon JPMorgan David Kelly He told CNBC on June 3 that he thought there would be “soft access.”

And a stable outlook for personal finance could support consumer spending. While consumers are worried about the economy, according to a recent University of Michigan consumer sentiment survey, they are less worried about their own prospects, with less than a quarter expecting to find themselves in the worst financial position of the year.

But when Snap cut his earnings guide for the second quarter on May 23, and said that “the macroeconomy has deteriorated faster than we expected”, he was discussing the potential of a greater threat for companies based on digital advertising and beyond. The reaction to the Snap disclosure essentially led to a sharp drop in all tech and media stocks, although most recovered from these losses.

If trends continue, Wells Fargo analysts will see pressure from ad revenue from TV providers like Roku and Vizio Holding Corp., as well as ad-based streaming services like Paramount’s Pluto and Fox’s Tubi. The duration and depth of the downturn determines whether the pain hits longer-cycle areas of the ad market,” the analysts wrote in a May 23 report.

Supply chain problems can also reduce ad revenue for broadcasters and other networks, says the Moody’s analyst. Neil BegleyAs automakers in particular, they no longer need advertising to get inventory out the door.

By now, other media and entertainment companies are likely to anticipate what will happen before taking any action, says Begley. Hiring freezes could be the first sign of a recession, and slowdowns have already been reported on Snap, Netflix, Meta and others. But given the sheer number of jobs, Begley says he won’t worry until there’s a wider layoff. “I find it very unusual to think that we can keep strong internal values, keep strong jobs and see a recession,” added Beagle. “So a lot of people are making decisions.”

However, that shouldn’t stop media and entertainment executives from planning for this hypothetical storm, even if it ends with just a small storm. Inflationary pressure alone is enough to revise prices. “In times of plenty, there is less research when it comes to the individual performance of different types of media or different products, so to speak,” he says. Juana Arbanas, vice president and US telecommunications, media and entertainment industry leader at consultancy Deloitte. “But during a recession, it becomes a laser focus on the goals of the products and whether they meet them.”

“Media companies really need to offer choices and think about the constraints that consumers face during a recession, when they’re trying to fill up a gas tank or put a very expensive meal on the table right now,” added Arbanass. . “These discretionary costs are considered. This cannot be avoided.”

One of the side effects of any potential economic downturn could be more aggressive moves towards free ad-supported streaming (or “fast” services, in industry parlance). While the ad market will not remain in recession if consumers more often avoid subscription packages to save money, FAST listings can become a soft landing point and a place to keep consumers in a content ecosystem.

Fox Corporation CEO Lachlan MurdochSpeaking at a conference hosted by MoffettNathanson on May 18, he said that ad-supported streaming was “arguably a better deal than SVOD”.

Murdoch added: “Especially in times of potential recession or, of course, high inflation, free is a great proposition.” He pointed out that his company is in space through a tube.

Price-conscious consumers are likely to opt for more expensive cable deals in favor of lower-cost streaming services, Begley said. It could also mean users forgo more expensive subscription streaming services (puts Netflix in this category) at a lower cost in favor of others. But a recession can force change in an industry that, at least before the COVID-19 pandemic, didn’t want to embrace it. Now it may face the double whammy of a business model turnaround: a pandemic followed by a recession.

“We see a lot of signs about how the future is changing, so maybe a recession is what some media and entertainment companies really need to move forward and, frankly, diversify their products and offerings.” And serve customers where they are,” said Arbanas. “Whether it’s a recession or not, media companies need to think about future developments.”

The story first appeared in the June 8 issue of The Gossipify. Click here to subscribe.