Hollywood's Stock Crash One Year Later: A Long Climb Back Amid Cord-Cutting

6:00 AM 8/10/2016

by Paul Bond

Disney triggered a stock meltdown a year ago on ESPN's subscriber losses, but, with exceptions (Viacom, yikes!), studios chiefs are defying naysayers — and Wall Street's paying attention.

Illustration by: Jason Raish

It's the heartwarming comeback story of the summer: A year after a Walt Disney Co.-induced panic decimated shares of Hollywood conglomerates, stock prices for most companies have inched back up. The latest batch of financial results from the seven major studios have helped assuage investor fear that the business was in a long-term funk thanks to cord-cutting. One by one, CEOs pointed out that TV has been on an upswing. CBS blew past Wall Street expectations, while Time Warner and 21st Century Fox boasted of Donald Trump-fueled surges in viewership at news networks. Disney notched steady growth from its networks, too.

Another takeaway: Comcast said paid cable subscribers dipped by just 4,000 between April and August — the smallest loss in more than a decade. By contrast, Netflix added just 1.7 million subscribers during the same period, far short of its own forecast of 2.5 million. "The OTT services seem to be slowing," says Steven Birenberg of Northlake Capital Management. "It seems skinny bundles from established distributors in cable, satellite and telco are having more impact than cord-cutting."

This is a somewhat remarkable turnaround given the media meltdown triggered when Disney CEO Bob Iger said Aug. 4, 2015, that powerhouse ESPN was shedding subscribers. Analysts interpreted that to mean cable TV was imploding and punished media stocks with double-digit percentage drops across the board.

But now, analysts say Wall Street is judging each company on its own merits. "You have to show something clearly good for your stock to work — better HBO [numbers] at Time Warner, for example — or else you are in the penalty box," says Birenberg. THR takes a look at what the conglomerates have done to right their ships:

  • The Walt Disney Co.

    Disney has been knocking it out of the park since the year-ago swoon (outside of a few film flops like The BFG and Alice Through the Looking Glass). Star Wars: The Force Awakens, The Jungle Book, Finding Dory and Captain America: Civil War more than made up for the misses. Its Aug. 9 earnings report indicated another (undisclosed) number of subscribers lost at ESPN but it still eked out higher revenue on rising affiliate fees. On the digital front, Disney paid $1 billion for a one-third stake in BAMTech, Major League Baseball's digital unit that provides streaming video to HBO Now, the WWE Network, ABC/ESPN and CBS Sports. As part of the deal, Disney plans to launch a new ESPN-branded streaming service (but offered no specific details). The latest digital push comes after Disney invested $400 million in Vice Media in 2015, showing Iger's emphasis on positioning his networks for the OTT future.

  • Time Warner

    The company spent much of the past year beefing up its digital offerings, including revealing Aug. 3 that it purchased a 10 percent stake in Hulu for $583 million. TBS, TNT, CNN, Cartoon Network and more not only will make their shows available on-demand but also in real time when Hulu launches its live-TV service in 2017. Streaming service HBO Now already has led to a 2 percent revenue gain at the network. Warner Bros. was a laggard (it hasn't released a billion-dollar grosser since the first Hobbit in 2012), but execs believe Suicide Squad's box-office returns will help fix that.

  • Comcast

    The cable giant and its NBCUniversal segment have been doing well, except its movie business has fallen behind a record 2015 with titles like Warcraft and The Huntsman: Winter's War. NBCU is betting its deal to buy DreamWorks Animation for $3.8 billion will bolster the film side. The company also continued to invest in digital content during the year, sinking $200 million each into BuzzFeed and Vox. And NBCU CEO Steve Burke hailed strong upfront ad sales and told analysts he expects "a very profitable Olympics."

     

  • Viacom

    It's impossible to separate Viacom's financial performance from the drama in its boardroom, where founder Sumner Redstone and his allies are trying to oust CEO Philippe Dauman (who is pursuing a sale of a stake in Paramount). Viacom's TV ad and movie businesses are ailing, leading to a 27 percent drop in profits this quarter, but there are pockets of strength on the TV side, including improvements in international ratings and revenue. Though films like the latest Teenage Mutant Ninja Turtles disappointed, home entertainment sales have been a surprising boon.

  • CBS

    CEO Leslie Moonves can't stop talking about Star Trek. Hype for the new show developed specifically for VOD service CBS All Access has reached a fever pitch. Moonves told analysts July 28 that the show already was profitable before production began because Netflix had licensed it in foreign markets and other entities. In June, CBS unveiled Showtime OTT to compete with HBO Now, and Moonves said All Access and Showtime have about 1 million subscribers apiece.

     

  • 21st Century Fox

    CEO James Murdoch told analysts Aug. 3 that it was "clear we have work to do at the film studio," which will replace chief Jim Gianopulos with Stacey Snider next year. The company blamed weak earnings on costs associated with X-Men: Apocalypse, Independence Day: Resurgence and Ice Age: Collision Course. Though Fox News is dealing with widening fallout from the ouster of founder Roger Ailes, co-executive chairman Lachlan Murdoch said the network "is on track to have its highest-rated year ever."

  • Sony

    The biggest laggard of all the studios, Japan-based Sony booked another loss during the most recent quarter: a disastrous $103 million. That's before the money-losing Ghostbusters. Some woes are due to a strong yen, which blunted gains from The Angry Birds Movie and growing TV ad sales in India and South America. Sony Pictures should fare better in the second half of 2016 with The Magnificent Seven remake and Dan Brown's Inferno — though, as this year has shown, no movie is a sure thing.

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