Media Stocks Hammered as Markets Plunge

New York Stock Exchange-FIRST USED ON AUGUST 14 2019-Getty-H 2019

A day after CBS said it would merge with Viacom, shares of both fell more than the broader markets on a bad day for Wall Street.

It was an inauspicious first day of trading for Viacom and CBS following their announcement they will merge to form a single company dubbed ViacomCBS, falling 8 percent and 9 percent, respectively,  as stocks — media shares, in particular — were hammered Wednesday on concerns the economy is headed for recession.

The S&P 500 dropped 3 percent, while 48 of the 50 media stocks tracked by The Hollywood Reporter fell, the exceptions being World Wrestling Entertainment, up 1 percent, and Helios and Matheson Analytics, the parent of MoviePass that is a less-than penny stock and is fighting for its mere survival.

Among the big losers were the theater chains, with Cinemark and Imax off 4 percent, while iPic Entertainment, which runs a string of theaters with luxurious seating and extravagant dining options, was down 24 percent, eight days after the company filed for Chapter 11 bankruptcy protection.

While movies are presumed "recession-proof" because Americans flock to theaters in hard times, the presumption is largely a myth, particularly when tickets can cost north of $10 apiece and when streaming media offers on-demand viewing of films and TV shows for less than $17 a month.

That said, the leader in premium streaming, Netflix, also dropped 4 percent on Wednesday, while Amazon dipped 3 percent, as did YouTube parent Alphabet. New-media giants Facebook and Twitter fell 5 percent and 4 percent, respectively, and Snap, which runs Snapchat, slipped 4 percent. Roku, a normally high-flying streaming TV company, also was down 4 percent.

The sell-off in stocks Wednesday followed an inversion of the yield curve, meaning rates paid on short-term Treasury notes rose above long-term notes, suggesting that investors have little confidence in the economy right now. 

The stock-market swoon caught the attention of President Donald Trump, who, in a tweet, blamed the Federal Reserve for raising interest rates. "CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!" the president tweeted.

In another tweet, Trump said: "Our problem is with the Fed. Raised too much & too fast. Now too slow to cut." He also called Federal Reserve chairman Jay Powell "clueless."

Among the industry giants, Disney, Comcast and Sony fell 3 percent, Fox was off 4 percent and WarnerMedia parent AT&T dipped a relatively mild 2 percent.

"I'm not sure any of the (media) stocks will hold up in a recession, but the businesses will be fine," said Michael Pachter of Wedbush. "There are a lot of different recession scenarios. This one is trade driven — prices going up — rather than jobs driven."

He added: "People tend to consume more entertainment in both scenarios, but they consume it differently. We could see people cutting the cord more rapidly in a jobs recession and adopting streaming services as a lower-cost alternative — good for some media."

Local TV giant Sinclair Broadcast Group plunged 9 percent Wednesday, but Dish Network held its own, falling 2 percent. In video-game stocks, Electronic Arts declined 3 percent, Activision Blizzard dropped 6 percent and Take-Two Interactive Software was down just 1 percent.

"Media stocks reflect people's attitudes toward spending money," said analyst Jimmy Schaeffler of the Carmel Group. "That is true both in their receptivity to advertising, and to buying more subscriptions, or even maintaining the subscriptions they have. When we have a recession, I would not want a portfolio heavy with entertainment, telecom and media."