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An Angry Look at the current state of Film and TV Stocks

  An Angry Look at the current state of Film and TV Stocks

The Zacks Film and Television Production and Distribution industry is undergoing a dramatic shift because of a spike in demand for digital entertainment. This surge, fueled by limited capacity and operational restrictions, has been a major catalyst for leading industry players like Warner Music Group WMG, News Corporation NWSA, Lions Gate Entertainment (LGF.A) and IMAX Corporation IMAX. All the while, companies have been focused on developing a superior product strategy and making shrewd capital investments. A steadied recovery in the advertising market and the resumption of production lines are positive indicators for these companies in the film and television production sector.

Examining The Industry

The Zacks Film and Television Production and Distribution industry encompasses businesses involved in film and TV production, distribution, and exhibition. The industry participants’ primary activities include the production and distribution of entertainment content to theaters, TV networks, video-on-demand platforms, streaming services, and other exhibitors. Industry front-runners like Imax specialize in entertainment technology and motion picture technologies. These companies produce and distribute motion pictures for theatrical and straight-to-video premieres as well as TV programming. Their success heavily relies on box-office performance, both domestically and internationally, the number of film releases and TV show ratings.

Key Trends in the Film and TV Production Industry

Over-the-Top Services Gain Prominence: Content creators are looking towards over-the-top services to distribute their content in order to capitalize on the popularity of their franchises and provide exclusive, differentiated content. Yet, streaming companies are countering this move by producing their own original and award-winning content to reduce licensing costs and reduce their reliance on third-party content providers.

Binge-Watching Drives Consumption: Deepening internet penetration, mobile, video and wireless technology advancement are all driving viewers towards binge-watching on small screens. To keep up with this changing consumer behavior, industry participants are turning to digital content distribution. However, increasing expenditure on content and sales & marketing is squeezing profitability due to tough competition from streaming players.

Technological Advancements Aid Prospects: Exhibitors are embracing highly efficient and cost-effective technologies like laser-based projection systems to enhance the entire movie experience. Alongside this, the use of technologies such as motion seating, immersive audio systems, and interactive movies stands to further elevate the viewing experience. The increasing adoption of AR and VR technologies also bodes well for industry participants.

Zacks Industry Rank Indicates Attractive 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 #62, which places it in the top 25% of more than 246 Zacks industries.

The sector’s Zacks Industry Rank, the average of the Zacks Rank of all the member stocks, shows encouraging near-term prospects. Historically, the top 50% of Zacks-ranked industries have outperformed the bottom 50% by more than a 2 to 1 margin.

Looking at the aggregate earnings estimate revisions, it seems that analysts are bullish about this group’s earnings growth potential.

How The Industry Stacks Up

The Zacks Film and Television Production and Distribution industry has outshone the Zacks S&P 500 and its own sector over the past year.

The industry’s stocks have collectively gained 27.8% compared to the S&P 500’s 27% and the Zacks Consumer Discretionary sector’s 19.4% increases in the same period.

One-Year Price Performance

Industry’s Current Valuation

The industry is currently trading at 1.95 times its trailing 12-month price-to-sales (P/S) ratio versus the S&P 500’s 3.99X and the sector’s 1.88X. It has traded as high as 2.49X and as low as 0.92X over the past five years, recording a median of 1.55X.

Trailing 12-Month Price-to-Sales (P/S) Ratio

4 Film & Television Stocks To Keep An Eye On

Warner Music Group: This Zacks Rank #2 (Buy) company is benefiting from sustained growth in Recorded Music licensing and Music Publishing synchronization revenues, including revenues from emerging streaming platforms. Additionally, Warner Music Group has wisely shifted its focus from relying solely on celebrity influence to targeting various elements of the value chain to expand its reach to a global audience of music enthusiasts through investments in media platforms like HipHopDX, IMGN, and Uproxx.

WMG’s partnership with TikTok is also proving advantageous. This multi-year agreement grants TikTok, the second-

Rock the World: Warner Music Group, IMAX, News Corporation, and Lions Gate Holdings

Warner Music Group Expands its Musical Empire

TikTok Music, CapCut, and TikTok’s Commercial Music Library are now licensed to the repertoire of Warner Recorded Music and Warner Chappell Music. In addition to this, Warner Music has also collaborated with Deezer on an artist-centric royalties model that rewards engaging music while demonetizing non-artist noise. As if that wasn’t impressive enough, Warner Music Canada and Warner Music India recently announced a collaboration to establish a new venture named 91 North Records, with a focus on supporting artists from South Asian backgrounds, and this initiative is already gaining momentum.

Despite challenges, Warner Music Group shares have managed to gain 0.3% year to date. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has remained steady at $1.30 per share over the past 30 days.

Price and Consensus: WMG

IMAX: You would think that’s all, but nope! IMAX has been killing it lately with the remarkable performance of blockbuster titles in 2023. Their solid lineup of movies has not only driven impressive box office collections but has also helped in expanding the subscriber base of its OTT platforms, especially in China, Japan, India, and South Korea. The company has been sealing deals left and right, with recent partnerships with leading multiplexes in North America, Vietnam, Mexico, and Morocco. Plus, there’s an upward trend in the installation of theater systems, and higher maintenance sales for IMAX. With a firm cash balance and a flexible business model, IMAX is all set to expand and increase its market share further.

Not to forget, IMAX recently expanded its partnership with PATHE CINEMAS to add five state-of-the-art IMAX with Laser systems in Europe, of which four will be in France, solidifying its stronghold in the entertainment industry.

The Zacks Consensus Estimate for IMAX’s 2023 earnings has moved down slightly by 4.2% to 86 cents per share over the past 30 days. IMAX shares have still managed to gain 2.5% year to date.

Price and Consensus: IMAX

News Corporation: If you think the first two were impressive, then News Corporation is no less. The company’s strategic efforts have paid off well with its ongoing digital transformation, investments in Digital Real Estate Services, Dow Jones, and Book Publishing segments. Its diversified revenue streams, thanks to strategic acquisitions and operational enhancement, have put it in a strong, forward-moving position. With recent acquisitions like the OPIS and Base Chemicals businesses, News Corporation is set to strengthen Dow Jones’ information services business even further.

With technology sharing across geographies and businesses, and bundled offerings of enriched content to consumers and advertising partners, the future looks promising for News Corporation. Their shares have gained a whopping 32.6% year to date, and the Zacks Consensus Estimate for the company’s fiscal 2024 earnings remains steady at 74 cents per share over the past 30 days.

Price and Consensus: NWSA

Lions Gate Holdings: Last but definitely not least, Lions Gate Holdings is also making waves with its strong pipeline of content on Starz’s platforms, boosting viewership and increasing its OTT platforms’ subscriber base. The company has a focused strategy of cautious spending on content and aims to prioritize profitability over chasing subscribers. Additionally, they are now exploring bundling and packaging opportunities to further secure their position in the market. Lions Gate has exciting plans in place, including the delay of splitting from Starz until early 2024, which will pave the way for both businesses to pursue distinct strategic and financial paths for better results. Starz is set to focus on the United States, U.K., and Canada, exiting Latin America before the end of the year.

Lionsgate has also made a significant acquisition, having obtained Entertainment One’s (eOne) TV and film operations from Hasbro for more than $500 million. This strategic move is expected to be a game-changer for the company, and as part of the deal, Lionsgate has acquired eOne’s scripted and unscripted TV production, all film production and related global distribution, a 6,500-plus title content library, as well as Hasbro’s interest in eOne’s Canadian film and TV business.

Lionsgate’s shares have returned an impressive 82.7% year to date, with the Zacks Consensus Estimate for the company’s fiscal 2024 earnings having increased by a whopping 17% to 55 cents per share over the past 30 days.

Price and Consensus: LGF.A

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